Navigating Market Cycles in Real Estate Investing
Real estate investing can be a lucrative way to build wealth over time, but it’s important tounderstand that the market is cyclical. Market cycles are periods of expansion and contraction that have a significant impact on the value of real estate investments. As multifamily experts, in Apex, we have seen firsthand how market cycles can impact real estate investments so here are our understandings of these cycles to succeed in this industry. The first step to navigating market cycles is to understand market trends. Real estate markets are influenced by a variety of factors, including economic conditions, politics, population growth, and interest rates. By keeping an eye on these trends, investors can gain a better understanding of where the market is headed and adjust their investment strategy accordingly. During periods of expansion, real estate values tend to rise, and investors may be able to buy properties at a lower price and sell them at a higher price later. However, during periods of contraction, real estate values tend to fall, and investors may need to hold onto their propertiesfor longer periods of time to see a return on their investment. Another important consideration when navigating market cycles is developing a long-term investment strategy. This means thinking about how market cycles may impact your investments over the long term and developing a strategy that takes these cycles into account because it helps you plan for the long-term and avoid making impulsive investment decisions. By taking a long- term view, you can identify potential risks and opportunities and develop a strategy that maximizes your returns while minimizing your risk. This may involve diversifying your investments across different market cycles, investing in stable multifamily properties with long-term leases, and having a clear exit strategy in place in case of a downturn. For example, during periods of expansion, investors may want to focus on buying properties that have the potential for long-term appreciation. These properties may be more expensive upfront, but they may also provide a greater return on investment over time. Conversely, during periods of contraction, investors may want to focus on buying properties that generate steady cash flow, as these properties may be more stable during a downturn. Ultimately, the key to navigating market cycles in real estate investing is to stay informed and be adaptable. By keeping an eye on market trends and developing a long-term investment strategy, investors can minimize their risk and maximize their returns over time. At APEX we consciously keep track on the variables and develop strategies to maximize value over time.
Agency Loans and Bridge Loans
Agency loans and bridge loans are two of the most common types of financing used for multifamily projects in the United States. Agency loans are provided by government-sponsored enterprises Fannie Mae and Freddie Mac, while bridge loans can be obtained from a variety of lenders, including banks, financial institutions, and private lenders. Agency LoanPerhaps you have heard of Fannie Mae and Freddie Mac before. Whether you have already started your journey as a commercial real estate investor or are planning to, it is important to be familiar with these entities and their offerings. Fannie Mae and Freddie Mac are government sponsored agencies created to provide liquidity to the U.S mortgage market.These agencies (Hence the name “Agency loan”) play a major role in the financing of multifamily projects. These loans provide fixed interest rates, typically spanning from 5 to 30 years, and are often more competitively priced compared to bridge loans or other commercial loan options. Since this type of debt is issued in fixed rate it is a great option in times of rising interest rates, because the cashflows associated to debt service are easy to predict from the get-go. Bridge LoanUnlike Agency Loans, there are several players in the commercial real estate lending markets, including banks, financial entities and private lenders that serve this market. These loans are short term debt obligations, usually ranging from 2 to 36 months and are commonly issued with floating interest rates. Bridge loans interest rates are higher than Agency Loan. Nonetheless they are a great alternative in times of decreasing federal interest rates. The bigger the decline in federal interest rates the bigger the decline in monthly debt payments.Determining the best option between Agency Loans and bridge loans depends on various factors such as of the market, the nature of the project and borrower’s fundamentals. The following guide provides insights that will help you understand what is the best option under different scenarios. Agency Bridge Rising Federal Interest Rates X Property Condition Will Require Heavy Renovation Work X Low Occupancy and Vacancy Indicators X Borrower Has Great Credit Score and Financials X Borrower has a proven track record in similar projects X Borrower is planning to refinance the property X Borrower is planning to engage in a supplemental loan X As you might have concluded, a real-life situation involves a mix of factors instead of isolated scenarios. That is why commercial real estate investment firms, like Apex, often have a team of experts dedicated to combining this variable in order to determine the alternative that maximizes investor cash flows.