If you are looking to get yourself involved in real estate investments, there are a lot of questions an investor needs to ask to find a good deal in real estate. But you see, that’s just it. To be successful in the real estate market, it is completely dependent on finding a “good deal.” So why ask if now is a good time to invest in real estate? In this article, I will explain why investing in real estate is a great move, the uniqueness of the real estate market historically, and help you understand the questions you should be asking yourself when participating in real estate.
Tax Advantages
Below are the performances of some of the most popular trading indices at some of their most highlightable points in time between the start of the COVID pandemic and end of November 2022.
Indices | Start Value | End Value | Gain/Loss |
DJIA (Feb to Mar 2020) | 29,398.08 | 19,173.98 | -34.8% (Loss Over 1 Month) |
DJIA (Feb to Nov 2020) | 29,398.08 | 29,910.37 | +1.7% (Gain Over 9 Months) |
DJIA (Feb to Nov 2022) | 29,398.08 | 32,403.22 | +10.2% (Gain Over 33 Months) |
DJIA (Dec 2021 to Sept 2022) | 36,338.30 | 28,725.51 | -20.9% (Loss Over 10 Months) |
DJIA (Dec 2021 to Nov 2022) | 36,338.30 | 32,403.22 | -10.8% (Loss Over 12 Months) |
BITCOIN (Nov 2021 – Nov 2022) | 66,935.89 | 17,147.64 | -74.3% (Loss Over 12 Months) |
On average, if you were making your investment trades between the COVID pandemic and now, you would have lost 10.92% of your investment value in just under 3 years.
And it’s not so good for trading in digital currencies as of now because not many have made a recovery since November 2021. BITCOIN being one of the most notable. If you had remained committed to digital currencies between November 2021; it’s highest point, and today, confident that they would have been able to backpedal their downward trend, you would have lost 74.3% of your invested principal.
Admittedly, even various parts of real estate took a hit in the economy’s downturn since late 2021. However, our team observed that deals on multifamily properties did not feel the impact of this downtrend until around April 2022 as the purchasing power of potential investors began drying and property sellers were forced to slowly come down on asking prices. But the change was much slower than what you would find on the trading markets, high value deals were still being closed, and newer opportunities for investment buyers were being created. All market driven.
Fundamental Truth
Fundamentally, what makes real estate investing, more specifically multifamily investing, so great is that it is deal specific, returns are tied to economies of scale, it has low volatility, and has tremendous side benefits besides recognizing your gains; such as personal tax liability reduction, periodic cash flow, potential early return of a portion of your invested principal, and faster appreciation on your wealth.
Questions to Ask
If you are unsure what questions to ask when vetting a potential investment property, I have highlighted some below to shed some
light on what to consider.
As an investor, it is your responsiblity to perform your due diligence, vetting the property and just as importantly the Sponsor team
that will manage the property. And these are questions that come before asking about how often you will receive your distribution.
Because if the team and the strategy on that property makes sense, then you will have a much higher chance of receiving your distributions
and the advertised returns.
Questions to Ask on a Macro-Level, Before Identifying a Property
What are current federal and mortgage interest rates?
What is the current trend of interest rates?
What investing strategies do I believe other investors are making to acquire properties in the current market that would make sense?
Can I identify what areas would be considered primary vs sub-markets
Questions to Ask on a micro-level, Vetting a Property to Invest your Capital In
Where is the property located?
What is the average and median income in the local zip code? What do this numbers look like at 1 and 5 miles radius’?
Where are the jobs and industry districts located around the property? What types? Does it fit with the type of tenant base living on the property?
What are the rent comps?
What does the sponsor team’s financing look like?
What is the team’s strategy to appreciate the value of the property upon exit?
What percentage of the property has already been renovated?
Are there any value-add projects? What is the budget and cost/sqft of such value-add projects?
What are current tenant reviews on the property?
What is current occupancy rate?
What is the sponsor team’s approach to property management? (This is key to reaching and maintaining 90%+ rent occupany)
Do they have plans to raise rent?
In Conclusion
In today’s market it can feel like being on a roller coaster, trying your best to judge when to get on and off that ride, timing the market just right so as to prevent the loss of wealth and maximize your gains.
But regardless of what market phase you find yourself in, there is always opportunities to be made somewhere at someplace. You just got to find and vet those opportunities.
Multifamily investment properties have proven themselves to be the most resilient form of investment over the past several decades of preserving and growing wealth. But knowing what to questions to ask will go a long way making a deal a good deal in the current market you find yourself in.
