The Current Wealth Creation Opportunity

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There are several opportunities for wealth creation that exist in the current multifamily real estate market. First, there is an ongoing demand for rental properties, particularly in growing cities. As more people move to these areas, the demand for rental housing is likely to increase.

Another opportunity is the availability of financing options, including low interest rates and a variety of loan programs. This makes it easier for investors to acquire properties and finance renovations or upgrades that can increase the value of their investment.

The market is always shifting, literally from one month to another.

Not even a year ago, multifamily reached a high point in prices and it appears that multifamily is on sale. There are deep discounts going on. What's going on in the market right now is a wealth creation opportunity.

There are a lot of elusive deals out there. We're still seeing a big gap between what people are willing to sell for and what you can buy for. There are some crazy deals right now in the market – deals that are on a 30% discount. Things that were under contract at the beginning of the year for 35 million, you can pick up for 25 million right now.

It's an exciting time.

As we're seeing this huge reduction in price, it's a great time to get in and buy multifamily property.

So why is there such a drop-off in price? And why do we think it might go back to where it was?

If you look at what happened in 2022, interest rates rose at the fastest rate in 40 years. That shocked all the banks. It shocked the market. Every time you turned around, there was a 75 percent increase. That was scary. The only way to offset it was to lower the price so that things could trade. That's the main reason for the price reduction.  There has also been an increase in construction cost on value-add properties.

Things are cooling down a bit; they're starting to shift back down on the Treasury side. But you have this window right now where prices just dropped off a cliff for a minute. So this is the time to jump in.

Maybe the interest rates are going to continue to go up and there will be further discounts. Maybe they're going to come back down and prices will adjust back up the other way. We don't really know, but what we know right now is, it's hot.

Right now, you're in a really good spot.

Why do we think this is a temporary blip on the radar? People could argue, as long as interest rates stay where they are, which they're likely to stay, why would prices ever go up?

They will only go up if the Fed lowers rates. You should see further decline because people that have the short term loans are going to have to re-up those loans. Maybe they don't qualify for the extension because they can't operate it properly, or maybe they can't afford the cap payment. You will see those deals pop off, and the longer this goes on, if interest rates go down, those people might get saved. If they go up then even more deal flow will come come through.

A lot of the bridge loans that started out a couple of years ago are not coming due yet, so you're not seeing a lot of chaos yet, but it's around the corner. There's a higher likelihood that things stay where they are or even go higher.

Another factor was the rising interest rate – the lowering of the loan proceeds from lenders because of the rate with which interest rates came up.  The Loan to Value went from 75% to 55% overnight. Now no one can buy any kind of deal anymore. Your restrictions are much lower.

If rates were to stay the same and they stabilized, wouldn't LTV slowly start to normalize backup to 75% at a higher interest rate? Of course, but this LTV that crushed a lot of the prices is directly correlated to the interest rate because they have a debt service coverage ratio requirement on all deals.

That's why they came down, but it was also a shock to a lot of these things. So yes, what will probably happen is, even if they stay the same, they may bring the leverage back up a bit and lower the DSR requirements or something along those lines.

Overall, multifamily real estate investing can offer a stable and profitable long-term investment opportunity for those who are willing to do their due diligence, carefully analyze potential properties, and stay on top of market trends and opportunities.