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Author: Oliver Loutsenko

  • NYC’s Real Estate Market Outlook as the CDC’s Moratorium on Eviction Expires

    When the CDC (Center for Disease Control and Prevention) last extended the eviction moratorium a third time, due to the COVID-19 pandemic, from the end of June 2021 to the end of July 2021, they were clear that would be the final extension. Republicans opposing another extension of the eviction moratorium cited the recent 5-4 decision by the Supreme Court, which suggested legislative approval would be required. Leading Democrats responded with brief arguments that the eviction ban needs to be extended, as Congress has only distributed $3B out of the $46.5B in approved rental relief. According to a study by the Aspen Institute, more than 15 million people in 6.5 million US households are currently behind on rental payments. The same study estimates the collective cost to landlords to this point has been over $20B. Landlord groups previously came together in an unsuccessful attempt to end the moratorium earlier, arguing the CDC overstepped their legal authority, but they were rejected by the Supreme Court’s ruling then. Determined not to give up, the National Apartment Association (NAA), with 82,600 members that collectively manage more than 9.7 million rental units, sued the U.S. government on Tuesday July 27th, seeking billions of dollars in unpaid rent due to the moratorium (Shepardson, Reuters).

    While opportunities for a federal extension essentially ended when the House of Representatives adjourned Friday July 30th, effectively giving up, there are states that have already extended the eviction ban. New York and California top the list, with the two states passing bans on evictions until August 31st and September 30th, respectively (Shepardson, Reuters). Keep in mind, the justification for the CDC initially issuing this policy was due to the federal government’s direction to self-quarantine during the worst of the COVID-19 pandemic. It was not primarily over economic concerns, as that would be outside the CDC’s purview. Regardless, assuming nothing changes from this point, New Yorker’s in financial crisis will only have one additional month of safe haven before they too will have to deal with the reality of federal protections stemming from the COVID-19 pandemic ending.

    What does the looming end of the eviction moratorium mean for NYC’s real estate market? Firstly, as predicted by several well-known real estate attorneys, there will be a huge backlog of cases in Housing Court. Prior to the pandemic, during routine economic and geopolitical times, evictions could take anywhere from three to six months – considered typical – or sometimes drag out for years on end (Hogan, NY Post). The backlog will in turn lead to some landlords, who have certainly been financially struggling throughout this ordeal, being forced into foreclosure or given no choice but to sell cheap to cash buyers. Landlords need revenue in order to run a building. They have expenses, such as providing heat, paying personnel and staff, building supers and contractors, as well as real estate taxes to boot.

    If you’re one of the savvy, fortunate investors who came out of the pandemic with a solid amount of disposable income set aside for your portfolio’s growth, a direct real estate investing approach could prove to be extremely rewarding. REIGs (Real Estate Investment Groups) can also become a powerful force in NYC’s residential real estate market in particular, once the moratorium ends. This vehicle gives real estate investors the ability to join together and pool both their money and knowledge to invest in multiple residential real estate properties. Similarly, members of the REIG would share the costs associated with property management. They could also benefit from diversification and economies of scale, which are additional benefits to joining a REIG. The bottom line for NYC is once the eviction moratorium does end, you’ll see solid opportunities for a long-term residential real estate investment. As is usually the case with financial markets during times of uncertainty, there’s definitely opportunity, but with that opportunity comes inherent market risk.

  • Investing in a REIT: The Pros and Cons

    One of the most notable investment opportunities available to investors looking to enter the real estate market is a REIT (Real Estate Investment Trust). A REIT is a publicly traded company that owns, operates, or finances income-producing properties and real estate investors are able to purchase shares in them (Ranchers, Investopedia). This contrasts to direct real estate investment, which is typically considered purchasing a property, then either managing it, renovating it, renting it out, flipping it, etc. The primary difference centers around whether you’d prefer a hands-on approach to real estate investing. REITs give you the opportunity to diversify your portfolio and more specifically, your investment portfolio within the real estate segment.

    A typical REIT has publicly traded shares that can be purchased on a national exchange, however they often fund underlying properties directly. Such companies, known as Equity REITs, are typically involved in the construction of office buildings, or the management of apartments, hotels, etc. Conversely, Mortgage REITs may purchase asset-backed securities or make direct real estate loans. REITs must register with the SEC, and they’re subject to various regulations, most notably the requirement to pay 90% of the company’s taxable income in the form of shareholder dividends each year. Contrary to popular belief, there are also REITs that are not traded on an exchange, but they likely come with hefty fees, and far more limited liquidity options. Concisely, perhaps the most important takeaway from a REIT is that it provides access to a diversified pool of real estate investments that are essentially impossible for the typical investor, even a large-scale investor, to create on their own.

    The Pros of a REIT

    The biggest pro commonly referred to is a REIT gives a typical retail investor – who may not have enough liquid capital – to take a diversified approach to the real estate market. REITs may also be beneficial to investors that don’t have the expertise yet to assess the risks of a real estate investment. These investors may very well prefer a pooled approach to real estate. In case those cases, a REIT would be a great alternative to direct real estate investing, which would require a lot more experience and intricate knowledge of the real estate market. Investors not only get access to an income-producing product, but additionally to one that’s physically managed by a professional real estate market expert.

    Equity REITs, which are traded on national exchanges, have low capital requirements because investors are only buying a share of the trust. Since it’s traded on a public equity market, an investor can buy and sell these assets with relatively few liquidity constraints.

    Additionally, as we all know, investors are always cognizant of their tax rate, especially from capital gains investments. REIT investors are taxed more favorably on income from the investment because income is not typically taxed at a corporate level, due to the income from these pooled real estate assets being “passed through” to the investor. Contrary to a large corporation where all income is taxed before distributing dividends, REIT investors receive profits as ordinary income.

    Lastly, real estate investors may not always have a bullish position on the overall market and even more so on a specific project or space. Taking a short position on a real estate project, without utilizing an Equity REIT, would require considerable savvy, as well as most likely the use of expensive derivative products. In contrast, REITs allow market speculators to go long or short, depending on their market view.

    The Cons of a REIT

    As this section will conclude, there are definitely more pros than cons to investing in a REIT. As is often the case, one of the primary cons is the opposite of one of the main pros. Since REITs are a massive pool of assets, this makes understanding the underlying risk quite difficult to an average investor in the real estate market. Though the properties are thought to be managed by seasoned professionals, they aren’t exempt from making errors on occasion. The average investor may overlook an essential aspect of the REIT because they’re working under the assumption it’s managed by real estate professionals, or they may struggle to gain a comprehensive understand of the portfolio beyond simple summary statistics.

    Additionally, while this ties in partially with the investor’s preference of direct vs. passive real estate investing strategies, REITs can also be more expensive than a direct lending approach. As an example, fees charged for a REIT managers’ salaries can eat into the potential income gained from the investment. Savvy and wealthy investors with enough capital to diversify could definitely put themselves in a position to achieve higher returns by managing assets themselves. The issue becomes what constitutes “enough”. Should a single investor choose the path of diversification within the direct real estate investment market, “enough” would likely mean tens, if not hundreds of millions. Even so, they would have to incur management costs and while they may be lower than a REIT managers’ salary, the risk incurred would be unlikely to offset the potential capital gains benefit. This is why REITs are far more common and much more likely to be a better tool for investors who are seeking to diversify their portfolio, as opposed to diversifying their real estate portfolio with expensive and frequently reoccurring direct property investments.

  • How the Green New Deal Would Impact Real Estate Investors

    Depending on your views on climate change, the Green New Deal framework will either conjure up enthusiasm, anxiety, or perhaps a combination of the two. The proposed bill, which has since been explained as a framework towards what we ought to work towards, calls for “maximum energy efficiency”. Based on scientific research, which concludes climate change is imminent and potentially disastrous, the proposal aims for net-zero emissions in the United States by 2050. As part of the plan to get there, this means every building in the country would need to be upgraded for maximal energy efficiency, water efficiency, safety, affordability, comfort, and durability.

    As of the start of 2020, approximately 40% of the United States’ carbon monoxide emissions come from either commercial or residential real estate buildings (Neiditch, Forbes). Many of the political proponents of the Green New Deal were pushing it behind the idea that up to $1 trillion of infrastructure and coastal real estate could be damaged by global warming by 2050. According to the Energy Information Administration (EIA), currently, there are approximately 5.6 million commercial real estate buildings in the United States. Specifically in New York City, as part of an ongoing effort to combat climate change, legislation was passed to force buildings that are larger than 25,000 square feet to make energy efficient alterations. The legislation mandates cutting down greenhouse gas emissions 40% by 2030 and 80% by 2050. While the parameters for smaller, residential buildings aren’t as explicit, it’s estimated 95 million homes will be impacted and the cost to owners will be in excess of $400 billion (Neiditch, Forbes).

    While the Green New Deal did not come close to passing as it was originally written and there is unlikely to be sweeping legislation on a national level to overhaul climate change, many cities and states are finding a balance between clean air and economic productivity. Unfortunately, a lot of this conversation tends to be intertwined with politics, but the reality is a rural area in Kentucky (as an example) is not going to have the same availability of economic or human capital resources as a metropolis, like New York or Los Angeles. The lack of availability of these resources puts constraints on the ability of certain regions to advance their technological capabilities, thereby making the real estate investment opportunities unattractive to potential investors.

    Though preparations to meet the 2030 and 2050 targets have begun, there are some more immediate upgrades property owners can make that aren’t as long-term oriented, including switching out lightbulbs for “smart” lighting, upgrading HVAC systems, installing remote-controlled window shades, painting roofs with light-reflecting paint, planting trees, and installing photovoltaics. Additionally, preparation for weatherization is key to having a more energy efficient property. Windows, doors, and insulation can all be switched out and there is legislation to include different types of incentives for property owners to make these changes. Upgrading electric and plumbing systems, as well as installing solar panels can make homes more marketable, considering these changes are becoming more prevalent to the point of necessity. Finally, the Green New Deal framework focuses heavily on “green spaces” – or lawns – that cover more than 40 million acres of land in the United States. Lawns limit biodiversity and encourage pesticide usage and emissions from lawnmowers. The Green New Deal supporters encourage the conversion of these spaces to victory gardens and the expansion of green landscape architecture practices. An example of this is xeriscaping, or sustainable, easy-to-maintain landscaping first used in arid regions, which uses native plants and limits turf areas. This can reduce outdoor water use by as much as 50%, saving water as well as the environment (Neiditch, Forbes).

    So, what does the ambitious Green New Deal framework and the implications it will have on commercial and residential real estate mean for investors? Firstly, investors should focus on high-tech, climate-resilient opportunities in the real estate market. Secondly, residential real estate owners who are not under pressure from legislators to make climate change friendly adjustments to their properties should do so anyway, otherwise they will be far less attractive to prospective investors. Finally, commercial real estate investors, who are under pressure to begin implementing climate change measures mandated by signed legislation, are going to face major hurdles with regards to cost cutting. This legislation poses further challenges to commercial real estate investors, who are already in a difficult position coming out of the pandemic, in addition to facing the necessity to transform their assets to handle the push towards digital transformation. One thing is for sure: the conversation will continue. Being prepared for change is the best way to not only save the environment, but your long-term financial stability as well.

  • CRE PropTech: How Will it be Affected by the Aftermath of COVID-19

    COVID-19 will forever change the landscape of CRE (Commercial Real Estate), especially for firms who are used to operating almost exclusively in a brick and mortar, office environment. The aftermath of COVID-19 will almost undoubtedly include more “smart” CRE. To put it another way, as software like Zoom has become a household name – whereas prior to COVID-19 it was largely known to the white-collar working class – you can expect firms to invest less in physical property. Consequently, the data shows that in every sector, at least in the short-term, PropTech investment has slowed down (Abuelsamid, Forbes).

    Intuitively, successful long-term investors tend to be heavily data driven, which has been a big reason for the slowdown in PropTech. Investors within the real estate sector are exercising caution with regards to their portfolios, as well as towards new deals for CRE projects. A great deal of this is attributed to the initial concept of this piece (which Forbes agrees with): corporations and startup firms alike are showing an increased interest in technology, which allowed them to work “smart” (i.e. Zoom) despite the pandemic (Abuelsamid, Forbes). With decreased overhead being a large incentive for startups and pressure from shareholders to cut costs being a large incentive for big corporations, many are realizing that the way they were forced to do business is perhaps a more efficient way than they were prior to the COVID-19 pandemic.

    With that being said, as we mentioned in a previous piece, PropTech is still a relatively new field to most investors. The CRE investing subsector of PropTech is even smaller, so there’s definitely still plenty of opportunity for successful PropTech investment vehicles. Even with the current data showing there’s slowed growth in the PropTech CRE subsector, that’s not to say you shouldn’t keep an eye out for solid investment opportunities, as they are still out there and can definitely be lucrative. This is the main reason you’ll typically find seasoned, experienced investors in the CRE PropTech space. There is opportunity for large returns, but it is definitely slim.

    In the longer-term, there’s no reason right now to believe firms will switch back to investment in more physical property, especially when that money can be spent on human capital. Therefore, if you’re interested in PropTech investment strategies, you should not expect to see consistent positive performance from PropTech CRE investments. On the other hand – while this subject deserves a complete discussion on its own – residential PropTech is definitely on the rise (Aramati, Forbes). With a major push coming from cloud technologies and digital transformation, there’s a lot more investment in “smart” residential real estate as opposed to commercial real estate. Generally speaking, investments in “smart” technology have gained a tremendous amount of traction and thereby very large returns for earlier stage investors. Again, as we discussed in a previous article regarding PropTech, technological advancement is the future and investors who are looking for the next Amazon or Google in the real estate market ought to look into residential PropTech options with a more favorable outlook than commercial PropTech.

  • PropTech: What is it and Who Are the Primary Investors?

    Property Technology, commonly known as PropTech, refers to the use of Information Technology (IT) to assist both individuals and companies buy, sell, research, and manage real estate. While still a relatively new field, the convergence of technologies, cloud, and digital transformation are key forces driving PropTech forward. The goals of PropTech include: minimizing the cost and resources associated with real estate transactions, maximizing efficiency, saving time, and personalizing property management. This concept is similar to FinTech, where the focus is on the use of technology in finance. PropTech utilizes digital innovation and other technologies to address real estate market participants’ needs in the property industry.

    Efficient PropTech is specifically devised to streamline processes and connect market participants in all aspects of real estate. Therefore, PropTech directly impacts buyers, sellers, brokers, lenders, landlords, as well as others. One of the most popular current PropTech technology is virtual reality software, which allows prospective buyers to virtually walk through properties, construction sites, and more. Additional well-known PropTech technologies include software for reporting repairs, splitting rent payments, and crowdfunding new real estate projects.

    At this time, PropTech consists of three major market segments: (1) smart home, (2) sharing real estate, and (3) real estate FinTech.

    Smart Home

    A smart home is equipped with digital platforms that monitor, manage, or operate specific property assets. Amazon Echo’s Alexa is an example of something in a smart home. Generally, they are comprised of digital platforms that monitor, manage or operate specific property assets. Other examples could be something a security surveillance system that warns property owners of a threat, a smart thermostat that regulates the temperature of uninhabited units, or smart light bulbs that can be turned on by a smartphone app or digital assistant.

    Sharing Real Estate

    This refers to technology that facilitates the processes involved with sharing or renting real estate assets, such as land, offices, storage, apartments, parking lots, and more. For example, there could be a software that facilitates automatic online payments for retail spaces occupied in a building owned by a property management company.

    Real Estate FinTech

    This segment of PropTech includes applications that involve buying and selling real estate assets. A platform that reduces the amount of physical paperwork and documentation involved in a home purchase can be thought of as an example. Stay tuned for a deeper conversation regarding the relationship between PropTech and FinTech.

    With PropTech still being a relatively new field, the investors are largely comprised of wealthy, seasoned real estate investing experts (or at least those with a real estate investing background). In addition to being backed by some of the world’s largest real estate giants, it would be fair to say most of the individuals behind the world’s biggest tech companies, agree that future technology is pushing towards digital transformation (Donati, Forbes). Therefore, you’ll find investors that are interested in a sort of ‘futuristic’ technology category when it comes to financial investments. For example, PropTech investors would be very likely to also be interested in FinTech and Cryptocurrency. While the latter two seem to be more popular at the moment, PropTech is definitely something well worth looking into, especially if you have a specific interest in real estate investing.

  • Homebuyers: Five Tips for Financing and Budgeting

    When it comes to home buying, there’s a well-known critical rule: Avoid purchasing more house than you can afford. However, what represents “affordable” will differ between homebuyers. Therefore, one of the most important things for a first-time home buyer to do is plan and budget in advance. Diving into a potential multi-decade financial commitment is one of the most daunting experiences for an individual (or a couple, for that matter) in their lives. It is also highly probable that it will be your most expensive purchase. Before doing so, strategically allocating your money is essential. Otherwise the costs are steep. Before you know it, you may quickly find yourself getting buried in financial hardship, or the ultimate worst nightmare: foreclosure. To avoid this, we recommend the following five tips for first-time homebuyers.

    1. Strongly consider getting started with the “28 Percent Rule”

    The “28 Percent Rule” dictates that your mortgage shouldn’t be more than 28% of your gross income each month. While the Federal Housing Administration (FHA) recommends a slightly more generous allowance of 31%, first-time homebuyers in particular ought to air on the side of caution, considering they are likely repaying some other forms of debt. Additionally, there are the normal monthly expenses (food, transportation, healthcare, etc.) that any working-class individuals would have to account for.

    2. Your down payment should dictate your home’s budget

    Generally, lenders will look for homebuyers to put at least 20% of the property’s purchase price in cash. Though you can utilize other resources to obtain an approval, such as private mortgage insurance (PMI), this will inflate your monthly mortgage payment by roughly 1% (Fuscaldo, Investopedia). It’s important to note that the PMI depends significantly on the size of the property, your credit score, and the potential for the value of the home to increase over time. It’s equally important to note that it is in your long-term best interest to avoid these kinds of instruments, as they’ll tie up more and more of your monthly disposable income in interest repayment. On top of everything else, it’s critical to remember closing costs, as they’ll cost you anywhere from 2-5% of the home’s purchasing price, depending on what state you live in (Fuscaldo, Investopedia). Avoid over-leveraging yourself. Put as much money down as you can afford to, but certainly aim for higher than the bare minimum 10%.

    3. Precisely track your debt-to-income ratio

    It’s a very well-known fact that mortgage lenders will look at a prospective homeowner’s debt-to-income ratio when determining if they will extend a loan to the borrower. Therefore, keeping track of this ratio on a monthly basis is a good benchmark for prospective homeowners to calculate themselves, in order to ultimately decide if a home they’re interested in is affordable. Suppose your gross monthly income is $5,000. Then, if your mortgage payment is $1,500 and the total of your other monthly financial obligations is $1,000, this puts your debt-to-income ratio at 50%. Qualified mortgage lenders very rarely will approve a borrower with a debt-to-income ratio above 43%. Thus, in the above example the hopeful homeowner would unlikely to get approved and even if they did, it’s probable they would be setting themselves up for failure.

    4. Don’t forget all homeowner expenses, not just the monthly mortgage

    There’s no question getting approved for a home loan is an essential step in the process, yet this is only one obligation (though it’s by far the largest). The tough reality is your monthly mortgage payment will not be your only reoccurring expense as a homeowner. Consider additional monthly homeowners’ insurance, utilities, repairs, and maintenance costs. Depending on the season, the snow will need to be shoveled, or the lawn will need to be mowed, or the shrubs will need to be trimmed. Many find that over time, the list just keeps growing. When you calculate the affordability of a home, you may find that an affordable $1,500 monthly mortgage payment is no longer palatable when you factor in an additional $1,000 in monthly expenses. This is a large reason behind the idea of putting a considerable downpayment on the home; it frees up money for those other monthly costs, rather than irresponsibly squandering it on interest.

    5. Settle on a property you can handle managing

    Not only are the additional monthly homeowner expenses important to factor in, but you also need to be mindful of the condition and size of the property. In a situation when you’re concerned about a large utility bill from heating or cooling, less is more. A 4,000-square-foot property that needs serious repair may be a tempting proposition, until it breaks the budget. You may find you’re better off financially with more of a picturesque small home on a quaint hill, in a quiet neighborhood instead. For your own benefit, have a construction or homeowner expert look into the homes specifications to ensure you haven’t missed anything vitally wrong.

    The bottom line is that to many, home ownership is still considered to be the American Dream. In reality, it can quickly turn into a financial nightmare when you miscalculate your monthly expenditures. First-time buyers in particular often want more than they can take on at that moment. Without taking the time to properly prepare for the single biggest purchase of one’s life, they can find themselves house-rich and cash-poor, leading to ultimate financial misery. We urge any future homebuyers to take the necessary preparation steps. Do not sign up for a dream you are not exceptionally confident you can afford.

  • South Korea Responds After China Launches Cryptocurrency Exchange Restrictions

    Following China’s statement of new restrictions and regulations they are placing on Bitcoin, which sent cryptocurrency exchanges tumbling, South Korea responded by rolling out their own restrictions. On June 13th, 2021, The Korea Times reported South Korea’s Financial Services Commission (FSC) released a public statement that would force banks to classify clients with cryptocurrency in their portfolio as “high-risk”. Those individuals would in turn be subject to more stringent monitoring and trading rules. South Korea’s goal in doing this was made abundantly clear: reducing the regulatory risks posed to banks servicing crypto firms (Hwang, The Korea Times).

    The FSC’s new guidelines make it mandatory for banks to report high-volume crypto transactions from suspicious entities. Additionally, they are requiring impacted firms – current and future – to implement a KYC (Know Your Customer) guideline prior to partnering with any crypto exchanges. As mentioned, this comes directly on the heels of China (the largest economy in the world) announcing rigorous cryptocurrency trading regulations. South Korea appears to be aligning themselves more closely with their neighbor, however other countries and governments have been looking at cryptocurrency exchange trading from a different perspective.

    Goldman Sachs responded to the news very quickly, announcing to their shareholders that they will expand into Ether in order to limit their exposure to just Bitcoin (Singh, MINT). The legendary investment bank will additionally offer futures trading and options for Ether, but they do not appear to have any plans of exiting the crypto space. That’s because there is still plenty of room for capitalization. To some, volatility suggests greater return opportunity, rather than enhanced risk potential. Additionally, as Mathew McDermott, Goldman Sachs’ Global Head of Digital Assets, announced the firm will be offering services to facilitate trades involved with exchange-traded notes linked to Bitcoin (Singh, MINT).

    When it comes to other governments, many emerging markets and emerging economies in particular are looking to expand cryptocurrency acceptance. The following day, June 14th, 2021, Tanzania’s President suggested the country’s central bank should explore cryptocurrency. “We have witnessed the emergence of a new journey through the internet,” Samia Suluhu Hassan – President of Tanzania – said, also adding “the central bank should be ready for the changes and not be caught unprepared” (Haig, Cointelegraph).

    The same desire was echoed by several Latin American countries in particular, most notably El Salvador and Paraguay, where Bitcoin has been mandated as legal tender. The President of Tanzania may have more of a realistic pulse on crypto trading, unlike China and South Korea, as she appears very cognizant of the profound emergence of digital currency as a widely popular, booming global investment tool. Rather than trying to restrict and limit trading practices, which can be extremely important in certain instances and definitely not meant to be underscored, recognizing the uncontrollable phenomenon crypto trading has become is valuable in and of itself. Restricting or attempting to disincentivize investors from participating in this particular market can adversely lead to more fraudulent activity, as investors clearly see a benefit to trading in this market, but are constricted from it because of their country’s regulations. Furthermore, this may lead to some seeking out non-traditional, or even illegal, methods of participating in that market because they have to circumvent rules.

  • NYC Real Estate Market Mid-2021: Are You Better Off Buying or Renting?

    Since New York City’s (NYC) real estate market is still experiencing a fresh post-COVID effect, you are better off buying if you have the money (and credit score). However, as is often the case, it greatly depends on your financial situation. Living in arguably the most desirable and expensive part of the world presents a financial burden to many younger adults, who are still working lower paying, entry level jobs.

    The majority of real estate property owners in New York City are of older age and in the highest income brackets (NYU Furman Center). Additionally, they are more likely to have permanent ownership of property in other locations (Goldstein, Property Nest).

    Many people view renting as ‘wasteful’ because you don’t have the benefit of acquiring equity in your property. However, the reality is for most young or middle-aged professionals, the economic opportunities – combined with the cost of living in New York City – don’t allow them to acquire enough requisite disposable income to put a down payment on a desirable apartment unit. This brings up a primary obstacle many residents of New York City see with buying a permanent unit: most people don’t view New York City as their ‘final destination’, long-term residence. In other words, when most people think about taking out a mortgage and buying a home, they’re thinking about a serious long-term commitment (emphasis on long-term). Raising kids, settling down in a permanent work situation, and finally retiring. The suburbs or a quiet town; not the most densely populated, most popular tourist destination in the world.

    While there are plenty of mechanisms available to individuals looking to get out of a 20 or 30-year mortgage after only a few years, logically, it would make sense for most to still prefer not to take on that kind of serious financial responsibility without the intent of staying in that location for a while.  

    With that being said, from the perspective of someone simply asking: “hey, would I be better off buying or renting in New York City?”, I would advise them to not be hesitant and buy if they have the money saved.

    The reason is two-fold. If you are going to live in the unit, at least initially, you’ll acquire equity simultaneously. If you find that NYC is not for you in a few years – as many inevitably do – current market prices and historic trends, combined with current rates and incentives, suggest one would be able to see a positive cash flow from subleasing or subletting their own property. Meaning, renters are consistently earning more monthly rent than their monthly mortgage payments. Alternatively, if you have no desire of becoming a landlord, contrary to ordinary homeowner’s beliefs, there is the ability to sell your mortgaged property and earn a profit. It’s extremely difficult to look at the recent data without considering the COVID-19 situation, but over a 10-year period prior to that, real estate prices were significantly increasing year-over-year.

    That’s largely why real estate became viewed as a very popular investment vehicle for financial investors. The figure below illustrates an average of New York housing prices over a 30-year period, between 1987 and 2018, from different housing market segments.

    Figure 1 – New York (NYC) Housing Market Prices (1987-2018) Overview

    As one can see, prices went up across the board mostly every year, with the exception of a rocky period in the midst of the Great Recession of 2008. Therefore, having more ownership/equity in a property that’s also going to increase in value over time is a no brainer, even if you choose to move out of that property prior to paying off your mortgage.

  • CRE Investing Through CrowdStreet

    CrowdStreet™ is an up-and-coming type of crowdfunding website that’s tailored specifically to CRE (Commercial Real Estate) investors. Founded in 2013, the site pairs thousands of investors on their marketplace and pools their money to invest in different CRE properties. The benefits that CrowdStreet claims to provide are: low cost, institutional quality real estate investments that have lower fees than REITs and only include pre-vetted projects.

    As of June 19th, 2021, CrowdStreet has completed 488 deals, raised $1.9B in capital, and returned $197M of investor distributions (www.CrowdStreet.com). With new deals launching every week, the CrowdStreet marketplace is also unique because it gives prospective investors the following three (3) projections on each CRE investment: (1) Targeted Investor IRR, (2) Targeted Equity Multiple, and (3) Targeted Investment Period. Keeping in mind these are all pre-vetted projects, this allows prospective investors to pick from multiple properties based on the attributes that are geared towards their goals.

    Since there are many different types of real estate crowdfunding websites, CrowdStreet in particular distinguishes itself because they target CRE properties specifically. They then break-down individual prospective gains, equity multiples, and the period the investor will have their capital tied up. This allows investors to see a clearer overview of their investment return potential and the amount of time their capital will be utilized for the CRE investment, so they can make more informed decisions, as well as better manage the risk of their overall portfolio. But there’s a catch. While CrowdStreet is continuing to grow along with their user base, an investor account minimum must be $25,000 and the platform is only available to accredited investors. For seasoned CRE investors, that may not be as big of a problem. However, for the average qualifying CRE investor, CrowdStreet’s business model is viewed as highly illiquid.

    Overall, while CrowdStreet offers distinct advantages to CRE investors, its limitations prevent it from reaching a wider audience. Clearly that’s their intention, but perhaps some of the requirements limit the potential success of their offerings. For example, if a non-accredited investor has a higher risk tolerance and is willing to invest the minimum amount, the CRE project may not get financing because that investor wouldn’t be accepted on CrowdStreet. Similarly, if an accredited investor is more risk averse, or is not in a position to immediately invest $25,000 in a given project over a period of years, there is no middle-ground and again, the CRE project may not receive financing. Concisely, within the limited scope of their business model, there is more CrowdStreet can do to broaden their user base and thereby pave the way for more CRE projects to receive financing.

  • What is a REIG? The Pros and Cons

    A REIG (Real Estate Investment Group) is a group of private investors who invest almost exclusively in real estate by pooling money, knowledge, and/or time to acquire properties that generate income (Brummer, Millionacres). Investment strategies for REIGs will differ based on each group’s specific strengths. A REIG is not a real estate investment trust (REIT) or crowdfunding real estate venture, although superficially, they may appear similar. They both invest the majority of pooled funds in real estate or real estate debt, earn income primarily from real estate, and distribute most of the income back to the parties involved.

    Pros of a REIG

    A REIG is a way for you to have your investment funds backed by physical real estate while allowing you to leverage the collective buying power and experience of the group. Additionally, investing in real estate as a group can give you a less “hands on” approach to real estate investing, or more, depending on your desires and the strengths of your group. Furthermore, a REIG is a form of “diversification” in the sense that your thoughts about the financial incentives of an acquisition may be different than your partners in the group. Of course, this can be a negative if you are unable to persuade others investors in the group and the property turns out to be a successful investment. However if you surround yourself with like-minded investors, which is generally the case for most REIGs, this is unlikely to occur often. Going back to buying power, groups of investors can pool a very substantial amount of money together. This would in turn allow them to invest greater sums of cash and diversify their investments over a greater number of real estate properties. Conversely, an individual investor may only have enough capital to put into one – or a few – properties that may wind up taking an unexpected downturn. Finally, there’s a benefit to having fellow investors with the same stakes you do because you have the opportunity to learn from them. You would be able to potentially use some of those successful strategies in your own personal real estate investments.

    Cons of a REIG

    Many cons to a REIG can also be viewed as strengths, depending on the amount of weight you pull in it. For example, a more “hands-off” approach to investing through a REIG can turn detrimental if the individual(s) responsible for the “hands-on” tasks do a poor job. Additionally, since REIGs pool your investment money with others, you lose out on some profit prospective with it being shared throughout the group. To the contrast, this could be viewed as a way to mitigate your conceivable losses – as mentioned in the strengths – but skilled real estate investors rarely have a pessimistic view of investments they are willing to enter into. While some view this as insignificant, the tax structure and fees associated with REIGs similarly lower your bottom line profit. Along the same lines, due to regulations and commonplace agreements signed between the parties, pulling your money out of the REIG can be burdensome and costly. Finally, many investors are prone to different management styles, have different investment goals, and differ in many other germane ways. Conflicts arising from disagreements between members in a REIG can lead to not only unfavorable financial outcomes, but it can go as far as breaking up the REIG.

    Concisely, REIGs are a good fit for novice or expect real estate investors, as well as everything in between. From our perspective, the concept seems like it would be a better fit for those looking to enter the real estate market, rapidly expand their presence in that market, or if you have unique knowledge, but do not have the cash saved to personally invest in real estate yet. Reviewing the pros and cons alone, unfortunately, does not provide enough guidance as to whether or not this is the right investment vehicle for you. As with most financial investments, REIGs can be beneficial or detrimental for you, completely dependent on your financial situation, knowledge of the real estate market, and more. We do believe that an invaluable positive to REIGs is the knowledge potential from other investors in your group. Some of the most successful investors from different parts of the globe have said that intellectual capital can prove to be exponentially more valuable than simply having excess cash in a savings account, with no unique or constructive ideas on how to put that capital to use in order to maximize a positive return.