Down markets can create a difficult environment for investors to decide to sell their investment property. Adverse conditions, such as higher interest rates, stricter lending requirements, higher caps, might give an investor pause to hold off until market conditions improve… however, who knows when will that be? What do we really know about investing in a down market? Essentially, the decision is highly dependent on the prevailing market conditions in your property’s specific sub-market, overall market conditions and your individual investment goals.
Five Critical Considerations:
- Market condition: Evaluate the current state of the real estate submarket where your asset is located. Are the values going up or down? Is there a limited or increasing supply? This information is a starting point for your decision matrix as conditions vary based on the physical location of the asset.
- Investment objectives: What was the plan for your asset when you purchased it? Are you seeking maximization of short-term gains or was your plan to seek long-term appreciation and increased income. Are those objectives still true?
- Tax consequences: As part of your decision to buy the asset some time ago, you would have considered the tax consequences of various exit strategies, including a 1031 exchange which allows you to defer capital gains taxes by reinvestment of the proceeds from a sale into a like-kind investment property.
- Analysis of the property: How is the asset performing? Consider rental income, vacancy rates in the submarket, potential appreciation, capital improvement to keep pace with the submarket and hold and improve the top line of income to you…all of these have direct and critical impact on the value of the asset. Is the value of your asset declining?
- Alternative investments: One needs to carefully and judiciously consider potential future returns and market conditions which may offer better prospects as compared to your current real estate investment.
Why NAS Chooses Multifamily Investments to Deliver Consistent, Reliable Performance to Our Investors – Particularly in Down Markets
After more than 30 years of managing investment properties, here is what I know and firmly believe produces the highest results for our family of investors in today’s world of investing in commercial real estate [CRE]: The multifamily sector has historically and continues to outperform most other major CRE sectors. At the foundation of multifamily performance is a well located, stable and essential asset which benefits from the current market conditions of higher interest rates coupled with the increasing number of empty nesters downsizing and the ability to increase rents over time. Add this to one-year short-term leases [a solid tactic to hedge against inflation], low capex requirements, high NOI cash flow margins as compared to other CRE sectors, and investors should see a solid strategic investment plan that offers reliable performance over the hold period. And despite the fluctuations in the capital market, we find available a deep capital pool from Fannie and Freddie agency debt, as well as from direct HUD loans.
As the market remains unpredictable, investors are looking for something which provides consistent income, safety in investment of their hard-earned dollars and a realistically strategic plan during both the hold period and exit process plan. Research and historic track record in the multifamily space have demonstrated that unless excessive leverage causes you to lose your property, you can expect solid returns that can be enhanced with modest leverage. NAS Investment Solutions does not overleverage property, ever! We also ensure that debt coverage [the ability to service your debt] rather than loan-to-value [the amount of debt] is the relevant leverage metric for this asset class.
Multifamily Offers Investors An Incredible Opportunity for Faster Growth in Value
Our assets are acquired with long-term debt with fixed interest and, therefore, are not impacted by interest rate spikes and are positioned to take advantage of rental and property value growth. Multifamily offers investors an incredible opportunity for faster growth in value, excellent cash flow and potential appreciation in value. NAS Investment Solutions underwrites with safety as the cornerstone for our investors with an eye always focused on upside potential. Our short- and long-term strategies have paid off handsomely for our investors. As we continue to emerge from the pandemic and anxiously wait to see how the economy will shake out, it’s a good time for investors seeking security and scalability to investigate multifamily real estate investments.
Like all investments not all provide the same returns. Each investment provides different opportunities and challenges. While it is true that a worsening economy will impact the rental market for certain asset sectors [office and to a lesser degree industrial and retail], fewer homebuyers mean more renters. The demand for multifamily properties will continue to be strong.
Don’t sit on the sidelines – put your hard-earned dollars to work for you in a conservatively underwritten multifamily asset.