The challenge of economic transitions can be smooth, rocky, or somewhere in between. A recent blog post by Sharestates explores market trends in real estate investing to watch in 2019, specifically in the fix-and-flip market.
Sharestates recognizes the tremendous value for investors in using data to get creative with investments and to find the best opportunities in the market. As the house-flipping market softens, Sharestates used a recent report by ATTOM Data Solutions to shed light on the current state of fix-and-flips.
While the flipping rate continues to increase, ATTOM reports this market is now at a 9-year high—although ROI for flippers is at an 8-year low. Those figures may not seem encouraging, but Sharestates assures investors not to be alarmed. In quarter 1, 7.2% of all home sales were flips compared to 5.9% in the fourth quarter of 2018. This is a big increase, according to Sharestates. ROI was down almost 10% year over year in quarter 1, now registering at 38.7%. Always consider the cost of the acquisition versus the cost of the sale; a lower gain is still a gain. In 11 markets, real estate investors actually doubled their ROI on fix and flips: Pittsburgh, Pennsylvania; Flint, Michigan; Shreveport, Louisiana; Scranton, Pennsylvania; and Knoxville, Tennessee.
Increased competition among hard money lenders is another trend to be aware of in the latter half of this year. The American Association of Private Lenders reports there are 8,300 hard money lenders currently operating in the U.S. This is a 40% increase since 2016, showing a respectable demand curve, according to Sharestates. The growth of the private lending side of the industry can result in less business for each type of lender. The loan volume for home flippers was $20 billion in 2018, 37% more than it was in 2016. This has created a comfortable shopping environment for house flippers seeking loans.
“Look around for the best deal because it looks like the lending market, saturated with lenders, is a borrower’s market,” Sharestates explains.
High net worth investors (HNWI) are expected to increase real estate portfolios in 2019. According to a recent survey, 53% of HNWI plan to make two or four direct real estate investments in 2019 compared to only 33% in 2018. 47% would like to allocate more than 20% of their investment portfolio in commercial real estate including multi-family, industrial, office, hospitality, retail, and real estate funds. 79% said they would like to invest in real estate online which could account for some of these trends.
In fact, Sharestates says that real estate is looking pretty good right now despite the increase in competition across the board.
Lenders and borrowers should do their due diligence whether borrowing or lending. In a market with several moving parts, there are still opportunities to be had. Crowdfunding opportunities offer a great option for financing but be sure to choose wisely if investing through an online portal.
“Technology may streamline expenses for the platform, but it doesn’t guarantee experience, know-how, ethical behavior, or sound underwriting practices. Your best bet is to choose a platform with a track record,” Sharestates writes.
Success in the crowdfunding space begins with choosing a platform with a minimum of the following: at least four years in business, an executive team with real estate experience, solid underwriting practices with transparency about the process, and a solid track record with few losses for investors.