PNW Real Estate Wealth Expo: The Case for Long-Term Real Estate Investing
During the last weekend in April, leaders of the real estate investment industry gathered in downtown Seattle for the PNW Real Estate Wealth Expo. Real estate investors, financiers, brokers, agents and vendors from all over the country came together for a four-day, resources-filled Pacific Northwest event designed to help them build wealth through real estate investing.
Attendees garnered insight on the following topics:
- Long-term investing
- Property management best practices
- Apartment syndication
- Mortgage financing
- Capital raising and much more.
The PNW Real Estate Wealth Expo was held April 26-28 in Seattle
One of the most widely discussed topics at the expo was whether investors are better off investing in real estate for the long-term or fixing and flipping for immediate profit. Many industry professionals believe that now is a great time to purchase properties with a long-term hold strategy, since people always need places to live. Through every economic cycle, rental housing remains in demand, making it virtually recession-proof.
Good Apartment Deals Are Still Available
According to Will Heaton, managing partner of Seattle-based Intrust Funding LLC: There’s lot of money out there (ready) to buy multifamily deals. Interest rates are historically low, although cap rates are too. I personally buy near job centers with appreciation. Rents rise at those properties with the income as it goes up.”
If investors follow the trends, demographics and study the market, they can still find long-term apartment transactions that pencil, according to Kathy Fettke, founder of Real Wealth Network.
When asked by panel moderator Brandon Turner, a Maui-based investor and Bigger Pockets logger, whether now is a good time to buy investment properties, Fettke said, “If you’re waiting for another downturn, you’re going to wait for another 10 years.”
Turner agreed that the wealthiest people he knows, “got there through appreciation.”
Workforce Housing Remains Severely Undersupplied
Any developers or operators who can build affordable housing will reap long-term benefits, Fettke says, due to the serious lack of supply. “We have this amazing opportunity to provide what is so needed in this country: affordable housing.”
Rehabbing existing properties into affordable or workforce housing would be extremely lucrative, she noted.
Think of Rehabbing and Refinancing Before Fixing and Flipping
Enrique Jevons, regional director of Mynd Property Management’s Seattle office, said that making value-added improvements when investing in rental properties right now will result in long-term gains, especially now that the market has shown some signs of softening. At the properties he owns, Jevons has been rehabbing and refinancing because valuations have been so high.
Another way for an investor to build a strong portfolio and retain the value of their existing assets is to rehab and refinance while rates are so low. If the market does take a turn, Jevons said he’ll be ready to buy. “You should never go into a deal based on its current value. I have been conservative in that respect, and not get too lured in by the thought of appreciation.”
Turn to a Property Management Expert
Real estate professionals can improve the efficiency of their service to prepare for a possible downturn. A good example is in the property management sector. Jevons said one way he brings an efficient level of service to his property owner clients is by providing “five-star level service.” Great customer service is supported at Mynd. “There are managers and inspectors on the ground. In addition, marketing and technology to support our on-the-ground staff is handled by a central hub.”
To help maximize property owners’ rental income at every stage of the economic cycle, whether booming or softening, Mynd has their own in-house software, including 3D tours, self-showings and smart locks.”
Apartments: Will the Good Times Continue?
Brad Sumrok, founder and president of Sumrok Multifamily Mentoring based in the Dallas/Fort Worth area, hosted a seminar on Friday entitled, “Apartment Investing in 2019: Will the Good Times Continue?”
Many economists are talking about a looming recession that will impact real estate investing in 2020 or 2021. During the event, he said that no asset class is immune from a recession. But multifamily property owners have the benefit of collecting rental income, even during a downturn. Everyone needs a place to live, and if home owners face challenges paying their mortgage during a downturn, they typically turn to rental housing as an alternative.
Lending Rates Remain Low
“In January, I said the biggest risk to the economy was the potential of rising interest rates, since apartment loans are tied to the 10-Year Treasury,” Sumrok said. In early May, the Fed reversed its course, after being on a trajectory toward raising rents, and didn’t raise them. Sumrok said he now sees deals being underwritten at the low rate of 4.3%.
In addition, lenders learned their lesson after the housing crisis in 2008. There are no longer 0%-down loans for single-family homes.
Perhaps more important, there’s a shortage of rental housing supply nationwide, in spite of all the large amount of building that’s occurring in major markets. Prior to 2008, we had an oversupply of housing. “What we truly need to build is workforce housing,” Sumrok said.
Demand for Class C Buildings Runs High
“Right now, C properties are outperforming A and B assets because the population of renters that live in those properties are being squeezed,” said Sumrok.
CBDs and downtown neighborhoods in Seattle, the Bay Area and other West Coast metros have suffered from a glut of Class A apartment units, according to Sumrok. Cap rates in these regions have dipped too low to justify investing in Class A product. CoStar puts cap rates for some luxury properties can range anywhere between 1.5% and 4%, on the high end.
Instead of purchasing high-end assets, consider value-added real estate investing in Class C properties, Sumrok said. In 2008, older Class C older buildings (built before the 1970s) had highest vacancies, and now they have the lowest.
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