How to maximize ROI in this market? Preserve cash and sit on the sidelines or take advantage and be in the market?
How to maximize ROI in this market?
Preserve cash and sit on the sidelines or be in the market?
Some real estate investors may decide to play it safe and postpone their investment plans due to rising interest rates, high inflation, or fear of the future economic and monetary outlook.
On the other hand, usually when the sky is clear it is already too late to take advantage of the best opportunities in the market.
For those real estate investors willing to put in the work, careful planning and an original strategy may make all the difference in ensuring the best result in the long run.
The most important question for real estate investors in 2022 is:
Preserve cash and sit on the sidelines or put your capital to work in these market circumstances?
Value is the new ROI
Although achieving high ROI may be easier during an easy monetary environment, this does not mean that there aren’t attractive investment opportunities available right now.
The multifamily market is on an incredible run. Rental demand is skyrocketing, especially in the Sun Belt region, and rising property values and rents are very likely to continue creating attractive returns for multifamily investors due to migration to the Sunbelt region, severe undersupply of new homes, affordability issues that make it cheaper to rent than to buy a home, booming economic activity, inflationary pressures driving higher costs, and demographic shift.
Investors should position themselves for maximizing profit by purchasing less-prime land for a significantly cheaper price, as increased costs are eroding prospective returns. There are several methods to accomplish this objective, from striking off-market deals to making purchases outside of the most popular neighborhoods.
Tertiary markets could also be a viable option, although cap rates in these markets tend to be higher and the maximum rent can be set lower than in primary markets.
Mitigating rising costs risk
Increased expenses require higher levels of available investor capital. Real estate investors should be ready to set aside more money for interest rate reserves when it comes to financing.
The amount set aside for interest rate reserves is determined by estimating the amount of money that will be required to make payments up until a project generates enough cash flow to pay for itself.
The quantity of reserves required will increase along with anticipated rate increases. On the financing side, lease-up and deal metrics, development timetables, and contingencies for rising construction costs are additional areas receiving more focus.
Additionally, you should choose contractors carefully, keeping in mind whether or not they will be able to survive if business suffers. Contractors’ qualifications will be closely examined by financiers, who will also look for red signals in their financial and litigation reports and assess their past performance in both thriving and difficult markets.
Be patient and get ready to collect the grand prize
Although many people’s economic perceptions and sentiment are not the most favorable at the moment, historically speaking, the economic outlook today might be one of the best times to invest.
The average rate for a 30-year fixed mortgage is hovering around 5.7 percent at the moment. Even if it may be somewhat higher than the rates in the threes (or less) that borrowers enjoyed a year ago, it is still historically low. In reality, for 16 years the federal funds rate has been below its historical average. As the Fed battled against its greatest inflation levels ever—14.6 percent in 1980—that rate rose as high as 20 percent in the early 1980s.
Real estate continues to be one of the more reliable—and tangible—growth sectors throughout the range of investing options.
There will always be a rebound in the near future, regardless of whether real estate investors decide to make new investments right away or wait until the path is clear. However, history has shown that the longer someone waits for more clarity, the lower their returns usually are.
Ready to start your next project?
Please contact us to learn how we can best help you to turn your next investment project into a success.
Email: [email protected]
Telephone: (954) 570-0300
Address: 850 SE 7th Street, Deerfield Beach FL 33441
About Adivo Construction
We are a national general contractor with over 50 years of combined construction expertise specializing in the value-add improvements of apartment communities.
Our mission is to assist our clients in finding the right balance between capital expenditure and appreciation potential by designing and executing customized renovation programs that are focused on increasing cash flow return and overall return on investment.
We have completed over 100 repositioning projects for publicly traded and privately held domestic and foreign companies in states such as Florida, Texas, Kentucky, Oklahoma, Georgia, South Carolina, Utah, North Carolina, Tennessee, Indiana, Michigan, Missouri, Arkansas, Ohio, Arizona, Nebraska, and Kansas.