Rod Dubitsky’s Post

My thoughts on commercial valuations on residential properties (HMOs) Ive spoken before how I think the BRRR model is a terrible business model. The obsession with having a portfolio of terraces in low value northern towns that are all over-leveraged with no equity seems odd to me. I just dont get it. Commercial valuations are taking this to a whole new level. Having a well rounded business surely means having some equity; when did this change? We are seeing a generation of property investors who would much rather raise money than make money, meaning the need to pull as much cash out of the deal as possible essential to pay back investors, or, to “go again”. But all the guys who suffered in the 2008 crash and lost everything- this model is exactly the type of thing they did and its exactly how you create property bubbles. -Inflate the value of a residential property by using a product designed to value hotels and warehouses -Borrow money at an inflated value, at an inflated interest rate -Hope that the market stays the same forever, the income never drops, you never need to refinance, commercial finance like this doesnt dry up (it will) and that you’ll never need to sell. All it takes is a couple of market corrections in the next couple of years to destroy these types of investments. This has happened before very recently and it will happen again. -HMO market takes a turn and the room rates drop significantly (could be due to area saturation, the reduction of typical BTL prices, govt incentives) -Commercial valuation changes when it comes to the refinance (because the income has changed) -City living becomes more affordable with the big developers creating their own version of co-living spaces (already happening) -Commercial lenders realise this model doesn’t work and refuse to lend on the refinance in 3-5 years -Selling it as a commercial asset becomes impossible once interest rates drop and HNW money performs better elsewhere  -Cash flow stops working- rendering the refinance at a higher rate pointless Then you’re stuck with a residential property, that has been valued as a commercial asset, with 100% finance on it, at 8% interest rates. Is It worth it really? The only way this works is with great long term tenants on fixed 15-20 year contracts, or with mixed use buildings. Otherwise, if the HMO doesnt work with bricks and mortar figures, the deal doesnt work in my opinion. Im willing to be wrong- somebody tell me why I'm wrong?

Real Estate Investors Who Are Actively Looking or Already Operating in the Amazing Kansas City Market: Plug in with us as we move & groove through this new economy. Single-family homes in B-class areas have been and will continue to be a solid move for investors who intend to acquire and keep properties for the long haul. Why upgrading how you invest or adding another weapon to your arsenal may be worthwhile? Imagine a smarter, simpler way to grow your portfolio: Cut out the stress and start earning faster. Forget about lengthy project approvals or drawn-out renovations. Say goodbye to short-term debt headaches. No more scrambling to repay a hard money loan in 6 to 12 months. Avoid the risk of over-budget, delayed construction projects. Keep your focus on long-term cash flow, with no pressure to refinance or resell in just a year. Here’s another example of a property that would make a strong investment opportunity: 103 N Charlotte St, Independence, MO 64054 MLS #: 2488097 Listing courtesy of the Shaun Ashley Team – RE / MAX Heritage   Current list price: $221,900.   This home has 3 bedrooms, 2 bathrooms, a 2-car garage, a full basement and it was built in 1968; Square footage approx. 1,570   The estimated out-of-pocket costs for a purchase using a non-QM loan; a 30-yr fixed rate at 8% interest:   Down Payment (25%): $55,475 Closing Costs (3%): $6,657 Placement Fee: $10,000 Reserves: $5,000   Total estimated cash needed: $77,132   The total monthly payment (PITI = principle, interest, taxes & insurance) for this investment:   approximately $1,615   Once again, we make this type of investment work for the long term by offering seller financing to residents as opposed to simply renting the property.   As a 10-year lease option here’s how the cash flow & ROI could look:   Option fee received: $7,250 Monthly lease amount: $2,015   In this scenario there is approximately $70,000 "left in the deal" or tied up in the property. This type of investment will produce:   Monthly cash flow of approximately $400 = Year-one ROI: 6.8% cash on cash A $221,900 home today at that point could be worth $330,000. That is the amount that will be used, from the jump, as part of this transaction. After the lease option residents exercise their purchase at or before the 10-year period, you will receive a very large, back-end payout.   Plug in so you can learn more about how you can invest in real estate and grow your portfolio. If you would you like to figure out how you can create more residual income, i.e. cash flow from investments or private funding then connect with me on YouTube, Instagram, and Facebook as well. Luther Wilson III

A major ratings agency is predicting that the U.S. multifamily market is on the verge of a surge in loan defaults.Apartment delinquencies for CMBS loans could hit $1.3B this year, exceeding the losses seen during the height of the pandemic.Apartment landlords are experiencing headwinds due to a record onslaught of new supply, with 900,000 units under construction and more than 440,000 set to deliver this year in the U.S..That influx of inventory is diminishing revenue growth and escalating expenses that are hitting cash flow. The net result is more apartment owners will be underwater on their loans.The delinquency rate on multifamily CMBS loans has already ticked up, rising to 2.6% in December from 1.6% six months prior.The once high-flying U.S. apartment market is feeling the impact of new supply. The vacancy rate in the U.S. dropped year-over-year in December a full percentage point to just under 95%. Rents also dropped $6 in that period, leaving the average rent at more than $1,700 per month as of November. Some experts are predicting that landlords may see some relief as developers rapidly cool down on new apartment projects and the Federal Reserve makes projected interest rate cuts later this year.The decline in starts means that new deliveries will be reduced to less than half the current level by 2026, paving the way for a strong recovery in both occupancy and rent growth. #cre #commercialrealestate #Commercialrealestateadviser #commercialproperty #creinvesting #multifamily

LME Investments Weekly Newsletter - 5/18/2024: Los Angeles County's property value exceeds $2 trillion, generating over $20 billion in property taxes. Hi All Thank you for taking the time to read the LME Investments / Local Multifamily Experts Meetup weekly newsletter. We strive to highlight the most relevant insights, trends, and issues impacting real estate investing, with a focus on the multifamily sector in the nation's largest county - Los Angeles We're looking forward to seeing you at our next meetup, on Wednesday, 5/22/2024 - 6:30 pm at Three Weavers in Inglewood. Here is the link to RSVP. According to Los Angeles County tax assessor Jeff Prang, the total taxable value of properties (of all types) in Los Angeles County is expected to pass a record $2 trillion in 2024. Property value assessments will be based on values as of January 1, 2024 (so essentially, as of the end of 2023). While sales volumes declined, residential properties saw strong continued appreciation. As a result, those properties which did trade helped increase overall tax values. Tax assessments in coming years may, however, prove to be rocky. Commercial properties (specifically office buildings, especially in downtown LA) have seen a substantial decrease in value. As more office properties enter foreclosure (or are handed back to lenders) and sold for lower prices, this could push overall taxable values downwards. Speaking of office building distress, Equitable Plaza, a 34 story office building in Koreatown, has been placed in special servicing. It's $88 million loan comes due, and appears unlikely to be paid on time. The property is owned by local real estate giant Jamison Services. New York investment firm Madison Realty Capital has proposed a 24 story, 260 unit apartment complex in Santa Monica. If built, this would be the tallest property in Santa Monica. The site, located at 6th and Colorado, was until recently owned by large local landlord and developer Neil Shekhter. Madison Realty Capital took over the property after Shekhter defaulted on a series of loans with Madison and others. Rapper Kendrick Lamar is buying a 16,000 square foot home in Brentwood for $40 million. The transaction would mark one of the largest sales in Los Angeles this year. That's it for now. We'll see you at the meetup! Regards, Warm Regards, Sanjeev Bhatia & Shiva Bhaskar, Esq. info@lmeinvestments.com WWW.LMEINVESTMENTS.COM https://lnkd.in/eQvZ-hDU

European Residential REIT (TSX:ERE.UN) has sold 530 residential suites in the Netherlands across two deals worth a combined €114.9 million in gross proceeds. Management allocated partial proceeds – in addition to a €1.1 million disposition of an office building in the Netherlands – to pay down associated mortgage principal and outstanding revolving credit. #REITS #Europeanrealestate #realestatestocks #stockstowatch #stocksinfocus #stockmarketnews

We came across this article about rents and the business strategy of owning multi-family loans. Although the article addresses commercial and apartment complexes, as residential appraisers we have seen the change in rents over the last 2 years. While rents have stabilized in the Maricopa County, it makes us consider interest rate increases, inflation and the likelihood of default loans. This article discusses the risk and trends that show possible defaults with multi family loans. Some key pointers: "Analysts are most worried about the roughly one-third of multifamily mortgages that were issued with floating interest rates. Unlike typical, fixed-rate mortgages, these loans have required rising payments as interest rates have climbed in the last two years." "In 19 major cities of the Sun Belt — including Miami, Atlanta, Phoenix and Austin, Texas — 120,000 new apartment units became available in 2019 and were absorbed by 110,000 renters, according to CoStar Group. Last year, those markets had 216,000 new units, but demand slowed to 95,000 renters." https://lnkd.in/gchZkSVt

the entire housing supply chain is at a standstill. The very ingredients that lead to a housing start are hard to come by. Land sites are not transacting, financing is scarce, and pre-sales are slow. Most projects do not pencil at today’s land prices, yet sellers are often holding firm on pricing. Construction pricing is so high that even a significant reduction in land prices still makes new development challenging. The BC government, albeit well intentioned, has unleashed a flood of new land supply via mass upzoning around transit hubs creating further uncertainties around land pricing. Financing is at a premium and hard to come by. Many lenders I chat with today are just trying to get their capital back and mitigate losses. There were a lot of bad loans dished out, as one would expect when money was basically free over the past decade. You can paper over a lot of problems when land prices are rising by double digits every year, as they say- a rolling loan gathers no loss. Unfortunately the music has stopped and these loans can no longer be refinanced, for many of these small and medium sized developers the capital calls are simply too large, and the litigation process has begun. It takes time for the pig to pass through the python but the foreclosures are coming. It appears others in the industry are seeing the same. From an article in the Vancouver Sun this past week. Beau Jarvis, president of Wesgroup Properties, keeps a running list of Vancouver development site foreclosures, court-ordered sales, and receiverships, which he estimates could total close to 7,000 homes across dozens of different projects at last count. Jarvis has also tallied another 3,000 or so homes in several Metro Vancouver residential projects that have been put on hold, some of them from established B.C. development companies — including his own. “Today, the development environment is probably the most challenging it’s ever been in my career over 20 years,” Jarvis said. “There’s a huge amount of risk and the returns are absolutely not commensurate with that risk.” Alan Frydenlund, a lawyer with Vancouver firm Owen Bird, which specializes in commercial foreclosures, has seen upticks in foreclosures over his four-decade career, but says the past year or so in Vancouver has been busier in terms of big real estate insolvencies than any time since the early 1980s, including the 2007-08 financial crisis. Of course none of this is bullish for pre-sales, but like I said, some developers are already pot committed, and the big ones need to keep the lights on and the staff employed. So there’s still a trickle of pre-sales hitting the market. We are on track for less than 5000 pre-sale condo units sold this year across Metro Vancouver, per data from Altus group. Down from nearly 20,000 during the free money era. Pre-sales lead housing starts and it doesn’t look pretty. https://lnkd.in/gxsaXBDT

Is there anyone out there that will still argue that Canada is not currently sitting on one of the largest real estate bubbles in the world? Yesterday, a friend of mine that lives in the financial services sector cited a story that claimed that only 9% of mortgage holders experienced an increase of over $500.00 to their monthly mortgage payments in Q1 2024. The first question I asked was how many extended their amortization period to keep the payments low, essentially just paying the interest on the mortgage. He dug a little deeper by looking directly at the sourced report and found that the amortization period was extended in 37.1% of the cases. He also found that many sold their homes because they could no longer carry the mortgage at the current interest rate. What's worse is that those mortgage renewals were for homes purchased before the market became grossly overheated and interest rates hit rock bottom. Therefore, the worst is still yet to come. My friend also noted that there are 70,000 mortgage renewals nationally each month this year until August. ----------------- "Toronto's once-lucrative condo market has been showing signs of faltering, with hardly anyone buying units that still somehow remain doggedly overpriced. As a result, developers are offering all sorts of desperate incentives or actually backing away from towers already in progress — and some are even defaulting on lenders as they can't secure the funds to keep certain projects going. Along with a number of complexes that have gone into receivership this spring, two more from Mizrahi Group are now apparently in financial trouble."

"Westside projected the building's occupancy rate at stabilization would be 95%, according to special servicer commentary in the Morningstar Credit database. Instead, it dropped from 58% in July 2022 to 26% as of March. “[The] borrower stated low occupancy and significant number of pending evictions and turnovers due to increased rents,” the CMBS loan's master servicer, Berkadia, wrote in a May 2023 update on the loan. Berkadia also arranged the loan between HGI and Westside. It wrote at the time that the landlord changed property management companies in January 2023 and “identified a comprehensive plan on how to increase occupancy and improve operations,” but despite the building being deemed in overall good condition, its fortunes never turned around and it started hemorrhaging cash. As of February, Westside had drawn the entirety of the $5.2M interest reserve to cover its shortfalls and “has been making debt service payments out of pocket since November 2023,” according to DBRS Morningstar. After generating $5.1M of net operating income in 2022, the building's NOI was negative $168K in the trailing 12 months ending in March, and its net cash flow was $192K in the red, according to Morningstar Credit.  Its asking rents now range from $1,195 to $1,800 per month, according to Apartments.com. While the face rents are far below the average monthly rent in Buckhead of $2,200 per month, on a per-square-foot basis, The Lofts far outpaced the submarket’s average, according to research firm Haddow & Co." https://lnkd.in/egm9zKD4