This is an important moment for real estate investors to step up and bring in more capital to syndicate real estate deals. Those who recognize this and make the commitment to scale now are likely to not only to see the benefits in the bank, but to solidify their position in the business and marketplace.
Even if you feel you are OK with your status quo or have been putting off taking on outside capital for real estate deals, check out these four compelling reasons why this is the time to make your move.
1. Capital is plentiful, but fundraising is becoming more competitive.
Cash is still plentiful. Individuals and businesses have been enjoying a great run up across the economy. Individual investors have more cash in retirement accounts than they’ve had for years. They have more home equity. Corporations have been enjoying better revenues in general and have more cash.
That won’t last forever—probably not more than a couple of years, according to analysts. Still, there are more and more investors, platforms, and institutions with their hands out for this money. New technology for crowdfunding real estate investments and syndicating multifamily property deals is only going to make it easier for them to do so as well. This may be the most profitable moment to raise capital for years.
2. Once locked up, it’s gone.
Once currently available capital is locked up in new investments, it’s captive. Much of it may go into investments designed to be held for five to 10 years—or even longer. It’s off the table. Even with shorter term or more liquid investments, if the sponsors and asset managers are doing a great job and performance is good, they are likely to keep receiving new dollars those investors have, as well as referrals to their friends and family members. Now is the time to win new investors and build that type of loyalty for your own ventures.
3. Markets are evolving.
Local real estate markets around the country continue to evolve and revolve. This is important for two big reasons.
The first is that investors and sponsors themselves need to be diversified. It would have been catastrophic if all of your assets were in the Carolinas when Hurricane Florence rolled through just a bit ago. The same applies if all your assets are in San Francisco or Manhattan and those markets are first to pop in the revolving real estate cycle.
So, the second reason is that once the public catches onto some declining markets and it is all over the media, all but the savviest and those with the strongest stomachs may be willing to continue to invest in real estate. Everyone else who still has money to invest may revert back to cash and gold.
4. Attractiveness for investors is at a peak.
This is currently a very attractive time for individuals, funds, and lending institutions to put their money into real estate. They are still bullish on real estate as an asset class and its potential performance. The yields operators can offer are very competitive. It’s safer than the stock market, and the yields are better than CDs—though some CD rates have already tripled or better in the last few months.
Private capital can also currently be used in tandem with or as leverage for commercial mortgages at good long-term rates. This is also likely to change. As of late, interest rates have steadily risen, which isn’t good. Once other investments begin to advertise competing yields with a close amount of security and commercial property returns compress, it will be harder—or at least more expensive—to raise capital.
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
This is an important time to begin raising capital for real estate deals and to scale efforts for those already doing it. A variety of factors indicate this is the optimal moment to make a substantial push in this direction, while the stars are aligned. Those who drag their feet on this could be at a disadvantage in the market for many years.