Next big sector in Real Estate?

26 Replies

What in your opinion is the next most promising real estate sector?

If you mean promising location, Houston and Dallas are probably the most popular newer markets investors have been purchasing in. 

@Marc M.  

If your talking about location, then @Curt Davis is right.

If your talking about RE industry, my opinion is commercial apartment building is the next boom.

Originally posted by @Winston Spence:

@Marc M.  

If your talking about location, then @Curt Davis is right.

If your talking about RE industry, my opinion is commercial apartment building is the next boom.

 Apartments have been booming. Many new projects, and I see prices on some up 50% from 4 years ago. 

Note investing... Many buy and hold type investors are opting for buying Solid 1st Trust deed or Mortgage type investments as opposed to owning the asset, especially in SDIRA vehicles.

Originally posted by @Jay Hinrichs:

Note investing... Many buy and hold type investors are opting for buying Solid 1st Trust deed or Mortgage type investments as opposed to owning the asset, especially in SDIRA vehicles.

 Jay, do you see this driving up note prices and reducing return?

@Jon Klaus  

You hit the nail on the head... especially the hot markets.. however the short term HML deals are there everyday.. One just needs to find the RIGHT Lender to work with in this field, Just as many people get killed buying crappy paper as buyer bad properties :)

But even in your state one can get 12 to 20% returns on HML's to the fix and flip investors pretty routinely. And I believe they are commercial in nature as well if they are non owner occ.

Rates to investors in these deals really has not changed much since my days of starting in HML back in the mid 80's of course we were in 15 to 21% bank rates then.. But when I ran my shop in Oakland Ca we were 12 to 15%.... However prime BAy area properties now and with the huge amount of cash there in the bay rates for HML have come way down to 8 to 10% with 2 points being doable. out east one can still get the 20% no problem. But again choosing who you work with and the assets is critical.. Also these are short term so this is why its good to have a broker you know and trust as they will have deals for you constantly so when you get paid off you can roll right back into another deal.

Our 9% fixed for 5 year note product fly's off the shelf with the very conservative investor base we have...Some of our folks with have a few rentals but once they get the taste of note investing they like it for the peace of mind and true passiveness of the investment. Again as long as they are with good people and good assets.  Lots of hanky panky in the note bizz as the banks learned the hard way in the GFC.

Thanks for the great responses! Yes, I was referring more to the sector (apartments, SFH, self storage, notes, etc).

So…notes and commercial apartments???

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@Marc M.  ,

I think there will be a lot of niche sectors that perform will. In my area, I see condo conversions in Oakland and other parts of the East Bay as having strong potential for unlocking value in this part of the cycle. Buying big lots with small houses and bulldozing to rebuild has and will be successful in this strong part of the cycle. I think buying up swaths of land on the fringe of strongly growing/developing areas could be a good medium/longer term play, although those prices have been rising..

@Winston Spence  , I'm with @Jon Klaus  and @Nick Keesee , apartment buildings/MF is up A LOT, so not sure if that bird has already flown the coop.. And I always wonder about the potential for higher future interest rate to impact cap rate (w/ very compressed caps in my area at least, and down significantly all over the country).

@Jay Hinrichs  is right about declining rates out here in CA on private money. Rates are down at 10% or less with just a couple points, at least for experienced investors w/ cash in the project. I literally got an email with caps "WE HAVE MORE MONEY THAN DEALS. CONTACT US.." The money supply keeps growing over $4T, but the # of flips being done is dwindling with lesser distressed supply, and thinner margins on the deals left. But I'm sure more can be had elsewhere..

@J. Martin  

  value add is always a good way to go.. and if your in the right part of the cycle and the development cycle that is a good place to be... New construction remains very strong in my market.. Markets cycle for sure  here in PDX the condo developers got caught in 07 and 08 with about 4k condos that came on line that just could not be sold so they converted to apartments and rented them out... Better than some areas of the country were these building stood vacant for years... Now some are bringing new condos on line this year after a 6 to 8 year hiatus.

My new construction in ORegon remains very good with 14 up and 12 presold. Margins are not huge but risk is small as I have not had one yet bail when the house was done.

Fastest increases in price is in agricultural lands and it is expected to keep going. Industrial/commercial farming is swallowing up all they can get and they are expected to continue until they can lease the public school playground to farm on!

Problem is, you need to understand the agriculture business to really know what valuations might be. A wholesaler might go that route not knowing anything, allow the end buyer to do the work if you can do that, you might get a deal. Etc, etc, etc. anyway, ag land. Anywhere.

Next comment, notes are not in the real estate industry just as car loans are not under car dealerships, repair and body shops. Notes on boats are not part of the marine industry either. School loans have nothing to do with education administration.

The only area that I have ever heard of people thinking that loans, notes or lending was part of the industry that secures the loan or note, yep, this is the only place in RE where lenders and borrowers think notes are part of RE, it would be better if they weren't even discussed here.....OTH, I don't know of a better place to talk about notes, the broker type forums certainly aren't a place to learn anything. Might think of it this way, your state real estate department doesn't regulate financing, your state finance department regulates lending.....why? Because notes don't fall under real estate, they are under finance which is a totally different industry. In fact, real estate falls under finance as a sub category as it is an economic asset, finance is not under or a part of real estate.

Having taught both subjects, students should begin in finance and go into real estate, it would make your understanding the big picture and individual deals much easier, IMO. But I know that won't be a likely occurrence. :)    

Originally posted by @Marc M.:

What in your opinion is the next most promising real estate sector?

I think senior-living apartments are becoming a real big thing and with the demographic trends going on, I expect that to continue.

@Bill Gulley  

With the exception of California were the department of Real Estate has governed HML industry and note investing for as long as I have been licensed which is right at 37 years.

That's why when you look at CA lenders advertisements you will see DRE # and now with the NMLS many have that license as well. So one would need one or the other... When you go to the CA Real Estate department website you can pull of the disclosures for making note investments and those are the same disclosures that allow for fractionlized notes or Pooling note investors into one note  very common practice in CA.

@Marc M.  "THE" next growth sector? There isn't one. Every region, state, cities, have their own markets. When people look at a big picture and don't dig down into the details of local economies, politics, regulations, etc. they can get into trouble. What is great in one area of the country, isn't in others. 

@Bill Gulley  mentioned Ag land. In many areas that might be a good investment. Here in California, the Feds have created such a disaster with Ag land that we have hundreds of thousands of acres of prime ag land, sitting idle, because there is NO water!

California that used to grow 80% of the nations food supply is now dry, and it has nothing to do with the drought, but the smelt in rivers, the beetles on land, etc. It's crazy! 

No matter what market you are in, it's important to understand all the complexities that go along with it. Find a demand and fill it! 

Can't speak for the entire country, but MF demand in southern California has been smokin' hot over the past few years and never really suffered with SFR's. It's easy to say the ship has sailed but with continued low interest rates and cap rates "only" in the mid-5's, MF growth could continue for a short while.

Job growth in LA is rising, the SFR rental market is saturating, and substantial new MF construction is a ways away and currently can't keep up with recent demand. Rents have risen roughly 2% per year over the past few years, which also props prices up. Many MF owners are taking advantage of this by trading up in quality and there doesn't seem to be an end to the demand at the low end.

The wildcard will be interest rates at the end of the year, as the Fed tapers, and onward. My view is that MF growth will likely continue here for the short term but is not a slam-dunk long term. If you intend to hold forever, if rents and job growth continue to rise, and if you can continually refinance out of the relatively short-term MF loans, you'll do well. Too many variables both ways, and nothing is obvious, so I'd be very careful here.

Have you guys notice how many are getting into NPN seconds? The stories I hear lately of disreputable brokers and honest and not-so-honest gurus are right out of the Wild West. I know there's still an unbelievable inventory out there that's held by the banks. Now, many brokers are moving in. If you're looking for J-O-B by getting these to re-perform, willing to deal with a few characters, and take an occasional hit on some, the returns can be spectacular – until prices are driven up.

My money is still on private/hard lending. Discussions with borrowers indicate rates are down but fees are up, leaving total costs a wash. (Nothing pisses a borrower off more than hidden fees. Nothing; except maybe an unreliable lender.)

With rehab inventory down, I see a huge shrinking of the P/HML industry. Already, I don't meet as many "wholesalers" at the REI clubs anymore. We all know they never had the inventory they said. Ditto recent rehabbers to the business, for whom I feel bad. They did two homes and either disappeared or are still struggling.

There will always be homes to flip. Those that have been around a while have maintained their connections and focus on specific areas. Others are forming small, private groups that they teach and partner with for free. They will always need money, just not as many of them.

I'd expect Cali to be different. I was mainly speaking from a national level except in mentioning the state dept.s as an example, Cali blew that for me.

Karen, Yes, Cali, fire and water, earthquakes and movie stars. BTW, much of the ag land purchased is not put into production as the government pays subsidies. This keeps the market prices more stable (that's the claim), the goal isn't so much to acquire the land to produce but to reduce competition of small farming operations.

You can't lose (overall) in lending if you know half the business, knowledge makes it pretty safe actually. I agree with Jeff that there is more potential in finance.

Not to get off topic, but when is Cali going to break up into micro states, that's crazy! Which is par for the course...... LOL  :)

@Bill Gulley    California should break up into smaller states, but not anything like that bozo has going onto the ballot. His idea carves out the choice jewels with the money and completely pushes the other areas into oblivion. A better way would be 2 states, The bay area north - Northern California (and that would include silicon valley) and the rest would be Southern California. That way there's a more equal distribution of wealth, water, and rural areas. Actually many years ago an Assemblyman from northern California was proposing something similar, but it never moved too far. 

@Karen Margrave  

  Did they not call it the state of Jefferson  the 3 counties just south of the Oregon border. NOt sure if that reached all the way to Redding.  All our states out here in the west could be broken up if you really wanted to... Same with Texas.

They are moving forward with Jefferson too. The biggest thing is summed up in the fact everyone calls the bay area, Northern California, when it fact, it sits solidly in the middle of the state. Most people, including those in government, think that Oregon starts above the bay area or ?  The economies, politics, etc. of the northern part of the state are completely different than the rest of the state, and would be better represented by being a separate state. 3 Californias might work... but 6, no way! 

I grew up on a farm and my family are all farmers. Don't even touch ag land with corn prices now down at $4.25 and most other commodities down significantly. Wait another 2-5 years and we'll have another crisis in farming. The pundits will say that land isn't leveraged as much as the '70s. What they fail to realize is that the $250k tractor and $500k combine is now financed or leased. Wait and you will be rewarded. Senior living, and nursing homes is a sector that hasn't taken off yet and a big need coming.

@Marc M.  I would have to agree with some members commenting. Houston and Dallas are strong, also San Antonio and Austin do not stay behind. If you are looking to increase your rental portfolio this main spots will bring you outstanding returns. 

Originally posted by @Karen Margrave:

@Bill Gulley   California should break up into smaller states, but not anything like that bozo has going onto the ballot. His idea carves out the choice jewels with the money and completely pushes the other areas into oblivion. A better way would be 2 states, The bay area north - Northern California (and that would include silicon valley) and the rest would be Southern California. That way there's a more equal distribution of wealth, water, and rural areas. Actually many years ago an Assemblyman from northern California was proposing something similar, but it never moved too far. 

Well, what's the point in doing anything equally? That defeats the purpose, don't you think? :)

Regarding CA... it's time to put it straight and call it what it is. CA should be an independent country, organized as a subsidiary of the US. If the US was a business... isn't that what a "normal" business would do?

@Chris Martin  

  makes sense 7th largest economy in the world...

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