When is the next deal coming?
This is a question I get a lot from our investors, so I wanted to share our view on how the current economy is affecting real estate deal flow.
We all know that, right now, interest rates and rents are going up across the country, but what’s the impact been on acquisitions? In terms of the deal flow specifically, there’s been a slow down over the past few months since the Fed declared their intention of increasing rates.
Is multifamily still a very strong asset class to invest in? Absolutely. Is it a “bulletproof” asset in a recession? There's no such thing. While you can’t say it’s “recession proof”, it is more “recession resistant”. We take a look at the impact the current economy is having on real estate deal flow in the multifamily space and how you can still be successful in this market.
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• Overall, there's been a slowdown of deals, but prices are generally stable and we are seeing more off-market deals.
• Developing strong relationships and a strong brand are keys to keeping your deals active and filling your funnel.
• Returns are not what they were before; that's partially because the loan to value is lower and you need more equity to close deals.
• The main thing is to adjust expectations and understand that, while returns may not be as high as they were before, they’ll still be solid.
• Operationally, it’s important to understand not only the strength of multifamily as an asset class but also the forces that impacting your yields. If it’s financing and pricing, you should know up front. If it’s increasing expenses because of inflation, then you should be able to make adjustments in your operations; it’s different from how things were six months ago.
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