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Fixing and Flipping Multifamily Real Estate Investments

For any business you can think of, the end goal of the owner or investor or the entrepreneur, as it is commonly known, is to make profits. This is the same with multifamily real estate investments; every real estate investor wants to make an above average return on all the money that is invested.

This article aims to analyze all the issues relating to fixing and flipping multifamily real estate investments to make profits. Although this may not be ideal or appropriate for some real estate aficionados, those who can pull off the fixing and flipping arrangement do make substantial financial gains. The fix and the flip process can pose a significant challenge to certain real estate investors; however, to begin the process, there is a need for proper funding.

These can come in the form of loans, which is also made available in some instances for individual properties and even for more experienced investors who wants to flip more than one real estate property at once.

These loans come in a whole lot of forms which include:
Cash-out refinancing (which involves refinancing one property to fix and flip another one)
Home equity lines of credit
Bridge loans
Hard Money Loans
Permanent Loans (not typical in flipping)

It is worthy to note that the process of fixing and flipping real estate can be carried out with any property, no matter its enormity. The types of highlighted loans above are to help support the purchase of single or multifamily investments.

For fixing and flipping operations, funding is a real issue, and if you are a serious investor looking for a source of financing, hard money loans are a good source of funding. The hard money loan option may be more expensive than the other types of funding though.

The demand for fix and flip processes concerning multifamily real estate dwellings is only increasing these days. Many fix and flip professionals are choosing this path because the number of rental households has increased by more than 15%, and this upward growth is expected to continue.

This is because many teenagers are expected to leave their homes and become renters themselves, further boosting the multifamily real estate market. The need for independence from parents is real around this age, so it is not surprising.

Path to Fix and Flip Profits:

When it comes to multifamily real estate investments, fix and flip, investors have to compete with other buyers for the properties on the ground. Fixing and flipping has the sole principle of making use of a certain amount of money to make some brief renovations; in all, a general uplift to improve the valuation of a real estate property before selling it at an excellent price.

This way, an excellent profit is made. Concerning multifamily real estate, seasoned fix and flip investors still have to contend with repair and flip newbies in the industry; those who do not have the required skills and expertise.

These new entrants into the industry tend to make things difficult for experts. These newbies tend to buy existing properties for more, making it difficult for them to come across an affordable fix and flip property. On the path to fix and flip profits, you should seriously consider multifamily investments.

All you have to do at first is to be conservative enough in calculating the potential returns. The rule made is by seasoned investors is to estimate the property’s rental income, then subtract half of that amount for monthly expenses and then subtract the mortgage payment from what remains.

Then if the property cash flow does not cover these costs, you can either decide to negotiate a lower purchase price or look for a building in another area that supports higher rent payments.

Fix and Flipping MultiFamily Properties:

As mentioned earlier, projections have concluded on the path that rentals on properties are most likely to be on the increase. Many seasoned real estate investors have turned to multifamily real estate holdings, all in a bid to diversify their holdings and increase their profit.

As the demand for rental housing units continues to rise, the fix and flip experts are also noticing it is expected that with multifamily holdings, they will undoubtedly require more significant investment and more work for you to gain maximum benefits.

For a first time investor, they are seeking to make new inroads into the world of real estate investments. Getting to sell a multifamily holding can be very challenging. Even for experienced investors, the rules have to be followed. As it is the norm, the search for a buyer can be more challenging than for single family buyers.

For example, in America, property owners and investors alike are coming to terms with the fact that they can increase their profit by choosing to purchase multifamily units. This inadvertently opens up a new path for fix and flip real estate investors as there is a higher chance of success when you decide to fix and flip a multifamily property.

Funding for fixing and flipping multifamily real estate holdings, many platforms on the internet and even near you offer programs for this. Most only have programs designed for clients with strong credit scores. Also, those who have the needed experience with renovating and owning multifamily properties are given a chance.

Very strong net worth and liquidity also allow for flexibility to be exercised in the decision making. Some of the prerequisites which usually are considered include:
• The multifamily property must contain at least five (5) units of housing.
• In some instances, projects with at least 50% occupancy are also considered.
• At least a credit score of 670 is needed.
• Loans from 250,000 to $5,000,000 can be provided with no limit placed on the number of multifamily housing units you can flip.
• Finally, loans up to 80% of the purchase price with rates which are as low as 8.5% and a 24-month term.

But first this disclaimer, this is not a get rich quick method. If you are looking for a means of getting rich quickly, then real estate investing is certainly not for you.

An alternative to fixing and flipping real estate holdings is to buy properties in perfect locations where you are sure after doing the necessary valuations; the value is going to increase. Having a great strategy at this point is very crucial. This strategy is key to knowing when to improve property values and also knowing when to sell and reinvest the funds in other profitable properties. One very sure way to amass wealth and reach that dream milestone is to buy real estate rental properties, then fix and flip them accordingly.

• You can decide to flip ten (10) houses that make $100,000 of profit.
• Flip 20 houses that make $50,000 of profit on average.
• Or you can also decide to flip 40 houses that make $25,000 of profit on average.

Markets also influence these profits. As if you live in a market with lower property prices, the real strategy will be to flip smaller houses with smaller profits but at an increased volume. An excellent example of this is buying $50,000 homes that you can resell for $120,000 and can net you $25,000 to $30,000 after renovations, closing costs, or commission and taxes. This you can repeat about 3 to 4 times per year. If you live in a place like Los Angeles; it is more realistic to find flips with $100,000 t0 $200,000 of profit.

At this juncture, it is only ideal to find out the real reasons investors flip multifamily real estate units. In the real estate industry, there is a big market for single family homes. It is only natural for flippers out there to cater to the needs of this large population. However, in contemporary times, there is an increase in renting.

• It is usual for more people to have a hard time believing that investing in a home is the best option they have. They are beginning to see primary residences as more of liabilities than assets.
• Some have been burned in times past as they have bought homes that sunk considerably in value after a certain period; contrary to laws of real estate investment.
• The increasing proportion of the workforce is becoming mobile to the latest advancements in technology; hence, they are beginning to like the flexibility renting provides.

These reasons are highlighted as a result of accessing the opinions of industry experts on the latest realities facing rents and mortgages in developed societies. Multifamily properties are the ideal property to flip, but why decide to flip multifamily real estate holdings?

Reasons for Flipping Multifamily Properties:

Marketability: Much has been mentioned of the fact that many areas are seeing a rise in their rental rates, and the absolute economic crisis turned many people from homeowners to renters, and this has made it more difficult for single family flippers.

The markets for single family flippers have changed and shrunk considerably over time, and only fewer people qualify for mortgages. Higher rents also mean higher selling prices for investment properties, and this is a significant factor for commercial multifamily.

• The Exit Strategy: When talking about single family units compared to multifamily housing units, any experienced single family fixers and flippers will always tell you to plan your exit strategy properly. Part of the procedure is to determine the After-Repaired Value accurately.

You need to know the amount you can sell the place for after the repairs have been made.
It is common knowledge that with single family homes, the rent will barely cover the mortgage, which includes insurance and taxes. With the inclusion of maintenance items, you might be losing money.

However, with multifamily properties, these properties are unarguably cash cows. You can choose to cover the mortgage payments with rent from one or two units and receive pure profits from the other units. And if your multifamily flipping does not work, you can simply rent it out and make some money, with no loss on your part.

Tax Advantages: This should not be mistaken as tax advice coming from a professional. But the buyers of multifamily residential properties, especially the buyers who live in one unit, can take advantage of both the homeowner and tax deductions. In addition to the edge to buyers, there are excellent incentives for flippers who get to buy multifamily residential.

Finally, it should be known that fixing and flipping are done for the sole purpose of making a profit. However, real estate industry leaders believe that it is one niche that is fraught with challenges considering the many rules and special considerations to be made. However, you need to be experienced enough to pull this off with multifamily real estate units, so you do not run at a loss.

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Foreign Investors Have Stayed Away from U.S. Real Estate in Recent Months. That Trend Is Not Expected to Hold

Once the pandemic is over, foreign buyers will likely see attractive investment opportunities in core assets.>/h2>

As the U.S. crawls out from under the coronavirus lockdown and copes with a pandemic-inflicted recession, foreign investment in U.S. properties has largely stalled. Commercial real estate professionals say that lull could be short-lived, though.

Some industry observers say they’re already seeing at least a slight upturn in cross-border money coming into the U.S. real estate sector, although a number of deals that were in the works have fizzled. Looking ahead, some experts foresee a more significant surge in cross-border activity later this year and early the next.

What’s the source of this confidence? Some say that because the U.S. remains such an attractive market, foreign real estate investors seeking an American home for their capital can’t afford to hold off for too long.

“Some foreign investors from countries that are still reeling from the pandemic may sit out for the moment and reinvest in their own local markets,” says commercial real estate attorney Roman Petra, a partner in the Orlando, Fla. office of law firm Nelson Mullins Riley & Scarborough LLP. “However, the U.S. is a strong marketplace for foreign capital. As the U.S. economy continues to recover and grow, foreign capital will invest.”

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25,000 stores are predicted to close in 2020, as the coronavirus pandemic accelerates industry upheaval

U.S. retailers could announce between 20,000 and 25,000 closures this year, according to a tracking by Coresight Research, with 55% to 60% of those situated in America’s malls.

One result of the coronavirus pandemic could be as many as 25,000 store closures announced by retailers this year, as the crisis takes a toll on many businesses, and already has pushed some over the brink and into bankruptcy.

U.S. retailers could announce between 20,000 and 25,000 closures in 2020, according to a tracking by Coresight Research, with 55% to 60% of those situated in America’s malls. That would also mark a record — which was previously the more than 9,300 locations in 2019.

Coresight was earlier this year forecasting there could be more than 15,000 store closures announced by retailers in 2020.

A glut of vacant storefronts will leave landlords scrambling to fill those spaces or find new uses for their real estate. There are not many retailers still growing via bricks and mortar today. And if they are, many are looking to downsize to smaller shops.

In recent weeks, bankruptcy filings in retail have begun to mount. Coresight said it expects more liquidations, ticking up the closure tally. Department store chains Neiman Marcus, Stage Stores and J.C. Penney have filed for bankruptcy protection. So have the home goods chain Tuesday Morning and the apparel maker J.Crew. A number of these retailers will close some stores and begin operating again, but Stage Stores has warned it may need to shutter all of its locations if it doesn’t find a buyer.

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States Hardest Hit by Closures Could See Property Valuations Fall by Low Double Digits

A new report from Reonomy looks at where property valuations might dip the most.

It’s been made clear by now that the retail, restaurant, travel and energy sectors have been hit the hardest by the impact from the COVID-19 crisis. But a recent report from Reonomy, a data platform for the commercial real estate industry, also highlights that administrative work, arts, entertainment and recreation industries have seen outsized fallout. Across the U.S., all these industries account for approximately 14 percent of GDP, Reonomy researchers point out.

In addition, many of these industries are concentrated in specific states, leading Reonomy to conclude that Alaska, Nevada, New Mexico, Oklahoma and Wyoming will be among those that will suffer more from the pandemic. Firm closures in the impacted sectors can lead to higher unemployment rates and longer-lasting periods of unemployment for workers, and to decreased tax revenues for the states. And decreased economic activity will also weaken property valuations.

In addition to the above-mentioned states, states with high concentrations of at-risk jobs include those that rely heavily on tourism (Mississippi, Louisiana, South Carolina and Hawaii), states with high levels of energy production (Wyoming, North Dakota, South Dakota and Louisiana) and states with large manufacturing sectors (Indiana, South Carolina, Alabama and Kentucky).

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The recovery from the coronavirus sure looks V-shaped, going by these charts

The U.S. economy added a record number of jobs in May as it appeared to bounce off the bottom of the coronavirus recession, and now the chart of jobs gains and losses is starting to look like a “V.”

The possibility of a V-shaped recovery — a sharp fall in economic activity followed by a dramatic rise — has been a hot topic of debate since the coronavirus pandemic led to widespread business closures across the United States. The shape of the economic recovery is a popular guessing game on Wall Street with economists and pundits suggesting everything from a “V” to a “W” to even a Nike Swoosh as businesses were slower to get back to normal.

The better-than-expected jobs report follows a series of other recent data points that have shown a quick recovery from their pandemic-era lows and point to a V shape.

Mobility data from Apple showed that requests in directions for driving and walking had nearly recovered to pre-pandemic levels by June 1. The increase in travel demand has extended to flying as well, with major airlines announcing this week that they are bringing back some of the flights that they had suspended due to the pandemic.

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Seven CRE Economists Offer Their Advice and Predictions for the Sector

While there are still a lot of unknowns about how the pandemic will play out, we talked to seven commercial real estate economists about their views on the future of the industry.
As we move into the summer months, there are still a lot of unknowns around how the COVID-19 pandemic will play out, including how much worse the first wave of infections is going to get, whether there will be a second wave in the fall and how soon we might expect some type of vaccine or effective treatment. But with the full understanding that predictions about the future are not an exact science, especially in times of crisis, we asked seven commercial real estate executives with backgrounds in research and economics to offer their outlooks on what the current situation might mean for real estate investors.

In the following slides, they share their predictions and advice for commercial real estate insiders.

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After flocking downtown to woo millennials, offices might be moving back to the suburbs

“Is office space going the way of retail in five years? That’s what investors are really trying to understand,” said James Farrar, CEO of real estate investment trust City Office REIT.

It was 2016 when General Electric announced it was moving its global headquarters to a smaller space along the central Boston waterfront, away from the quiet suburbs of Fairfield, Connecticut.

Then McDonald’s in 2018 opened its glitzy, new worldwide headquarters in Chicago’s vibrant Loop neighborhood, moving out of a suburban office park in Oak Brook, Illinois – joining Kraft Heinz, Walgreens and other Fortune 500 businesses in a seismic shift of corporate office space to downtown.

And with each of these moves, there were perks: Millennial talent was more plentiful in these bustling districts such as the Loop in Chicago, where the nightlife and bar scene were also strong. Some companies, including GE, found tax breaks from municipalities when they positioned their offices downtown. And reliable public transit systems could seamlessly transport workers back and forth each week.

But that was before the coronavirus pandemic hit.

For weeks now, companies across the country have been adjusting to entire workforces working remotely. Many of these offices are sitting empty, if only to be frequented by janitorial staff and a skeleton crew of essential workers. Zoom video calls are replacing what would typically have been meetings in conference rooms filled with colleagues breaking bread. Recently, Jack Dorsey’s Twitter and Square tech companies both said employees can work from home “forever.” Google and Facebook, meantime, have told employees they can work from home until the end of this year. Many others are expected to follow suit.

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Student Housing Owners Look Forward to the Fall Semester

Despite some campuses announcing plans for fully online classes in the fall, demand for off campus student housing remains robust.

When the new academic year begins in later this summer, with a few exceptions, most of the 482,000 students at the 23 campuses that comprise the California State University (CSU) system will be learning remotely. That’s the highest profile example in the current debate among universities as to how handle the fall semester.

CSU Chancellor Timothy P. White’s announcement on May 12 sent shock waves through the student housing business, which so far has survived the crisis caused by the coronavirus without major loses.

But overall, the CSU system seems to be an exception, with many other university systems announcing plans for the full or partial return of students. According to data compiled from 850 universities by the Chronicle of Higher Education, two-thirds of American universities have announced plans for students to return.

“By and large, most schools appear to be on track to re-open for Fall 2020,” says Carl Whitaker, senior manager of market analytics for RealPage, Inc.

Only 7 percent are planning online. Another 8 percent are proposing a hybrid model, 9 percent are waiting to decide and 10 percent are “considering a range of scenarios.”

“Online instruction [in the spring] did not go super smoothly,” says Will Baker, senior managing director of Walker & Dunlop. “It has not been popular.”

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Joe Biden has called for rent forgiveness during the coronavirus pandemic — here’s how that would work

Progressive activists say mortgages and rent should be cancelled while the coronavirus pandemic slows the economy, but what would that mean for landlords?

Former vice president Joe Biden has thrown his support behind canceling rent.

During a recent appearance on the Snapchat SNAP, +0.93% show “Good Luck America,” the Democratic presidential candidate said he supported the idea, which has so far been promoted by progressive activists.

“There should be rent forgiveness and there should be mortgage forgiveness now in the middle of this crisis,” Biden said during his appearance. “Not paid later, forgiveness. It’s critically important to people who are in the lower-income strata.”

(Biden’s campaign did not return a request for comment.)

Renters are feeling the adverse effects of the coronavirus pandemic and the resulting economic slowdown acutely.

“The tenant is the most vulnerable person in the economy right now,” said Tara Raghuveer, housing campaign director at People’s Action, a political network devoted to grassroots organizing.

The unique attributes of the coronavirus-fueled economic downturn have indeed hit renters harder than homeowners. Tens of millions of Americans have lost their jobs or been furloughed as businesses shut down to comply with stay-at-home orders.

Overwhelmingly, those job losses occurred in the service sector, according to an analysis from title insurance company First American Financial Services FAF, -0.78%. A third of the jobs lost in April were in the leisure and hospitality sector — and most of those jobs were in food service, an industry that is more likely to employ younger workers with less education.

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The LIHTC Market Weathers COVID-19 Pressures

Despite taking some hits, experts expect the market for low-income housing tax credits and affordable housing properties to hold up in the face of COVID-19.

Despite voracious renter demand for affordable and workforce housing, investors in that sector have not been immune from fallout from the COVID-19 economic crisis. Some have hit the pause button as they reevaluate strategies and market risk. However, data that shows that rent collections have not dropped as much as some had feared is giving investors greater confidence in buying both Low Income Housing Tax Credits (LIHTCs) and LIHTC-backed assets.

The LIHTC market was in a very strong position at the start of 2020, and despite a slight pause and dip in pricing, many in the industry are optimistic that the sector is on course to regain some of its pre-COVID momentum. “As you would expect, the demand for affordable housing is incredibly strong. It was strong when we were at full employment in the economy, and you could say it is even stronger now,” says Beth Mullen, CPA, partner and affordable housing industry leader at CohnReznick, an accounting, tax and business advisory firm.

Last year marked a record high amount of equity raised from tax credit investors. According to a CohnReznick survey as reported in its March 2020 Tax Credit Monitor, approximately $18.3 billion of investor equity was closed in housing tax credit funds/investments in 2019. That volume reflects a 10.5 percent increase of $1.7 billion over the 2018 volume. CohnReznick notes four key reasons for the increase in volume that include:

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