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How to Capitalize on a Hot Housing Market

How to Capitalize on a Hot Housing Market

The housing market isn’t just hot, it’s on fire. As the nation continues to make progress on its recovery from the pandemic, both demand for homes and a supply shortage have pushed median sale prices soaring, according to the National Association of Realtors. Median sale prices were up 16.2 percent year-over-year during the first quarter of 2021.

To navigate a market like this, investors and developers need to understand what buyers are looking for, how to capitalize on stable or growing asset classes such as build-to-rent homes, single-family rentals and multifamily properties, and how to obtain flexible real estate financing. Here are a few tips to help make the most of today’s housing market.

single-family rentals

What will homebuyers be looking for in a home post-pandemic?

People have begun to view their homes differently since the onset of the pandemic. Homebuyers now seek a home with features that accommodate new hobbies and daily functions that previously were not performed as often within the home. Long-lasting lifestyle changes due to the survival mechanisms put in place by extended periods of lockdown will likely mean that people will be searching for spacious safe havens and remote work or education environments.

Here are three features that homebuyers and renters are now more likely to want in their future homes:

  1. Dedicated spaces

After spending a lot of time at home, people naturally start to crave larger spaces; but residents aren’t just looking for more square footage. While an open floor plan is great for entertaining and making a space feel larger, homebuyers have recently found that having multiple separate rooms can be both comfortable and functional. This can include a home office, closed-off living room, media room, etc.

Separate rooms still provide options for family time and entertaining, but also allow everyone to do their own thing. This is important for those who have family members working or doing schoolwork from home.

  1. Energy efficiency

Energy-efficient features have been upgraded to the “must-have” list. Not only are we spending more time at home, but we are using our utilities more, which can get expensive. Energy efficiency is a win for homeowners’ wallets and for the environment. Improvements like tankless water heaters, LED lighting, double-paned windows, and energy-efficient appliances are a few options for builders to include in newly constructed homes.

  1. Storage

For many, it can be difficult to find storage space for emergency supplies or essential products. Plus, more time spent at home helps people realize how important it is to keep things organized and clutter-free. Extra pantry and closet space will likely be more “must-haves” for the rest of 2021 and beyond.

How investors are capitalizing on for-sale homes, single-family rentals, and multifamily properties in today’s market

single-family rental home

For-sale homes, single-family rental communities, and multifamily properties have all displayed strong performance compared to other asset classes throughout the pandemic. This has allowed investors to capitalize on increased demand for these property types by putting their capital to work in high-growth secondary markets across the U.S. These include cities such as Coeur d’Alene, Idaho; Tampa, Florida; and Salt Lake City, Utah, to name a few. Many of these markets were already seeing a high amount of in-migration prior to the pandemic and have seen even more because of the public health crisis.

Each of these asset classes possess unique qualities that have made them strategic investments throughout the pandemic. Since people will always need a place to live, they are likely to remain viable investments for the foreseeable future. Reasons for this include the following:

  • For-Sale Homes

Mortgage rates have reached record lows, thereby causing demand to skyrocket and drive up median home prices. As the pandemic sped up the flight from large, coastal cities, markets with already tight housing supply were constrained even further. This has led to a surge in construction and an accentuated need for high-quality, for-sale homes.

  • Single-Family Rentals

Single-family rental communities have emerged as an increasingly popular option for those who want the amenities of a multifamily building with the breathing room afforded by a single-family home. Single-family rent growth more than doubled in April 2021, with prices increasing by more than 5 percent year-over-year.

  • Multifamily Properties

The multifamily market has enjoyed a strong 2021 thus far. The asset class remains an attractive option for those looking for best-in-class amenities without the hassle of owning a home.

How to obtain construction financing for your project

With the housing market surging, there have been more commercial real estate construction lenders entering the market, creating more competition. Therefore, to win business, some commercial real estate lenders may not be enforcing the same rigorous underwriting standards as their peers, which could result in riskier loans. Be sure to do your due diligence when you’re looking to obtain financing for your real estate project. You want to find a hard money lender that you can rely on.

We recommend a private lender that has a good reputation, is willing to communicate and is flexible. Hard money loans are known to be more flexible than traditional lending options; therefore, if they are not willing to communicate and negotiate your terms, you might want to keep looking.

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation, or development of residential or commercial properties. The company has originated over $2.8 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one of our lending experts today.

 

The Multiple Stages of Construction Financing

The Multiple Stages of Construction Financing

When you need to obtain financing for your real estate investment project, there are many factors to consider, whether you’re building a single-family home, acquiring raw land, or developing a multifamily property. In fact, each stage of the construction process can be financed separately, with each part of the process requiring capital to add value to the project. Regardless of whether you’re looking to sell a project for a profit or transition it into the next phase of its development, be sure to work with an experienced lender that is well-versed in the property type you’re working with.

In this article, we’ll explain the different stages of real estate development and how appropriate financing can add significant value to each one. Identifying these details upfront is a critical part of a real estate project that will be successful, regardless of the stage in which you choose to get involved.

stages of construction financing

Raw Land Loans

Purchasing raw land may be right for you if you want your project to be fully customized and you’re not concerned about taking some extra development time. You may want to purchase an infill lot in a dense, urban location, or land in a suburban area that can be platted into individual lots to build multiple structures. A land loan will allow you to purchase this piece of land on which to build your development.

A key factor to consider when examining the risks of purchasing land is the marketability of the land and how it will affect any future projects that will be built upon it. Some lenders consider themselves “land banks,” and specialize in funding the purchase of raw land before the profitability of a project can truly be determined, adding to the risk associated with the loan.

Other lenders participate in raw land acquisition with certain requirements in place. Typically, this includes cross-collateralization of other properties and evidence of feasibility work. Generally, a path to entitlement and the ability for the lender to finance future stages of development are crucial prerequisites for these types of loans from “non-land bank” lenders.

Horizontal Development Loans

Horizontal development refers to obtaining entitlements and adding infrastructure to prepare a piece of land for vertical construction. For example, this includes finalizing the permitting on the land, installing utilities, or laying a concrete pad. Generally speaking, a horizontal development loan will include a combination of these elements.

In many cases, borrowers may not have access to the capital that is required to move a project into its next phase (vertical construction). Horizontal development loans can help bridge this gap. At this stage, if you have an existing land loan that you’re looking to refinance, loans that are over-leveraged make it difficult to do so without an additional capital commitment. Seek a lender that underwrites for the vertical construction phase in tandem with the horizontal phase and does not rely too heavily on leverage. This ensures there is enough equity for vertical construction so there is no need to raise additional capital. Additionally, this will allow you to refinance with another lender if the original lender is not providing financing for the vertical construction phase.

Vertical Construction Loans

The vertical construction phase is what most people think of when they imagine a property being developed, and entails the actual construction of the structure. It can involve a variety of asset types, including developments of single-family homes, apartment buildings, townhomes, or condominium complexes.

Typically, most of a construction loan is held back in an escrow account that is released on a certain schedule after a pre-determined portion of the construction is complete and verified by an inspector. This minimizes risk for the lender while providing the borrower with the funds needed at each stage of the process.

vertical construction loan

Post-Construction Loans

Once a project is complete and before its full profitability has been realized, financing is often needed to stabilize it. For an investment property, this means generating income. Stabilization is typically required to qualify a property for permanent financing that will carry it throughout its lifecycle. If a borrower cannot lease a property, they will need to work with the lender to determine a path forward (i.e. negotiating modifications to the loan).

Conclusion

As we’ve demonstrated, obtaining financing at these various stages of your development is a critical component to ensuring its success. Be sure to work with a lender such as Broadmark Realty Capital that has the experience, strong balance sheet, and technical expertise to maximize the value of your real estate project, regardless of the stage at which you get involved.

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation, or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one of our lending experts today.

Broadmark Realty Capital lends in Denver, Florida, Georgia, Idaho, Maryland, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Washington D.C., and Wyoming.

Multifamily Guide: How to attract Generation Z renters

Each generation has its own quirks. Gen Z is no different and appears to be more practical than others. While we’ve seen that some generations are happy to rent forever, Generation Z sees it as a stepping stone. In fact, 97 percent of them want to buy a home someday. Now, most of them won’t leave their parents’ home and immediately buy a house. This means you still have a chance to reach them. With this in mind, let’s cover how multifamily operators can reach Gen Z where they are spending most of their time – online.

Social media marketing

Gen Z is more reluctant to use traditional social media channels such as Facebook. Instead, try reaching out to them via a partnership with influencers and creating a strong presence on channels like Instagram, Snapchat, YouTube, and TikTok. Influencer marketing is a useful way to spread the word to younger renters. Consider setting up a referral program to your residents in exchange for promoting your community.

Online video content

It’s official. Gen Z spends the least amount of time watching TV. They spend most of their time watching online videos, so consider sharing video tours of your property. To help keep their attention, be sure the content is concise, engaging, digestible, and shareable.

Mobile-friendly website

Generation Z spends an average of 26 hours per week on their mobile phones and uses laptops rather than desktops. They also grew up with Google and Siri in their back pockets, so they expect fast and easy interactions. Forget about emailing or calling, they want to ask a question and have an immediate answer. Multifamily websites are no exception, property managers will want to make sure that their website is optimized for mobile and accessible on the go, from any device.

You might ask yourself; how do I fill this need of instant gratification? Try adding chatbots. Chatbots are programmed to interact with users. They get to know a user by asking a series of questions and are then able to provide the user with answers. For example, a chatbot could ask a user where they want to live, how much they want to spend, and what amenities they want. Then based on those preferences, respond with information. Chatbots could also help with managing maintenance requests. A renter can interact with the chatbot making them aware of a broken A/C unit and schedule the maintenance. Allow Gen Z renters and other potential renters to interact in the way they want.

How to appeal to Gen Z renters

Keep it simple, mobile, and digital. Make everything accessible online– basic communication, rental applications, community news, virtual tours – all these can and should be managed online.

Create a highly rated online reputation

Be authentic. This generation is keeping up with what you’re posting to social media and what is said about your community online. Stay consistent and realistic with all your posts and responses to online reviews. If you receive a bad review, it’s not the end of the world, just be sure to respond immediately. For Gen Z, seeing the negative reviews might provide balance and will allow you to show how you deal with conflict in your community.

Pricing

As natural researchers, Gen Zers know where to look for the best deal and answers. Property managers must keep units priced appropriately to capture this group. If you have your apartments listed above market value, they won’t be attracted to your community.

Gen Z is a largely untapped market waiting to be recognized. If your real estate business is proactively seeking to tap into this market and improve resident engagement, implementing the technologies and content strategies that appeal to this generation should be a large part of your strategy. If companies manage to incorporate lively video posts and conversation-starting events into their marketing routines, they will increase their odds of winning over this generation.

 

Related article:  The growing impact of Gen Z on the Multifamily Housing Industry

 

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.