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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.

 

Single-family homes in high demand due to COVID-19

Following the Great Recession, the single-family rental (SFR) market experienced solid growth. In fact, the SFR market expanded by more than 3.8 million households between 2006 and 2016. Now, with COVID-19 a part of everyday life, this trend has continued as Americans rethink the kinds of lifestyles they want. With social distancing and stay at home orders in place, densely populated areas are losing their appeal to many, creating an uptick in interest for single-family homes.

Single-family homes are in demand

Demand for single-family homes was already a rising trend prior to the onset of the global pandemic. Experts are now predicting that the impact of COVID-19 could make homeownership more difficult for those who have suffered job losses, reduced salaries or potential decreases in credit scores. This means we may see an increase in demand for rental homes.

Whether renting or buying, data suggests that nearly one-third of Americans are considering a move to less populated cities, and in some regions, they’ve already relocated.

Real Estate Market Differences

Despite COVID-19, real estate investors continue to find profitable deals across the US. For 2020, experts have marked states such as Texas, North Carolina, Florida, Georgia, Tennessee and Arizona at the top of the list. Additional secondary markets have picked up steam, while expensive fees and high land costs have slowed others.

On the other hand, COVID-19 has created labor shortages in some markets, which means that some investors can’t get approval for property inspections while others have had job sites shut down. This all can mean delays in construction.

Why renters prefer single-family homes

Investors should consider what amenities will be in high demand, given the way COVID-19 has altered how people approach living and working. Outdoor living spaces, for instance, will be more appealing and having a home office will be a top priority for many.

Additional amenities that will likely attract long-term renters even after the pandemic is no longer an issue are:

Privacy – There are no other tenants right above, below or beside single-family inhabitants. Renters prefer this privacy. They don’t want the sound of their neighbors blaring music or TV coming through the walls, or of kids running and jumping in the unit above them. 

More space than a townhome, condo or apartment – Tenants have a lot of stuff! A single-family home provides more storage, with larger closets, basements, attics, and garages. Single-family homes could also provide space for a home office, washer and dryer, shed, and/or an outdoor living space.

Feels like home versus a rental – As mentioned before renters tend to feel more permanently set up in a single-family home where their pets and children can play in a backyard. In addition, it allows families with children to have school stability. Moving a child in and out of schools is hard for both kids and parents – and is preventable if they stay in one place.


Renters are paying their rents amidst COVID

Real estate investors across the country were expecting a period of increases in unpaid rents due to COVID-19. Surprisingly, this has not yet been the case. In May, Multi-Housing News reported that 87.7 percent of renters paid full or partial rent. For comparison, 89.8 percent of renters paid their rent during the same time period last year. Multi-Housing News goes on to say that as of July 5, 2020, 77.4 percent of renters made payments, and as of July 13, that number was up to nearly 88 percent.

The data doesn’t show any difference in payment trends between property types – it is largely the same between apartment, condos, townhomes, and single-family rentals. 

Advantages of investing in single-family homes over condos, townhomes, and duplexes

Appreciation – Single-family homes tend to appreciate faster than multi-unit properties. A single-family home is valued on supply and demand, while other rental properties are valued on rents and market condition.

Monthly cost savings – The monthly cost of owning a single-family home versus owning a multi-unit investment property can be significantly less. They’re typically easier to finance, carry lower interest rates, and don’t carry the burden of monthly condo fees. In addition, HOA fees are less common and lower on single-family homes, depending on your local market.

Liquidity – Historically, there’s a higher interest in living in a single-family home rather than apartments or multi-unit properties. Most of the market for live-in homes is due to people seeking to escape a shared wall with another person.This can make it easier for investors to collect income from their investments, potentially resulting in higher profits and more liquidity. 

Easier to manage due to longer leases – Turnover costs time and money. Updating, cleaning, repainting, and attracting new tenants can be expensive and exhausting. Tenants looking for a single-family home are more likely to sign longer leases. They tend to become more emotionally attached due to the ability to add their own touches to the property – planting flowers, adding their own patio furniture, watching their kids and/or pets play in the yard, etc. This reduces costs caused by vacancies. 

Even with the uncertainty of the market during the pandemic, investors have continued to flock towards single-family homes. They’ve noticed that owning a large pool of rental homes is allowing them to weather the crisis far better than initially feared. Many investors assume single-family homes will become more desirable to live in, but also more expensive to buy. 

Housing trends are likely to change or fluctuate as the U.S. recovers from COVID-19. While some variations may be subtle, staying acutely aware will help real estate investors make informed decisions.

 

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.