Sep 24, 2020
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How To Make Money In Real Estate When the Fed’s Making Cuts

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When you re sitting around the dinner table conversation is certain to show to today s economic system and what the longer term holds. With the Federal Reserve reducing rates of interest for the third time in 2019 the canary within the coal mine is certainly singing a cautionary tune of a slowing economy


The large question is what is going to happen to the value of our assets specifically when it comes to real estate? Now’s the best time to follow the Oracle of Omaha s golden rules: 1. Never lose money and 2. Always remember rule No. 1. But let s take a pause here: Not losing money does not mean not making money


We ought to keep in mind the current market cycle and the way we will best be prepared for what’s coming. By being disciplined with investments you are able to still gain capital at a competitive rate with smartly allocated funds. It is achieved by adopting a core concept of recognizing value in its simplest form — distilling right down to the intrinsic value of an asset


Economic Dips Force Real Estate Risks Consider the current state of real estate: • Competition to acquire assets is fierce. • Prices for property construction materials and labor are up. • Debt is plentiful. Coupled with the lagging economy these forces may urge us to attend out this cycle to work out what the market may bring


We could hang around on the sidelines till the Fed decides next steps in mid-December. But let s be frank here: We cannot sit around wondering if we’ll lose or make money. We ought to deploy capital now. PROMOTED Civic Nation BRANDVOICE | Paid Program
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When that next recession happens and it’s going to these everyone is real estate-protected. Sure the asset will take a touch hit but by being poised in a primary market the property will not lose intrinsic value. The flaw of this strategy comes down to provide and demand. You Bill Suzy and Phil are all thinking an identical thing so market prices skyrocket and you are able to turn out to be overpaying double or triple what your asset is really worth


Middle Markets Are A Safe Haven For Investing Let s take a step back and check out the larger picture. It is a big country out there and there are a large number of secondary — or tertiary we ll call them — middle markets. These are the Charlestons Austins Nashvilles Raleigh-Durhams and St


Louises and the list goes on. These markets are vast and fragmented. Opportunity abounds and where there’s opportunity there are deals which become loans. Now forget concerning the lovely neighborhoods how great the developer is or the stories of attraction spun by a city. It is when you lean in on core value metrics


Entrepreneurial private hard money lending firms can home in on this by sorting through the noise of those countless markets to locate real deals that adhere to the intrinsic value concept. By applying a formula say lending approximately $75 for every $100 of intrinsic value on an asset standards might be kept high


The smaller the loan-to-cost (85% or less) and loan-to-value (75% or less) the safer the deal and money is less more likely to be lost. We re back at rule No. 1. Now consider the state of real estate in middle markets: • Supply and demand pressures to acquire assets are reduced by using the vastness of this class of cities


• Fragmented markets can keep prices competitive but not as high as in lots of primary markets. • Debt continues to be plentiful. Putting Stock In Intrinsic Value What does this mean for investors? You perhaps sitting on funds wondering how to not lose money in an uncertain economy. You are able to take an aggressive standpoint rolling the die chasing a deal and hoping which you win a lion s share


This would take time to research the markets and all of the variables that interplay for every one. It is where I think we as private hard money lenders ought to be tasked to do the legwork. Hard money lenders have a tendency to be experts in targeted middle markets often peppering in a primary market or two granting loans on assets which have high intrinsic value


Raise funds at say 7% (much higher than the national average for savings accounts that are susceptible to losing APY with Fed cuts) and invest them in properties at 10%. With a margin of safety built into each loan you’re taking a more cautious route to creating money. Diligent shops that drive marketing efforts can bring in additional deals within the middle markets


The goal is to ferret out the value to assist Wall Street deploy large amounts of capital into smart investments. And these investments can further capitalize on the market as assets expand across the vast landscape. What this all boils right down to is Warren Buffet s rules with a touch addendum: 1


Never lose money and 2. Never lose sight of being patient because your money could make more money. Be diligent be safe and be prepared for the subsequent downturn by concentrating on value. Forbes Real Estate Council is an invitation-only community for executives in the genuine estate industry. Do I qualify?

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