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Jan. 30, 2023

The Fundamental Shifts in the Real Estate Markets

The Fundamental Shifts in the Real Estate Markets

In today’s podcast episode we interview Andrew Davis, Director of Investor Relations for Passiveinvesting.com. Andrew’s team creates deep experience and intensive due diligence while creating intelligent real estate investments through the hottest multifamily real estate markets in the United States. Today’s topics in the podcast are focused on the fundamental shifts in the real estate markets. We will talk about interest rates, inflation rates, supply, demand, deal flows, and deal structures which will help Limited Partners make decisions in the ever changing market conditions.

Significant Changes on Deal Economics

Due to the high inflation rates, the FED is forced to increase interest rates on debts to forcefully slow down borrowing and will slow down the economy as a whole. According to Andrew, deal economics for LPs remain the same at 7% preferred return with 70% - 30% split to 13% internal rate of return. And the reason behind that is because they always land very conservatively in their deals. A sign of a great operator lies behind the consistent returns despite the fundamental shifts in the markets.

The Fundamental Shifts in the Real Estate Markets

Return profiles of investors are changing quickly because of the fundamental shifts in the markets. As a new investor or experienced investor one should be aware of the market cycle they are and the forces that are driving those changes in the return profiles. Listed below are the driving forces behind those fundamental shifts.

  • Rising interest rates on debts
  • Increasing inflation rates
  • Undersupply of new developments
  • People involved in building to rent crazes
  • Compressed cash flows 
  • Increasing demand for rental housing

Andrew further reinforced that these things should only manifest for the short-term of the market cycle and investors should not worry and always think at the long term.

Finding the Best Debt Deal in the Markets Now  

In the case of Andrew’s team, they were able to take advantage of the previous debt market. The goal is to get the lowest interest rates and make sure that it is not going to throw off the fundamentals of the cost-to-capital aspect of the deal. And since with rising interest rates, leverage are getting lower and this is the time that taking out loans should be conservative to make sure the margin of safety and confidence of the principal of invested capital.

Who is Andrew Davis?

He is the Director of Investor Relations for PassiveInvesting.com, where he has helped raise over $200 million dollars for various assets. He began his career in sales, working for Fortune 500 consumer packaged goods companies, receiving multiple promotions and developing leadership, sales, marketing, and operational experience. Andrew is passionate about real estate investing since his early college years, he began the “side hustle” of investing in single family RE in his 20’s, and raised capital from friends, family, and in some cases complete strangers to acquire his first few deals.

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