099: 2023 Real Estate Winning Plan | Do This Now!
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Let’s get you set for 2023, shall we?
It’s wild how big of a difference there is between 2021 versus 2022, right? Our real estate investors started the year with wild 3%-ish mortgage interest rates, and today, rates are double that!
Not only is the overall increase dramatic, but it happened in such a short period of time, which made the pain that much more severe.
Check out the chart below for more, but as of Nov 17th, 2022, the weekly average primary mortgage in the US for a 30-year fixed is 6.61%, up 3.86% from one year ago.
While we don’t have a crystal ball to predict what exactly will come in 2023, we sure can use economic data and principles to forecast what will happen to the economy and specifically the housing market in 2023.
Today we will tell you exactly what the Kitti Sisters 2023 execution plan is to make sure that you win big in the current economic cycle – even when interest rates are high.
Let’s get into it.
In recent months all we’ve heard is that the Feds are raising the fund rate.
It kind of felt extremely blunt and forceful and it has actually been disputed by many top economists as being too heavy-handed. Many have accused Federal Reserve Chairman Jerome Powell of using an outdated playbook from the 70s and 80s.
Amongst all this criticism, Powell hasn’t exactly done a lot to calm our minds.
In a recent interview 👉 he stated that in his quest to battle inflation “we need to keep at it until the job is done”.
Whatever that means…We get it, he states he wants to get back to 2% inflation, but his tactics have left a lot of doubt. Not only that, but it can be a little hard to quantify that, right? What he’s saying is that he needs a soft landing on prices and he needs them to fall fast to temper inflation.
The last time that inflation was at 2% was in 2021.
The problem is the Consumer Price Index, or CPI, is what’s called a lagging indicator, which just means that we won’t see results for up to 16 months. That’s a long time to turn around an economy! What this is all setting us up for is an overcorrection, which nobody wants.
Since June, the Feds have raised their Funds Rate a whopping six times, first at 25 and 50 basis points in March and May of 2022, followed by four consecutive 50 basis point increases from June to November of 2022.
Yet inflation remains pretty constant hoovering close to 10%. If you take an even closer look, you can see that from June to September, inflation really didn’t drop at all, in fact it spiked up even higher touching 9% in July. We will throw another graph chart in the show notes so that you can take a closer look and see the visual rise of inflation for yourself.
With an overcorrection almost guaranteed, most economists believe that the Feds will continue to raise the Fed-fund rate at least through December, if not into the first quarter of 2023.
Again, as of November 17, 2022, the average 30 year fixed mortgage rate hoovers close to 7%. Economists at the Mortgage Bankers Association predict that this won’t (and can’t) last forever. In fact, they believe that unemployment will rise in 2023, but that by this time next year, mortgage rates will fall to about 5.4%.
What does this mean for you? Well, it can mean a lot of things, but the Mortgage Bankers Association also predicts that market turbulence and the possibility of a recession will cause a slowdown in demand, leveling out the playing field and causing housing prices to finally become more affordable.
Essentially economists are predicting that 2024-2025 will see lower mortgage rates, helping to boost some much needed demand in the housing market.
The good news in all of this is that if there is a recession, which certainly seems likely, if we aren’t already in one, it seems it will be short lived, and economists are pretty optimistic about the long-term consequences.
So yes, on the flip side of that, there are prominent experts out there predicting troubling times ahead for real estate investors. They believe that the rise in interest rates will slam the brakes on real estate purchases and/ or force the sellers to sell properties at a discount, killing cash flow, etc.
We don’t fully agree with this line of thinking entirely but we want to extend this line of thought further. Yes, most unsophisticated investors will camp out on the sidelines and yes, some sellers will be forced to sell at a discount; however, we believe savvy investors can take advantage of both and make out big!
Interest rates may have become the scary boogeyman 👻 for some people, but not for us. We are always looking for ways to turn any market current conditions in our favor.
Let’s face it, like most recent investors, we’ve been spoiled rotten with all time low interest rates of 2-3%, which previously were unheard of. To put things in perspective, from 1972 to 2022, interest rates averaged around 5.42 percent.
How do you really implement and execute after we just rattled off a ton of data and statistics at you? Well, now that we got you all excited and believing that now is the time to invest, we would love to share the Kitti Sisters’ 2023 execution plan.
The first step is going to be buying great assets.
For us, this goes without saying, we don’t buy old, crumbly assets that will surprise us with unaccounted-for deferred maintenance. We are no longer in the era of buying “value-add assets” and forcing appreciation on them. This is not the ugly duckling fairytale, your C-class hairy property will not suddenly turn into a gorgeous swan 🦢. It will stay old, hairy, and undesirable. So lose the fairytale and buy awesome assets!
For us, we define awesome assets as A or B-class assets in A-class markets, with above-average population, rent, and economic growth. It goes without saying that the area is landlord and business-friendly. It should also have a high median household income, think $80,000 or above 👆.
The second step in our recipe for success is lining up good debt.
Wait a second, isn’t debt a bad thing? 🤓🤓
Not always. The definition of good debt will vary from investor to investor and from time to time. So, let’s break down what we believe is good debt in 2023.
In this type of high-interest rate environment, the best strategy to counter this is to assume lower from the seller. It is the most attractive and safest debt option available!
We all remember the good old days of 2020/ 2021 when we were rejoicing in sub-two to three percent interest rates. Well, with loan assumptions we can relive those glory days. 🤟
The caveat here is that not all loans are assumable and not all buyers will be able to assume the loans. Typically, Fannie Mae loans with at least 5 years left in the loan or HUD loans are the two available loan types that can be assumed. Luckily for our investors, the Kitti Sisters have experience with both types of loan assumptions.
At this point, some of you may be wondering, hey, what about a new fixed-rate agency debt (aka loans from Freddie Mac or Fannie Mae).
We see these two debts as less desirable in two ways. First, you are securing fixed debt when it’s quite high. Historically, US interest rate hikes do not last more than four years, so, once you are locked into a high-interest rate unless you are able to refinance, you are stuck paying not-so-fun rates which will impact your overall cash flow.
Another area that GPs tend to gloss over during their webinar presentations is that the yield maintenance aka prepayment penalties on these loans at this interest rate will be very significant – think millions of dollars.
The third step here is to buy cash-flowing assets.
We don’t know about you, but there’s something pretty magical about how that sounds like it’s a flowing river of 💸 wealth.
You’ll notice that the biggest difference between stocks and multifamily apartment investments is that one is income-producing, while the other is just a set of digits on a screen, unrealized until you sell the stocks.
Income-producing assets ensure that the property is in good health and that its growth and projected returns are not based on speculations that no one can truly pinpoint. We always buy properties that are cash flow positive from day one, this ensures that we start off from a very solid base and that the growth of the property can only trend up from there.
Fourth, make a simple and effective business plan.
That’s kind of a no-brainer, right? But you should know that all apartment syndications start off with a business plan based on historical assumptions. There’s research on in-depth market knowledge and other data points.
The goal is to hit “x” return in “y” years.
All these line items are theoretical until we actually take over the property.
Fifth step, select recession-resilient markets.
Invest in markets that have maintained single-digit unemployment. This is a factor that some investors may not have paid too close attention to, but it’s important to select markets where job opportunities are flourishing because a well-paid resident will also be a well-paid resident for our property.
Sixth Invest in markets with housing shortages.
This strategy follows a try-and-true economic principle, where there are low supply and high demand the price will go up, and this also means rental prices.
Make sure you select a market that has strong well paying population growth where the housing supply is outstripped by demand.
Seventh, Mitigate the risks. Alright, let’s talk about risks.
The truth is that there will ALWAYS be risks with any type of investing, no matter how turbulent or smooth the economy is operating. But, The Kitti Sisters take every precaution to mitigate risks, so that our investors can feel confident and secure in every investment. We start by diving deep into all the data.
We find out basically every single thing there is to know about a property – from market info to property details and beyond. It’s a LOT of energy spent analyzing reports and researching, but it is soooo worth it.
The more data we know and understand, the less risk is involved, and the more money we all make!
This upfront legwork makes it possible for our passive investors to sail ⛵ through investment deals with ease and confidence. Honestly, that’s more important than ever right now – as we face high-interest rates, inflation, and a rocky economic forecast.
Just know that with the right plan, prep, research, and team, it is absolutely possible to grow your wealth and income in 2023.
We’re doing it — and you can, too. 😘😘
And that’s why you know ➡️ Now Is the Time!
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