EP228:  If You Want To Become A Millionaire in 2024, Avoid This!

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Hi guys, it’s your friends the Kitti Sisters, back with another episode! Today we want to talk about some real estate trends as we enter 2024. Did you know that Real estate can be trendy? Well, you do now! And 2024 is shaping up to be almost as interesting for real estate trends as the comeback of bell-bottom jeans.

You know the in and out videos that are trending on TikTok? We’re sure you’ve seen them – and if you haven’t, do a simple Google search and you will have more results than you know what to do with. Basically this trend has creators coming up with videos where they say hello to the good in 2024, like exercise, gratitude journals, maybe more sleep, and also say goodbye to the things that are out, like procrastination, comparison, and fast food. 

What’s the point of all this? Well, just like on TikTok, the world of real estate has trends too and some of them just might surprise you. But why does this matter? And why should you care? Well, we know that like us, you strive to be ahead of the curve, learning, growing and expanding skill sets, so we think it’s important to be aware of what people care about, economic impact, and how it all affects you and your financial future.

So first of all, Today, let’s look at a specific trend in 2024 that we think has a significant impact on real estate investments. Before we get too far into the landscape of investing in 2024, it’s important to think about investment drivers. 

What does that mean? Well, funny enough, it’s just like how it sounds. These are the things that impact real estate to the point that you can’t ignore them anymore. So let’s get into each one.

Investment Drivers

The first investment drivers are interest rates and the cost of capital. If that sounds intense, it’s because it is.

But basically, all this means is that in real estate, there’s this thing called the Commercial Real Estate (CRE) debt market. The CRE makes up the financial framework where debt instruments associated with commercial real estate properties are transacted. 

Yeah, and this market serves as a platform for engagement among investors, lenders, and borrowers, facilitating transactions involving different categories of debt secured by commercial properties. These instruments in turn play a pivotal role in the financing of various commercial real estate ventures.

So why should you care? Well, the CRE debt market is important because if you’ve got a loan coming due soon, there’s a chance you might see more missed payments and some properties up for grabs. 

But it turns out, according to recent analysis, that a good chunk of loans could likely pull off a successful refinancing. 

The reason why this is a big deal is because it tells us just  how much cash is flowing and how stable things are in the CRE financing world. And that’s pretty crucial info for both current property owners and anyone else eyeing the investment scene.

Our next investment driver might seem like a no-brainer, but it is important to talk about and make sure that you are considering. This one is quite simply construction and renovation costs. You see, over the past few years, construction and renovation costs have been on the rise, thanks to the noticeable spike in inflation.

And guess what? This isn’t just affecting new projects but also renovations. Looking into 2024, it seems like owners of B and C properties will be digging deeper into their pockets for renovations. It’s the wear and tear on these older properties that’s really adding to the financial load, especially if they happen to be in neighborhoods with a bit of a rough history.

That’s why we’ve shifted our strategy. We’re putting our money into newer properties in A-rated neighborhoods. We’ve been through the challenges of dealing with older properties and don’t really want a repeat performance. 

The key here for us (and for you!) is learning from experience and making smart moves to avoid those extra headaches and costs that come with renovating in less favorable areas.

Speaking of cost, you also have to deal with land and operational costs. This isn’t just the land itself either; you have to think about not so fun things like property taxes, labor, and even insurance.  

Right now, the big players causing a stir are insurance and property tax, and they’re not just impacting the Net Operating Income (NOI) but they are also seriously messing with the cash flow of properties.

The unfortunate reality is that some places see crazy spikes in property tax assessments, while others don’t bother with annual reassessments. So, if you’re eyeing your next multi-family apartment complex, you need to keep property tax and insurance in mind for your peace of mind.

Places like Texas and Florida have been hit with soaring insurance premiums. In fact, in Florida, it’s gotten so wild that buying multifamily apartment property there, despite some solid fundamentals, is starting to look like a headache for owners. 

That’s where cities like Phoenix come into play. They don’t deal with as many natural disasters, so their insurance premiums are usually way more reasonable – making them a tempting pick for real estate investors.

So not only do you have property tax and insurance going on, but you also need to think about the political environment and neighborhood dynamics of where you live and/or are investing. As crazy as it might sound, not every state is the same and the political landscape we’ve seen in recent years proves this.

We’ve always talked about the importance of investing in states that prioritize landlord, investor, and business friendly.

In 2024, this emphasis becomes even more critical, as your ability to handle non-paying tenants through evictions significantly influences the success of your business. This might not be something you want to ever think about, but this one details hinges on the legal landscape of the state and county where the property is situated. 

So do your research and do what’s best for you and your passive investors.

Not only does your state affect all those areas, but it also is important to be aware of the population and job growth of your chosen state. Even though the overall U.S. population growth is less than exciting, there are some spots in the country that are buzzing with people, jobs, and good pay. 

Check out states like Arizona, Texas, Nevada, North Carolina, and Tennessee – they’re not only pulling in people but also businesses. And even better,  these states are landlord-friendly, making them super appealing to businesses looking for a new home.

So when it comes to multifamily apartments, it’s honestly a pretty simple business move. There’s plenty of data telling us which states and areas are gaining people, so you want to pick places that are gearing up for high-paying jobs in 2024. Bonus points if there’s a bit of a shortage of housing supply; that’s what’s going to keep rent growth stable.

Key Concerns in 2024

Okay, so we’ve talked about investment drivers, but what should you be watching out for? Well, there’s honestly a lot of things. We would be lying if we told you it’s all smooth sailing, so take it from us, learn from our years of experience (and even a few mistakes along the way), and protect yourself and your assets. 

The first thing you’ll want to look out for is the grim reality that reduced household savings rates and the exhaustion of pandemic-related savings have more striking implications for C-Class assets compared to other classes. At one time the depleted pandemic savings actually helped many residents in C-Class apartments to remain current on their rent.

Now, with these savings exhausted, there’s an increased pressure on residents to stay current, a situation less impactful in A-Class apartments, where the income-to-rent ratio may be as high as 6 to 1. 

This means that if the rent is $1,000, the resident may be earning a net income of $6,000 per month. On the opposite side of that, the issue of low savings is likely to increase demand for rentals, as many continue to find it challenging to afford home purchases.

Not only that, but with student loan payment resuming, you might see more delinquencies in C-Class apartments as people struggle to make ends meet. 

And with inflation compounded by student loan payments, buying a home is harder than ever. As this dream becomes more and more distant, rental culture continues to dominate. 

As all this is going on, oil prices are also climbing, making life and getting around a bit pricier. And banks are also playing it safe with stricter lending rules due to some financial instability.

But, the awesome part about all of this is that in our world of multifamily apartments, we’re actually loving these tighter lending standards. In the past, we’ve seen some deals that were a bit shaky, relying on assumptions that didn’t quite match up with what was really going on with the property. 

Plus, there were doubts about the general partner group’s ability to handle things. With these stricter lending rules, only properties with solid business plans and proven management skills get approved.

The financial crisis of 2008 is a great example here of a time when we saw relaxed lending standards within the housing market. Countrywide Financial, under the leadership of Angelo Mozilo, really embraced aggressive lending practices, featuring subprime mortgages and adjustable-rate loans. 

The collapse of the housing bubble shortly after  resulted in widespread mortgage defaults, foreclosures, and general economic upheaval. This disastrous time in history is a perfect example of why lending standards are important and how they ensure the enduring stability of the financial system.

Maximize That Profit

So you might be thinking, all this is great, but how can I strategically shift  my investment portfolio to capitalize on this shift and maximize profits? Well, it’s actually pretty simple, and with just a few more minutes of your time, we are going to tell you just how to do that. Let’s get started. 

First up, check out the migration trends – look at data from moving companies and the U.S. Census Bureau. It turns out, the South is currently where the action is, making up for 87% of the nation’s growth. 

You’ll also want to pay attention to demographic trends because where people are moving can mean big opportunities for your investment portfolio. 

The key is to be smart about picking locations that are not just hot right now but have the potential to stay sizzling in the future. So, keep an eye on those trends, especially in the South, and let them guide your investment strategy.

By zeroing in on states experiencing substantial growth (like Texas and North Carolina),  investors position themselves strategically. You can even take it a step further, digging into specific submarkets within these growth hubs offers deeper insights.  By adjusting investment portfolios, you can even anticipate where the crowd is headed and make calculated moves to maximize your investment returns.

Take Action

Great, so you’ve done all that, but how can you align your investment strategy with this trend to ensure long-term growth and stability in the ever-evolving real estate market? 

You’ve found the states with population growth, figuring out which cities or counties in these states are best for investments. But have you ever heard of “double down markets”? These are the areas where both businesses and people  are settling down, which means that major growth is ahead. 

Not only that, but there’s also this idea of what are called “smile markets” down in the sunny Sunbelt areas. People love migrating there for the weather, affordability, and all-around safety.

​​ The focus for 2024 investments for us centers on the top markets: Nashville, Phoenix, Dallas, Atlanta, and Raleigh. This strategy is based on the understanding that we talked about earlier of demographic trends and their influence on real estate demand within these markets. Not only that, but this approach involves adapting to shifts in work habits, especially the rise in remote work, and the demand for residential versus office space.

So, there you have it – the trends, challenges, and strategies for 2024. Keep learning, stay curious, and make those smart moves for a thriving investment portfolio. Until next time!