Dear Investor,
Think for a moment about today's real estate market. The rebound from the pandemic was real, and rental and sales numbers took off, but now the Fed is raising rates dramatically. Is now a good time to jump in – or did I miss the window? It's a highly debated topic, but unfortunately, unless you can predict the future, there is not a way to time the market.
Yes, the typical real estate cycle is 18 years and runs through 4 phases (recovery, expansion, hyper supply and recession)—but it's not so easy to know where you are in the cycle until after it ends.
Many have said, "The market is too down (or too hot) to invest or develop that asset right now," or "I'm going to wait for the market correction to buy on the cheap" or "I'm going to wait for rates to rise or for local inventory to drop." Almost every time, the inflection point investors were seeking never came. The market zigged when everyone thought it would zag.
Real estate and housing, in particular, is an investment class where one's economic projections could be spot on for the market at large but completely off the mark on the particular sub-market. For example, a price drop a buyer was looking for may take five years longer than expected to develop, keeping an investor on the sidelines. Or one could be right about fears of an interest rate change, but during that time, the demand may have gone in the opposite direction and nullified the effect of the rate change.
That doesn't mean investors and real estate professionals can't find some luck. Take the early days of Covid-19's spread, for example: If you happened to be developing real estate in Florida or Texas in 2020, today, you might look like a genius! If you were developing in New York or San Francisco, you would have been licking your wounds (or bankrupt) until those markets rebounded in 2022. The pandemic created a lottery we didn't know we bought a ticket for—some markets did really well, and others got crushed, all by circumstances that were unpredictable a year or two earlier.
By way of disclosure, we have an advertising relationship with Mortar, meaning we get paid for making this introduction. As always with these types of deals, consider this an introduction and not a recommendation. Every deal is unique and the responsibility to vet any and every deal you invest in still lies with you. This opportunity is available to accredited investors only (income of $200K+ or investable assets of $1M+).
We can never ignore the market cycle, but there are other variables at work. There are factors we can control and use to evaluate and deliver a successful project:
Experience is an advantage. There is nothing like going through the pain of several rough markets or downturns to make one wiser and able to plan against the downside.
Know your market. As the saying goes: "Once you read in the paper that the market is on fire, you've probably missed the boat." Knowing your market allows you to quickly look at deals and determine what makes sense and what doesn't—where there is value and what is overpriced.
Don't try to be a fortune teller. Base your analysis on what's going on today. Don't view a pro forma report or Excel model based on what happened in the past, what trends or experts say or what you think will happen in the future. Stick to fundamentals. If rent is $10 today, run your numbers on $10, not a guess that you think the rent is going to go up 25% by the time a project is done. Upside is nice, but be conservative.
Don't panic. Following logic and clear thinking can get you pretty far. It's not always easy to do—but real estate markets usually move pretty slowly, and one can usually adapt as a project is under development. In a construction project that will take several years to complete, the day-to-day swings in the market become irrelevant.
Be strategic when it comes to liquidity and leverage. Leverage is great when the market is good, but it can quickly kill a project when the market turns and developers are not ready. Liquidity is just as important in a market shift, but it can also help a project get through a short-term cost overrun or delay.
"Buy low and sell high" sounds easy, but there is a lot of nuance in that phrase. Market analysis is never black and white. Mortar uses their knowledge and experience to acquire good properties and develop buildings they can be proud of, while at the same time protecting and building investor capital—brick by brick, one project at a time.
In the last two years, Mortar Group has launched several exciting offerings, including the Richardson Value-Add investment which launched in 2020 and will deliver an annual return of over 15%, or their District Lofts offering, which is expected to exceed initial IRR projections.
Mortar Group extends White Coat Investors access to exclusive opportunities on new offerings. If you would like to know more, please visit their website, or reach out to their Investment Relations Manager – Francesca Gaccione at 646-559-9471, or gaccione@mortargroup.com.
Learn more about Mortar Group today!
Jim and Brett
James M. Dahle, MD, FACEP
Founder, The White Coat Investor
Brett Stevens, MB
COO, The White Coat Investor
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