If your New Year’s resolution includes exploring new investment avenues for your retirement account or becoming more diversified in your wealth-building approach, you’ve come to the right place.
We asked top educators for their alternative investment outlook in their respective areas of expertise. Here’s what they predict for the year ahead, and how you can capitalize on the potential trends as a self-directed investor.
Investor Predictions for 2023
Real Estate/Creative Financing: Continued Correction
In 17 years of investing in real estate, I’ve been on the downswing and on the up – and the most important lesson I’ve learned is the old adage: We make money in real estate when we buy!
That’s as true today as it ever has been, and a lesson which was never truly realized until we actually begin doing deals.
For about half of my real estate life, I’ve been coaching students all over the U.S., and some overseas, on the art of creative financing – mostly using lease option strategies. I am as excited about the current conditions and the future as I’ve ever been.
Here’s a short list of what I see in the coming year. I encourage you to do your own research in these areas:
I predict that housing will continue a correction across the board – between 15 and 40 percent or more continuing this coming year, but playing out over the next few years – and how big the local ‘bubble’ is will determine the amount of correction, just like in 2006-2012.
Many homeowners may find themselves ‘under water’ in their mortgage when they need to sell – not want to sell – and doing creative deals will set you apart from the pack.
Creative financing deals (e.g., lease options, subject-tos; contract for deed; etc.) will likely become a far more practical vehicle for sellers – and a means of wealth creation for many investors – new and old.
Too many investors use age-old techniques of trying to buy properties at deep discounts, but a majority of sellers will not be able to take that much of a loss and will need to find others who can solve their particular needs – so do not be a cookie-cutter investor.
Offering creative financing to solve seller situations will be a key to getting more deals that produce far reaching income streams that many will not be privy to.
Millennials will be a major sector in the home buying space – it will be critical to focus on properties that are affordable and meet their needs.
Using self-directed IRAs to secure these deals can be a major source of wealth creation for those that are in ‘the know,’ and training and guidance will be more important than ever.
These are just some of the things guiding my investment outlook. It’s more important than ever to consider the dynamics that are shaping the markets to be successful, and not fall into any kind of investment traps that can occur at times like these, especially FOMO – fear of missing out!
Be smart, get the proper training, network with like-minded investors, and position yourself — and your family — to take advantage of what some are calling a time of investment that will create more wealth than at any other time in history.
The year 2022 has been challenging for multifamily investing. High inflation, recession pressures, and Federal Reserve interest rate hikes all had an impact on multifamily markets. While inflation and recessionary pressure may not have had a large negative impact on market trends, the interest rate hikes have had a dramatic effect on multifamily acquisitions and operations.
Acquisitions slowed to record levels for 2022 and, for the first time, the federally backed Fannie and Freddie lending institutions didn’t allocate all available funds. It appears the Fed is slowing the interest rate increases, and more than likely we will see a stabilization of increases after the Q1 Fed announcements.
The two looming concerns are a recession and all of the adjustable-rate debt securing existing operators. Rising interest rates can be offset by rising rents, but rising rent will slow in a recession resulting in debt service going up and rents maintaining. This will cause operations to have reduced cash flow and struggle to make profits or refinance out of the adjustable higher interest rate loans.
Based on my experiences and observations, I believe acquisitions will come back starting in Q1 and, by Q2, see some stability and volume come back to trades. That being said, it is still important to keep an eye on the recession indicators and just how many distressed, adjustable-debt properties impact the market.
A great investment strategy for the near future is to target projects with low fixed-rate leverage and conservative growth in the business plan. There should be opportunity to acquire properties during the next year at reduced basis that will capture large upside if history holds up and the rates adjust back to what we have experienced in recent years past.
Multifamily is a phenomenal investment. The world needs shelter, and the shortage of places for people to live is not going to change anytime soon. As an operator, my opinion is that you can’t go wrong if you can acquire nice properties in great locations and offer reasonably priced shelter to working individuals and families.
The opportunity I see in 2023 and beyond is acquiring profitable, small- to medium-sized businesses which include a real estate component. This way, you benefit from the appreciation of the real estate over a period of time while also taking advantage of the cash flow from the business.
Remember, your income is your No. 1 wealth generator. The more cash flow streams you have from a specific asset (both business and real estate) gives you extreme flexibility in moving your money into advantageous opportunities. If you want to get aggressive with your money, don’t play the game of buy and hold single-family rentals or lending your money to a real estate operator only to achieve 9-13 percent ROI or maybe an 8-percent preferred return with a waterfall which includes a five- to seven-year lock up.
My thesis is, with the right teams in place in the correct business working hard for you, the question you should ask yourself is: Can your money do more for you? In my experience, the answer is yes.
Our outlook for 2023 in self-storage investing comes with genuine excitement, as we have been preparing for this recession for the past five years. That’s because self storage actually thrives in the downturn.
I have witnessed this personally in our industry through the last two recessions, and we are gearing up for our third as the trauma and transition that goes with a downturn spells increased demand for self storage. Rising interest rates, the undersupply of housing, and the downsizing of businesses and individuals’ square footage equals a need for self storage across the entire country.
During the Great Recession of 2007-2009, self storage outperformed all other asset classes of commercial real estate, and self storage has only experienced an actual loss rate (foreclosures) of about 2 percent, by far the lowest of all commercial real estate asset classes. It has become the darling asset class for real estate investors which has attracted many passive investors seeking cash flow and tax savings through depreciation.
The future is very bright for owners of self-directed IRAs who invest in seller-created mortgage notes! Because of higher interest rates on bank mortgages in 2023, fewer people will be able to afford a home, and property sellers will increasingly have to offer “seller financing” in order to attract buyers.
These privately created mortgage notes can be purchased by investors at a discount, which creates high yields.
I believe we are going to see a downturn in the housing market as far as the prices go, but it’s not going to be so significant that it’s going to be a crash. There are couple things that I look for:
Foreclosures
If you see a lot of foreclosures taking place, you know people aren’t making their payments because they can’t afford the housing market and the condition it is in, but we’re not seeing a large rise in foreclosures.
What you would need to see for a rise in foreclosures is a rise in unemployment. Even the with the environment of the economy right now, we still have a fairly tight labor market. So, I don’t foresee an unemployment rising that would cause that foreclosure issue to take place.
I’m not expecting a housing market crash like a lot of people were talking about, but I do see where you could have a significant downturn in prices, especially in hot areas.
Mortgage rates
How high will the mortgage interest the interest rates climb, and how much impact will it have on the markets?
Mortgage rates currently (at time of recording) sit around 7 percent. As of a couple of months ago, I read that a third of homes were going to all-cash buyers. Cash buyers don’t really care where interest rates are and they’re willing to buy at this price.
Still, a lot of people are concerned about mortgage rates continuously increasing. The Federal Reserve started raising interest rates almost a year ago, causing mortgage rates to jump up almost right away, to 6 or 7 percent pretty much right away. But mortgage rates have stalled out and have not gone significantly higher since then.
That leads me look at what’s going on in the free market part of things: the Federal Reserve was participating in the mortgage market by buying up mortgage-backed securities, creating demand.
The Fed plans unload these mortgage-backed securities into the market. The security prices will likely fall, and the yields will start to rise, which in turn will cause people’s mortgage interest rates to go up.
There are plenty of investors looking for fixed-income investments; having been scrutinized more, mortgage-backed securities can be a safer investment than they once were. When you see yields rise on these securities, it gives investors reason to start buying into them, adding support to the mortgage-backed security market. This may not cause yields to rise or the interest rates to rise as much as people are thinking they’re going to when the Federal Reserve continues to tighten monetary policies.
Much of 2022 was challenging for bitcoin and cryptocurrency investors, but it wasn’t the worst period in the history of this asset class. New cryptocurrency investors often ask, “How long until the market turns around again?” While this is an impossible question to answer specifically, a brief look into the bear markets of cryptocurrency past might provide some insight.
Since 2011, there have been a number of major events that have contributed to bitcoin bear markets. In 2013, the closure of the Silk Road website by the FBI caused a sell-off in bitcoin prices. Similarly, in 2014, the bankruptcy of Mt. Gox, a then-leading bitcoin exchange, caused a crash in bitcoin prices. In 2017, the Chinese government’s decision to ban initial coin offerings (ICOs) resulted in a sell-off in the cryptocurrency market. Lastly, in 2018, the U.S. Securities and Exchange Commission’s (SEC) decision to reject several bitcoin exchange-traded funds (ETFs) caused a steep decline in the price of bitcoin.
All of these events triggered panic among the crypto investing community, inciting unease in the market, a historically accurate leading signal that each bear market was nearing its end, and the beginning of every bull market going back to 2011 (2011, 2013, 2014, 2018). Each of these times, prices crashed 90 percent or more, only to recover well beyond previous all-time highs.
As economies across the globe transition toward a modernized digital infrastructure and the number of interested institutional investors continues to grow, the need for regulatory clarity has never been greater. The promise of regulatory clarity is shaping up to be a silver lining for the 2022 bear market, as 2023 promises to be the year that it’s finally delivered to investors – providing the much-needed confidence that comes with the promise of consumer protections.
Unless otherwise stated, contributors are not employees or affiliates of Equity Trust Company. Opinions or ideas expressed by these contributors, their affiliates, and employees are not those of Equity Trust Company nor do they reflect their views or endorsement. This material is for educational purposes only, and should not be construed as tax, legal, or investment advice. Equity Trust Company is a directed custodian and does not provide tax, legal, or investment advice. Investing involves risk, including possible loss of principal. Whenever making an investment decision, please consult with your tax attorney or financial professional.
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