The changing face or Real Estate investing in Fort Lauderdale
I deal with a large number of investors in the course of my business. No matter what property type you're interested in, from condo's to retail space, the market has changed over the last 24 months. I don't think that anyone will disagree with the sentiment that interest rates are going to rise. Without discussing the broader implications that a rate rise will have, I'd like to just focus on real estate. It's entirely likely that those investors who are focused on yield will move out of real estate and move into the bond market. As rates rise bonds will be able to offer a higher yield, while real estate yields will be capped, or compress even more, as the underlying asset gains value. Of course this assumes that rents aren't going to rise as quickly as property value will, I don't really believe that's a stretch. Rents have skyrocketed in Fort Lauderdale. At some point we're going to reach the height of what tenants can, or are willing, to pay.
Most investors are going to have to pivot from focusing solely on yield, to focusing on total return. I'm not comfortable with pro forma statements that make wild claims about future values, but going forward we're going to have to make some educated guesses in terms of appreciation when valuing a real estate investment property. As always I'm looking for value added opportunities. The value I see for this coming year is on the debt side. I believe the real estate market is going to have to move away from all cash deals, and focus more on cash on cash returns, over the next 12-24 months.
Compression of cap rates has led to a rethinking of strategy for many investors. Some are pivoting out of residential investments and are looking more to office spacing, which is taking many out of their typical investment wheel house. If you're comfortable on the residential side, I believe you can stay there, but you're going to have to add debt onto your deals. It is my opinion that sellers are now more willing to look at financed offers. There has been a real reluctance since the crash of the market for a seller to even review a financed deal. I've noticed sellers attitudes have recently been changing about that.
So why add debt now? That answer is really simple, rates are going to rise. Your cost of borrowing is going to go up as time goes on. I really see no way around that. I'm not condoning borrowing levels of 70% or anything such as that. You can use leverage anywhere from 25% to 50% of the properties purchase price and boost your total return, while not overextending yourself. In short, I believe we're going to see a move away from all cash deals focusing strictly on net cap returns without leverage, to a market that begins to find true value in cash on cash returns, at least while borrowing money is incredibly cheap.
I work as a Realtor in Southeast Fort Lauderdale. If you’re interested in buying or selling a home, condominium, or townhouse (townhome) in: Rio Vista, Victoria Park, Downtown Fort Lauderdale, Fort Lauderdale Beach, Sailboat Bend, Tarpon River, Croissant Park, Collee Hammock, Wilton Manors, Oakland Park, Poinsettia Heights, Coral Ridge, or Las Olas Isles, please feel free to contact me at (786)443-7203 or through my email firstname.lastname@example.org. I am a Realtor that works on Saturdays in order to accommodate those with busy schedules.
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Written By Casey Prindle