If you read my emails last month, you heard me talk about rising interest rates, plummeting mortgage applications, slowing sales, and the ever-so-slight cooling of the market.
With so many different economic headwinds blowing like a hurricane, right now feels like a bad time to buy OR sell real estate.
Of course, how things feel rarely indicates how things are in reality, which is why the bulk of this email will break down why now is still a great time to buy…Especially, if you’re interested in acquiring a multifamily building (and, no, I’m not just saying that because I’m an agent LOL!).
-Shannon
310-853-0335 | ShannonShue@KW.com
*** THIS MONTH ONLY—Our Monthly Workshop is going to be IN-PERSON in Santa Monica on the 27th of July at HIGH NOON. Don’t miss this opportunity to meet me in-person and learn about all-things SoCal real estate. You can also join through zoom. We’ll be comparing two duplexes in my neighborhood that closed in Q1 and Q2. And if you can’t make it, I’ll include some notes in my next email for ya 🙂 ***
The Short Story...
***Rising interest rates are squeezing less-qualified buyers out of the market.***
***As the pool of buyers decreases, sellers see less-intense competition for listings.***
***Reduced competition from buyers means sellers are more willing to negotiate today than they were six months ago.***
***However, not all partnerships are created equal, and it's important to think long and hard about what kind of partnership you're prepared to enter.***
***Buy-and-hold investors can capitalize on reduced demand to secure a property on more favorable terms.***
***When interest rates come back down two years from now, today’s investors can refinance to lock-in tremendous value—especially on cash-flowing multifamily properties.***
The Full Story...
You already know that demand is outstripping supply across the world of residential real estate.
Whether you’re trying to buy a traditional single-family home, a townhome, a condo, or a multifamily building, there are too many buyers and too few sellers.
Yes, interest rates are up significantly since the start of the calendar year, but—interestingly—demand hasn’t plummeted like some pundits feared back in April.
(In fact, in some metros things are still looking rosy. Here in Southern California, ??the median sales price was nearly $842,000 in May—up more than 11% from May 2021.)
Having said that, demand is down (albeit slightly) and that decrease is turning some prospective homeowners into renters. If you’re watching the news, you’ll see story after story about dwindling vacancies, increasing rents, and more competitive application processes.
This, my friends, is called an ‘opportunity’
The rental market is about to experience what the housing market experienced for the last two years—wild-west demand, fueled by a growing number of prospective renters and too few units available to accommodate their demand.
For multifamily buyers with a long-term mindset, this is excellent news—it means their properties will generate stronger cash flows in the months and years ahead.
That additional cash can be used to offset higher borrowing costs related to increasing mortgage rates.
A couple years from now when interest rates drop to 2019 levels, these owners can refinance their mortgage to get a better rate, while still drawing in strong cash-flows from their renters.
Lower financing costs + strong rents = a big win
If you can stomach the specter of higher interest rates and a higher monthly payment, the long-term upside on buying a multifamily right now—especially a duplex or triplex—is huge.
Depending on where you buy, you’re virtually guaranteed strong income, a property value that grows, and (for those of you seeking a primary residence) a place to live. Plus, when mortgage rates come down you can refinance, lowering your cost of ownership at the exact same time broader market depend starts to surge (increasing the value of your property).
Now, I know “virtually guaranteed” is a dangerous thing to say in the real estate industry, but the numbers bear it out.
As this op-ed from Bloomberg points out, the slowdown in the housing market right now isn’t being driven by an industry-specific problem as it was in 2008. Rather it’s being fueled by the Federal Reserve rising its short-term borrowing rate—a decision the Fed can reverse at any moment.
“There is no broad industry downturn as we’ve seen before in oil and gas or the technology sector that would lead to the housing market suffering in places like Houston or the San Francisco Bay Area. Homeowners haven’t taken on too much debt, and there’s no inventory glut—quite the opposite, in fact—that would lead to a broad-based downturn.”
The one thing to look out for
For those of you ready to take the plunge and buy—I salute you. Particularly those of you who are in a position to heed my advice and acquire a multifamily building.
My one word of caution?—Becoming a landlord is not risk-free. Evicting a tenant is not easy, and in some renter-friendly areas such as Los Angeles or San Francisco, it can feel downright impossible.
That word of caution applies whether you’re buying a vacant multifamily (i.e., be thoughtful in who you decide to rent to as an owner) or an occupied multifamily (i.e., be prepared for difficult tenants or, if you’re living on the property, neighbors).
If you're a buyer, don't wait...
If you’re looking to buy a primary residence don’t sit around waiting for a -20% drop in prices in your metro area, because it isn’t going to happen—buy now.
That advice goes double for anyone willing to buy a multifamily property. Get in the market asap and start cashing in on those record-breaking rents.
(And, duh, email or call me if you want to talk shop—ShannonShue@KW.com or give me a call at 310-853-0335.)
And, finally, a personal note...
For those of you who’ve been reading my emails for some time now, you know I’m not one for tooting my own horn.
However, today, I’m going to make a little self-congratulatory announcement.
I am now one of the Top 1.5% agents in the country according to RealTrends—a huge and humbling honor.
Thank you all for your support, your readership, and, for those of you I’ve worked with, your business—none of this would be possible without you.
Talk soon!
-Shannon
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Required Reading...
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Free Workshop + Book Club...
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What People Are Saying...
“Shannon was great to work with. AS first time homebuyfirst-timeers, my husband and I were unsure how to navigate the whole process. Shannon made it very easy to understand each step. She would clearly lay out all our options and offer her honest opinion with an explanation.”
– Brandon Witte
“Shannon is phenomenal! Her expertise, knowledge of real estate, and delightful personality make her great to work with. She was available to answer all of our questions, provide referrals to excellent vendors for absolutely everything, and provide strategy and guidance in purchasing a home in the current market. I highly recommend Shannon.”
– Cassadie Moravek
“Shannon was knowledgeable about real estate and a fantastic negotiator. She took great care of my partner’s and I best interests while helping us understand the give and take involved in buying your first home. She also went up and beyond helping us connect with contractors to make the space our own”
– Maria Lamadrid
Recent Transactions...
3750 Stocker St Unit 211,
Los Angeles, CA 90008
This property was listed for $629,000 and sold for
$69,000 over the listing price
Received 3 offers
This is one of the projects I flipped
The reason I bought it is that the condo has 2 kitchens, and thought if I have to rent it I could rent it for more money
Culver City, CA 90066
Sold for $1,500,000
The appraisal came in at value
The buyers received $24,000 in repair credit
The property was on and off the market
I helped my brother and sister-in-law buy this property
Need to Chat?
Are you thinking about buying or selling a property in the Los Angeles area?
If the answer is YES, make sure you sit down for a candid conversation with Shannon—share your goals, ask any question, and discover why she’s one of the most successful real estate agents in Southern California!