Now that we’ve reached an agreement on the debt-ceiling shakedown, let’s talk about the stories you haven’t been hearing:
- Investor home purchases drop 49%, the largest drop on record.
- The U.S. House of Representatives passed four pieces of bipartisan financial services legislation to facilitate capital formation by strengthening public markets, helping small businesses and entrepreneurs, and creating opportunities for all investors.
Let’s get into it,
-Equifund Publishing
Investors officially abandon the Housing Market in 2023 (49% Drop in Purchases)
For investors interested in real estate, new data released from Redfin, a leading brokerage, shows the single biggest annual decline of investor home purchases ever!
[Note: investor home purchases are not the same as owner occupied home purchases.]
Why? After the pandemic-fueled home buying spree of epic proportions…
Rising interest rates have put a serious damper on investor appetite, as the cost of capital becomes more expensive.
With mortgage rates hitting ~7%, and cap rates collapsing to <5%, we’ve basically hit a “death cross” in the housing market, where investors are all but guaranteed to lose money on their rentals after debt servicing costs.
But that doesn’t mean it’s all bad news for real estate investors.
Your main guidepost for finding these markets and deals needs to be about Cap Rate. That is, how much rental profit you earn from the property (net income / purchase price).
Because in this higher interest rate environment, cash flow is going to become the key measure of success.
High cap rate markets/deals give investors this cash flow from Day 1.
You can actually buy a rental and start putting money in the bank right away. Rather than having to hope and pray for rent growth and appreciation into the future to “save” your investment.
Where are the highest cap rate markets in the U.S. today? The Midwest and Deep South.
Want to know what else is ALSO happening in that region?
Not only are we seeing record net migration to this part of the country…
It’s also home to a majority of states with some of the highest manufactured home shipments.
The top 10 states accounted for 62% of annual shipments in 2018, up from 54% just six years prior. Only one state in the top ten, Louisiana, saw a decline in shipments, to 5.0% in 2018 from 7.4% six years prior.
Historically, manufactured housing returns have outperformed the returns offered by other core commercial real estate sectors. As of March 30, 2022, Green Street Advisors Commercial Property Return Index reported manufactured housing returns at nearly 391 percent, since March 2021, surpassing the next leading sector by 33 percent.
Want to learn more about investing in manufactured housing communities? Go here for more details.
[Disclaimer: As a reminder, past performance is not a guarantee of future results. All investing carries some form of risk. Securities sold under Reg CF, Reg A, and Reg D are often considered high risk, and speculative in nature. Please do not invest funds you cannot afford to lose, or otherwise need immediate access to the invested capital.]
House Passes Bipartisan Financial Services Capital Formation Legislation
A few Weekend Editions ago, we talked about the 15 pieces of legislation approved by the U.S. House Financial Services Committee.
This week, four of the 15 bills were passed by the House:
- H.R. 2792, the Small Entity Update Act, sponsored by Chairman Ann Wagner (MO-02), would direct the SEC to assess regulatory costs of compliance for small and growing businesses, ensuring that regulations placed on these businesses are not overly burdensome.
- H.R. 2795, the Enhancing Multi-Class Share Disclosures Act, sponsored by Rep. Gregory Meeks (NY-05), would ensure shareholders receive more uniform information in proxy materials without prohibiting multi-class share structures altogether.
- H.R. 2796, the Promoting Opportunities for Non-Traditional Capital Formation Act, sponsored by Rep. Maxine Waters (CA-43), would empower underrepresented and rural small business owners to learn about capital formation opportunities.
- H.R. 2797, the Equal Opportunity for All Investors Act, sponsored by Rep. Mike Flood (NE-01), would increase the number of pathways to qualify as an accredited investor by instituting a test administered by FINRA, allowing sophisticated-but-not-wealthy individuals to access high-growth asset classes that would not otherwise be available to them.
As we all remember from Schoolhouse Rock, there’s still a way to go before bills become law.
In order for that to happen, all of the following steps still need to take place:
- The bills move to the Senate, which will assign the bills to a committee;
- The committee will review, and potentially revise the bills before deciding whether to send them to the Senate floor for a vote;
- If the bills win a majority vote in the Senate, they will be sent to the President;
- And the President must sign the bill into law (or do nothing, in which case the bill becomes law automatically after 10 days).
We’re still waiting to see what happens with the remaining 11 bills that are part of the broader push for the “JOBS Act 4.0” updates…
But in our view, this is an exciting advancement that could very well kick off a new era of retail investor access to private market investment opportunities.
We’ll keep you updated as the story develops.
