2014 Real Estate Trends Every Investor Should Know About

Multifamily Apartment Investing

Joel Worcester

There are many big changes taking place in the real estate industry, and projections for the new year hold a wide array of challenges and opportunities. New regulations and trends taking the stage in the coming months could impact the real estate market for years to come. Take a look at some of the game-changers coming into play next month.

Dodd-Frank Act Regulates Home Buying

Several new regulations on mortgage financing will take effect on January 10. Perhaps the most significant impact of the new regulations include the ability-to-repay rule, which gives consumers the right to sue lenders for miscalculation of their financial health for a loan. As a result of this, loan requirements will become even more stringent. The Consumer Financial Protection Bureau has acknowledged that these new rules may increase the costs and risks of obtaining a mortgage, but are necessary measures to prevent a future crash. Between 2006-2008 the delinquent mortgage rate rose by 50% and the foreclosure rate by 175%. The CFPB published this summary of the way these changes will affect consumers.

Young Renters are Moving by the Masses

The Urban Land Institute published their Emerging Trends in Real Estate Report in November, which stated that the majority of real estate trends are based around the Millenial Generation (born between 1975-1995). 63% of Millenials expect to move within the next five years, and 38% of those individuals expect to move into a multifamily rental property. The ULI report also stated that Millenials are moving toward midwest and pacific northwest smaller metropolitan markets, as opposed to large metropolitan areas like New York City and San Francisco. 79% of Millenials currently, or plan to within the next five years, live in a \’medium-to-big-sized\’ city. General attention has turned towards cities like Portland, Seattle, San Jose, Dallas, Austin, Houston, and Minneapolis. Young renters dominate the resident pool and may drastically change the way investors play the market.

Interest Rates Modestly Rising; House Affordability Declining

Mortgage origination is projected to be down approximately 32% in 2014 due to rising interest rates. Four weeks ago, the 30-year fixed-rate mortgage was 4.39; this week\’s rate is 4.58. Jay Brinkmann, Chief Economist of the Mortgage Bankers Association, projects rates to rise above 5% in the coming year. In 2013, one in every five homes sold was purchased by an investor. With higher prices, increasing inventory and less foreclosures, the surplus of \’cash-carrying, hobby investors\’ in the real estate marketplace will gradually decrease. This projection is backed by the struggle investors may have with valuation and cap rates as interest rates rise, slimming the competition. Also due to a combination of rising interest rates and home prices, which are rising faster than income and rents, home affordability is expected to continue on a 5-year low. These factors indicate that residents will continue opting to rent than buy, as the home-buying frenzy we saw in 2013 dissolves. 47% of adults state their biggest obstacles in purchasing a home are mortgage qualifications and/or rising mortgage rates.

SEC Lifts Ban Against Public Advertising

The Securities and Exchange Commission lifted the ban on general solicitation on September 23. Through amendments to Title II and III of the JOBS Act, small businesses will be able to publicly advertise investment offerings, contingent on abiding several SEC guidelines. Some of these compliance requirements include verifying the accreditation of prospective investors, satisfied by reviewing tax returns and other IRS reports and/or receiving written verification from an SEC-registered investment adviser, licensed attorney, registered broker-dealer, or certified public accountant that reasonable steps have been taken to verify accreditation. Businesses must submit a Form D 15 days before engaging in general solicitation, and again within 30 days of completing to indicate the details and ending of the offering. Form Ds will require more information, including the issuer’s website, use of capital raised in the offering, methods used to verify investor accreditation, details of general solicitation used, and more extensive information on the issuer. Materials used for general solicitation must include disclosures pertaining to risks of the investment and accredited investor requirements. This means that companies seeking investors will be able to utilize more mainstream methods of advertising to raise capital and fund businesses. For more information, read the Final Rule here.

Rising Demand for Multifamily Rentals in Secondary Metropolitan Markets

As a result of many factors, including the CFPB\’s new debt-to-income ratio of 43%, several secondary markets like Portland, Seattle, Dallas, Houston, and San Jose, are predicting multifamily vacancy rates to continue falling considerably. Vacancy rates have been cut in half since 2010, coming in at 4.3% in January of 2013. Cities with increasing job growth are seeing higher demand for apartment rentals, which is responsible for prompting new multifamily development in several large markets across the country, allowing apartment rental rates to continue to rise at an average of 3% annually. Demand has increased so rapidly that some experts have speculated that there may not be enough supply to keep up.

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Joel and Worcester Investments are a pleasure to work with. They are tenacious negotiators, tireless researchers and incredibly dependable partners. Whether partnering in real estate purchases or loaning them funds for opportunities, I am always confident that the outcome will be successful.

- Kerrie Johnson

I financed Worcester Investments on 3 properties in the Saint Joseph area. They have always paid on time and have been a pleasure to work with. I would recommend them to work with.

- Howard Miller, Spirit Miller Trucking

Gebhardt Family Trust financed a property with Worcester Investments in 2007. Since that time Worcester Investments has made all payments timely. I would recommend doing business with them.

- George Gebhardt, Trustee

Paul and Joel were easy to work with and honest throughout the purchase process. We were able to close the transaction successfully. I look forward to working with them in the future.

- Aaron Mesmer, Block LLC

It has been a pleasure conducting business with Worcester Investments, as they have remitted all payments on time and provided timely documentation for all necessary activities. I still maintain a singular business relationship with Worcester Investments, but would, without hesitation, discuss other business opportunities with them. I highly recommend Worcester Investments and I believe they represent the correct risk/reward opportunity.

- Toby Ream, Imagine Investing

We have worked with the Worcester family and Worcester Investments for over a year and closed multiple transactions together. They have always been very straight forward, accessible, and accommodating with the many information requests and questions that go along with processing a loan. Their knowledge of real estate, especially multi-family, is truly impressive. We welcome the opportunity to work with Worcester Investments for a long time to come!

- John Schorgl & Tom Cohen, Johnson Capital

Paul and Joel were easy to work with and honest throughout the purchase process. We were able to close the transaction successfully. I look forward to working with them in the future.

- Aaron Mesmer, Block LLC

The Worcesters are humble, hardworking people who are continually bettering themselves. I am not surprised at the success they are experiencing. I highly recommend any potential business partners, lenders, etc. to work with the Worcesters.

- Joe Isenberg, Brothers Cleaning

It's my pleasure to recommend the principals of Worcester Investments. The principals have strong knowledge and keen financial strength in the commercial real estate arena to recognize an opportunity to add their value added expertise to a property. I've seen the high results of their efforts and know that their future will be full of successes moving forward.

- Jack Hanrahan, First American Title

I would recommend Paul Worcester as a very good man to do business with. He was very honest, helpful and businesslike in our dealings. He is a man of his word which I appreciate very much.

- Ray LaVaugn

Over the past few years, we have had the pleasure of working closely with Worcester Investments LLC on a number of real estate transactions. They have a tremendous amount of knowledge regarding the real estate industry in St. Joseph, MO, and are very thorough when it comes to the details of each and every acquisition. They are an asset to our community and we hope to continue doing business with them for many years to come

- Saint Joseph Title & Abstract

As a banker who works with many small and mid-size businesses, I certainly feel that Worcester Investments is a step above the rest. You will not find a more professional, well-run organization. They are unparalleled in all aspects of their business, from the execution of their business plan to the planning, acquisition and financing structure. They are extremely thorough and always do their homework. It is truly a pleasure working with them.

- Chris Grossman

Worcester Investments has been a great partner and manager. The income our properties have produced has exceeded my expectations. They always follow through on their commitments, and they communicate very well. I consider them true professionals.

- Dr. Stephen Hull

I want to take this opportunity to thank you for the business you with Nodaway Valley Bank. The loans we have with you have been maintained in an excellent manner. It is a big asset having Paul manage these investments for you and gives the bank the comfort level we need. I look forward to a long standing relationship.

- Jerry Ingle, Nodaway Valley Bank

I've worked closely with Worcester Investments through every aspect of acquisition. I have found WI and its members to be knowledgeable investors who are well equipped to handle all aspects of a real estate transaction. A purchaser of investment property is presented with a number of challenges during the course of a transaction. WI has met every challenge. Worcester Investments and its members are timely, efficient, knowledgeable and a pleasure to work with.

- Robert Smejkal, Oregon State Bar

The Worcesters are a delight to work with and display exceptional wisdom in real estate investment. We can vouch for their integrity, honesty, and desire to serve more than be served. Most of our investments with WI earns interest that the firm pays in monthly installments, always on time. There is no other opportunity available that can match the returns WI offers and also gives us the sense of security that our funds are in safe hands.

- Stuart & Christine Smith

I have worked with Worcester Investments on a couple projects. They always paid on time and delivered exactly what was agreed upon. The Worcesters are known for their great integrity. I will gladly work with them again.

- Kevin Pendergast, O’Riley Capital

I have been the Worcesters' accountant for several years. I have found them to be professional, competent and ethical in their business ventures. I would not hesitate to recommend their services to others.

- Gerald Hoots, Hoots, Baker & Wiley PC

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