Is Real Estate Still a GOOD Investment?

In this episode we dive into how real estate investing in 2024 will require more work but also offer opportunities for rewards if investors exercise creativity, patience and discipline, focusing on top-performing metro areas and adapting to changing market conditions and more.

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Key Takeaways:

• Real estate investing in 2024 will require more work but also offer more potential rewards compared to recent years

• Top markets for investment opportunities include Nashville, Raleigh, Durham, Austin, Phoenix, Dallas, Fort Worth, Atlanta due to job and population growth

• Industrial, multifamily, and retail sectors maintain positive outlooks while office faces challenges from remote work

• Target economically vibrant cities and future-proof buildings that can accommodate different tenants

• Maintain rigorous underwriting and stress tests for deals

• Look for off-market and distressed opportunities for lower prices

• Be patient and selective with deals as the market goes through a repricing period

About Your Host:

Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.

Episode Transcript:

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Real Estate has long been a popular investment especially after years of strong returns. But with conditions changing is 2024 still a good time to invest in real estate? Well, the short answer as always in this industry is it depends. Real Estate Investing looks more challenging, but also more rewarding in this upcoming year, investors need to adapt to shifting dynamics and uncover quality deals. Those embracing the new environment can still prosper the annual emerging trends in Real Estate Report from Uli and PwC conveys cautious optimism balanced with pragmatic concern. If you haven't checked out this report before I highly recommend reviewing it and it you'll find property type outlooks markets to watch and best bets for 2024. And so much more favorable demand drivers in real estate remain steady, including positive demographic trends in cities like Nashville, Raleigh, Durham and Austin, which see three times the national average for population growth. Many Metro housing markets have compelling lifestyle advantages, which will be evermore important in the post pandemic world and their economies have largely avoided severe distress so far, but the uncertainty is still present. This positive outlook is muddied by high inflation rising interest rates office oversupply in many cities, infrastructure constraints and growing suburbs, climate risks and housing affordability the mix of caution and possibility requires investors to recalibrate the way that we look at potential investments. The years of easy returns have likely ended but opportunities exist for creative investors that are willing to put in the work. So where are the opportunities in 2024? Well, real estate professionals see strong potential in metro areas offering relative affordability, job growth and desirable lifestyles fast growing southern markets, like those I mentioned earlier, remain popular though investors are definitely getting more selective with where and how they're deploying their capital. coastal cities continue losing appeal as residents and businesses migrate inland. The climate risks are only getting worse, making the markets less desirable and in many cases unaffordable due to the skyrocketing insurance costs. However, some experts believe urban resilience can help major hubs rebound over time. So I note if you haven't looked into Babcock ranch in Florida, it's an incredible case study on how cities can be designed and constructed to withstand natural disasters for commercial real estate, industrial multifamily and retail maintain positive outlooks. Despite localized imbalances. The outlook for each asset class really just depends on the city office faces the biggest challenges as remote work reduces or completely alter space needs long term and it certainly doesn't help offices perception that we work has recently filed for bankruptcy in residential real estate single family rentals and build to rent communities should see strong demand amid limited affordable housing inventory. Entry Level homes also offer opportunities as millennials age into the homebuyer market. Now, where is all the capital? The massive amount of money that has been targeting real estate over the last few years has pulled back quickly slowing transaction activity by more than 50%. In some markets, that doesn't mean that the capital has just disappeared. It's just waiting patiently on the sidelines. Until valuations drop and opportunities arise. Many lenders are also reluctant to increase their real estate exposure given pricing uncertainty, and since most real estate investors utilize leverage to acquire their assets, it certainly isn't helping transaction velocity for acquisitions, debt is scarcer, and far costlier interest rates have doubled rapidly over the last 12 months, and underwriting has tightened considerably. refinancing is also difficult, if not impossible, in many cases, as many properties just can't hit the winners required debt service coverage ratios at these new interest rates. industry veterans expect more distressed sales over the coming 12 to 24 months as property owners with maturing loans have limited optionality. But despite all of that tremendous investor appetite remains ready to deploy capital if the right deals emerge. Billions in equity are lined up to purchase discounted properties when the time is right. For now, the gap between seller expectations on the value of their assets and what buyers are willing to pay is simply too wide for many deals to happen. So what's the winning strategy in 2024? Well, given this complex landscape How should you approach real estate this year, being patient and selective on the deals you're willing to do? will be crucial, compelling housing markets will continue to offer job growth, affordable housing and infrastructure to handle population increases all positive demographic trends that you should keep an eye on when investing in real estate for commercial real estate, target economically vibrant metros and properties with enduring demand drivers. These are cities like Nashville, Phoenix, Dallas, Fort Worth, Atlanta, Austin, and so forth. Future Ready buildings that offer flexibility will stand above the rest. Like the very space office concept that we recently toured in Dallas Fort Worth. You want your buildings to be able to readily accommodate a wide range of tenants, so you're just diversifying your options. Avoid speculative plays in unproven markets or property categories now is definitely not the time to build new construction commercial real estate, unless you have tenants in hand, and leases executed prior to moving full, you should really maintain rigorous underwriting and really stress test each deal as the margin for error narrows look for off market and distressed opportunities were forced sales may offer lower purchase prices or creative deal structures such as seller financing, that could help bridge any lending gaps. Again, patience and selectivity are key here. But pricing clarity will gradually emerge as more properties begin to trade hands, we simply don't have the comps at the moment to determine where the new pricing is, though I personally feel we're going to see a 17 to 25% discount on 2022 pricing, those of you that are ready to act decisively when the time is right will be rewarded. As I've said before, you can refinance a bad interest rate but you can't refinance a bad purchase price. So buying right is more important than ever. So now for today's question is 2024 a good time to invest in real estate? Well, many veterans caution that current conditions mark a return to normalcy after unusually easy gains the real estate market historically appreciates at around 3% per year, it was only expected that we would see some sort of correction after consecutive years of 20% plus appreciation in some markets looking at you Nashville but they also say that deals can still get done and are getting done by agile and creative investors. The real estate market is going through a repricing period at the moment, but patient capital sees discounted properties as a chance to buy quality assets real estate is on sale. We haven't seen a better time to be buying these assets. It's 2009 or 2010. And there was an immense amount of wealth created by investors that were willing and able to take advantage of that opportunity in the last economic cycle. Real Estate in 2024 is certainly going to take far more work than we have seen over recent years but also more potential upside the key is adapting to the new environment by exercising your creativity, patience and discipline. So you got this video here on the best markets for real estate and 2024