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This is not 2008! Don’t Wait to Buy Real Estate, Buy Real Estate & Wait.

This is not 2008! Don’t Wait to Buy Real Estate, Buy Real Estate & Wait.
Written by: Michael Carpentier & Taylor McClendon
January 5, 2023

The bears are all on their soapboxes announcing the death of real estate. Yes, housing prices are not on the steep upward trajectory of the last couple of years and that’s good. A little bit of steam needs to be let out every now and again to alleviate market pressure. However, this is not a Lehman Brothers moment for real estate.

2008 was driven by a bubble created when financial institutions lent money to risky borrowers to buy homes and then repackaged the risky loans as “safe” mortgaged-backed securities. Loose credit, poor governance, greed, lack of morality, and yes fraudulent conduct created a colossal crisis that kept feeding the beast in a spiraling cycle. Eventually the storm blew itself apart and the housing market was left in tatters across a vast number of US neighborhoods.

Current hikes in interest rates have understandably slowed the fervor of property flipping, first time home buying, and upgrading. Some builders have also pulled back while the dust settles, but not all. This is a short-term realignment and not a crisis.

Many of the fundamentals that brought us to unprecedented historical highs for residential real estate prices are still there. Most prominently, a systemic supply gap has developed since 2008. Many experts estimate the underbuilding gap to be around 5.5 million units. In addition to the supply gap, shortfalls in materials, dysfunctional supply chains, a lack of skilled labor, and increasingly strict environmental limits on urban sprawl, continue to add strain to the supply and affordability crisis in the US. None of these issues have disappeared because of high interest rates. In fact, Fed policies will make the housing supply worse because high interest rates don’t solve any of these problems and actually exasperate them.

A picture of a residential property type for home equity investments

Real estate investing is a mid-to-long term investment play. Yes, a home can be flipped in frothy markets. If you can do it and make money, then go for it. However, the smart play is to buy solid real estate assets and add these stable investments to bring balance to your overall investment portfolio of stocks, commodities, and more.

Wall street has recognized the opportunity in single family housing and is pouring money into the space. KKR, Goldman Sachs, Invitation Homes, Blackrock are just a few of the household names that want to become America’s landlord. Despite recent turmoil in the housing markets, these institutions continue to buy properties across the country and will provide long term price support.

Appreciation, like interest, compounds annually. A straightforward 6% year-over-year appreciation can lead to very significant gains over 10 to 20 years. For example, $100K invested over a 15-year period with an average annual 6% appreciation, ends up with a value of $239,656 – 2.39X the original investment. By adding 50% leverage at a 4% interest rate, the multiple on invested capital increases to 3.2x the original investment. All without the risk of the asset completely losing its value through mismanagement, bankruptcy, or worse a massive fraud like FTX.

However, a core problem with real estate investing is that vetted and verified real estate assets take a lot of upfront work, time, and money. In other words, they are hard to find! Plus, the overwhelming number of assets are simply unavailable. You can’t go knocking on peoples’ doors neighborhood-to-neighborhood hoping to find assets to invest in.

Vesta Equity has solved that problem. We help homeowners leverage the equity in their home as investable assets and offer them directly to investors. We have purpose-built a solution that enables you as an investor to build a portfolio of real estate assets the same way you would for a portfolio of stocks. We do this by enabling you to invest in properties where the owners have listed a portion of their home equity and sell it to investors. They are doing this as an alternative to taking a loan from the bank and incurring debt with the associated costs and the heavy toll that compounding interest exacts on monthly payments. It allows them to access the value in the property and retain their residential rights. As an investor you get the opportunity to invest in an asset that appreciates in value with 100% transparency based on up-to-date inspections, photos, and updated property values. Plus, you have the assurance that someone is residing in the property, maintaining it, and paying the taxes and insurance. Our marketplace and processes are driven by the fractionalization of the property, representation of the digitized assets using tokens on blockchain technology, best-in-class property data, secured contracts, and the automation of the legal elements. You can create a diverse portfolio based on geography, property type, and more. Through your dashboard you can track your investments, monitor your current offers, and review investment properties you have your eye on. Imagine owning interests in properties in California, Texas, Florida, Illinois, and more. You can play some markets short where you feel appreciations are moving quickly or play them long where you feel there are solid year-over-year appreciations.

The portfolios of many high-net-worth individuals always include real estate. It provides balance and solid predictable growth. However, it has never been easy to acquire as one would with stocks, commodities, and more. Sure, there are REITS, real estate focused ETFs, and mortgage-backed securities but with these you still can’t exercise the optimal control over what exactly those investment vehicles contain, and the lack of transparency can put you at risk. The alternative is to jump in and buy a property outright and assume all the risk. It also means putting all your eggs in one basket with the additional burden of the sweat equity involved in managing the entire property.

The NPI index shown in the table below shows the strength of private real estate investments relative to stocks, traditional REITs, Treasury bonds, and inflation. The statistics show that private real estate investment outperformed REITs over the past decade, generating returns on par with stocks, while steadily outperforming inflation and providing critical diversification.

Ten year investment returns chart by asset class sourced through NCREIF a leading provider of investment performance indices Source: NCREIF

We have made it simple for you to onboard yourself and create an account. Within minutes you can be set up and viewing properties. When you want to invest, you can transfer funds in and out of your wallet. When you see a property that you want to invest in, you simply decide how much of the owner’s available equity you wish to purchase (i.e. 5% of the 40% offered on the marketplace) and with our offer/counter offer tools you propose a price to the property owner based on the appraised value, inspection, and market data. They can accept, decline, or counter! When a deal is struck your percentage ownership as represented by a token unique to that listing will appear in your wallet. With your first property you can start building a diversified and growing portfolio of assets. No middlemen are involved and you are able to maintain control over your wealth creation with 100% transparency.

While traditional banks charge interest in exchange for funds, Vesta Equity allows homeowners to offer investors an upfront equity and an equity dividend. For Investors, investing in properties that have an upfront premium and/or an equity dividend has the potential to:

These mechanisms are simple and are built directly into the marketplace. An upfront equity is additional equity granted to the investor at the initiation of the transaction. An equity dividend is additional equity granted to the investor monthly over a 20 year period. If a property is sold before the 20 year dividend period has expired, the homeowner keeps whatever remains to be paid. After the 20 year period expires, no more equity dividends will be paid.

You can even access the equity in your current property and diversify across multiple geographical areas. Why hold all your equity value in one place? You likely love your neighborhood and don’t want to move, but maybe property values are climbing higher in other counties and states driven by demographics and property supply. You can have the best of both worlds. Stay put and not move while benefiting from the diversification of your real estate asset.

A great next step when making real estate investment decisions is to draw up your own investment thesis. This means you’ll set goals, establish risk, define property types, allocations, target ROI, and more. While these can be flexible, they give you clear guides and a framework to buy and sell. Investment research always pays off. If you are looking to specific geographies then read the local news, access local economic development plans, see what industries and service-based businesses are employing people in the area, what the local infrastructure is like, how is the educational system, where is the area on its economic development curve, what is the demographic makeup, and more.

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