Overcoming Our Challenging Market
Arete continues to assess the market we’re in and how to overcome the ongoing challenges, here are a few factors to consider:
Consider the long-term over the short-term; For example, in some of our “BRRR” projects, we are refinancing around 70% LTV and leaving some money into the project, though, we recognize that in the long term, we will be able to refinance once again. This allows us to hold more equity in properties (favorable) and not be over-leveraged, while also maintaining higher cash flow in the current environment. Once interest rates re-stabilize, we will be able to refinance and maintain similar or higher cashflow returns while also returning 100% capital from the project.
Don’t be emotional about your investments, stress test everything; For example, if rates today are 6%, stress test your deals at a 7% interest rate, that way if that rates increase, you’re not subject to changes whereas if they don’t your projects become all the more profitable.
Consider other strategies; The beauty of real estate is there is no one size fits all. There are countless strategies, as well as variations and creative ways of doing each one. Arete has mastered a few strategies and can fluctuate between them pending market changes, and business changes/challenges as well.
Be creative; Work to find solutions to your problems. Be creative in reducing expenses, i.e., creating materials lists and shopping them out to all competitors, or, finding opportunities to increase revenue within your portfolio, Arete now leases their garages for example, or uses spaces within an apartment that couldn’t be used for living but could be used as storage, or office space and lease it out as “build to suit”.
Lenders are tightening up, so should you; assess your total debt service ratios on your portfolio and personal situation, in times like these it's more critical than ever to be in an ideal position for lenders. Liquidate some assets, be liquid, assess your best performing vs poorest performing assets, and liquidate those as well, reduce debt wherever possible.
Become an economics nerd; Study history, learn the market, driving forces, etc., and allow that to be a guiding force in your decision-making and forward-thinking.
Here are a few quick examples and ideas to help you navigate an uncertain market.
