February Latest Updates & Insights
COASTAL CAPITAL INSIGHTS
Each month Coastal Capital strives to bring you the latest updates and insights into the California real estate market for both investors and brokers. We always welcome new investors who enjoy above-average returns that are not correlated to the equity markets. As always, we appreciate both new investor and broker referrals, as the network builds it brings more value to all through diversification.
Please note that you can add on to your existing investment in any amount. While an initial investment requires an investment of $100,000; existing partners in the Fund can add on in any amount from $2,500 or more.
Mortgage rates are holding steady around 6.5% to 7% for conventional financing. The market has definitely priced in the Federal Reserve’s recent rate hikes and most likely at least one future hike. As mentioned before the average mortgage rate over the past 35 years has been 7.5%, so we truly are returning back to baseline. It appears that the loose monetary party is over for now and the hangover the next morning isn’t too bad. Guess we all learned some valuable lessons from the financial crisis of 2008/2009.
The Mortgage Bankers Association recently released their forecast for 2023. They are expecting a slow drop to 5.2% by the end of the year which continues in 2024 to the 4.5% range. Their reasoning is that economic growth rate will slow down some as the Federal Reserve tightens up. This will send investors scrambling back into the safety of government bonds. We all know that this demand will boost bond prices and lead to lower yields which will bring down the prime rate. As Fund managers we are not completely on board with this forecast but do think mortgage rates will remain pretty steady and in line with historical norms for near- and mid-term future languishing around six percent into 2024 with the occasional dip into the upper-five percent range.
Now for most of our California markets the lack of inventory continues to write the story (except for San Francisco and the Bay-area which are down 5 to 10 percent with the combination of tech layoffs & homeless issues.) Homeowners are only listing their homes if they must sell! In high-end markets where working professionals tend to move for employment the levels are even lower. These homeowners have locked in super low rates and are choosing to rent out their homes for $10,000+ a month rather than sell. This way they have a property to return to later and are enjoying significant cash flow. The National data is also telling the same story.
The chart below summarizes data points from CoreLogic, Black Knight, Case Shiller & the Federal Housing Finance Agency. Month-over-month home price changes are holding relatively steady. Nataliya Polkovnichenko, Ph.D., Supervisory Economist at the Federal Housing Finance Agency (FHFA), says:
“U.S. house prices were largely unchanged in the last four months and remained near the peak levels reached over the summer of 2022. While higher mortgage rates have suppressed demand, low inventories of homes for sale have helped maintain relatively flat house prices.”
Sources: Case Shiller, FHFA, Black Knight, CoreLogic
The data also shows that price depreciation peaked around August. Since then, any depreciation has been even milder. Local price trends still vary by market, but here in California we’re experiencing even less depreciation.
It is going to be an interesting Spring selling season for realtors as the inventory shortage is expected to continue indefinitely. New building starts continue to be depressed with the annual rate of total housing starts falling 21.8% from the previous year in the fourth quarter of 2022. This combined with the fact that new listings are down roughly 20% from the previous year is spelling bad news for the upcoming selling season. Let’s not forget that 40% of annual home sales for the year happen in the Spring. It is going to be a tough year for all our realtor friends.
Multi-family residential income continues to drive the returns of the portfolio and make up the majority of our trust deeds. Rental rates have definitely slowed down in their astronomical increases experienced last year; however they are not anywhere to close decreasing. The Fund’s clientele of landlord investors continues to flood our application desk with new requests for financing as they either seek to quickly snap up opportunities or are renovating existing assets to maximize cashflow.
Conventional banks are really starting to tighten up according to our small business clientele. We are constantly hearing stories from business owners with multi-decade banking relationships being shut down when applying for credit lines, factoring and even equipment financing applications (which are secured by the physical equipment!). Many of these borrowers have solid cash flow and near prime credit. As a result, our loan application desk is seeing a big uptick in volume. Lots of solid deals out there at above average rates. If you follow our social channels, you have probably noticed a majority of yields being originated at a 13.99% rate. Given all the above as Fund Managers we are very bullish on 2023 and our success will only be constrained by our access to lending capital.
The Fund continues to grow from a strong mix of new and existing partners. Please let us know if a family member or friend wants to join us in 2023. Initial investment amount still requires $100,000 and existing partners in the Fund can add on in any amount of $2,500 or more.
This borrower has turned to Coastal Capital numerous times while building a great portfolio of vacation rentals in Palm Desert-area. He finds gems in the desert and then remodels them with great outdoor spaces, epic pools, games galore (bocci ball courts, horseshoe pits, putting greens, etc.) and of course outdoor kitchens with bars. Then he turns on his “cash money machines” as he calls it! We call them the AirBnB and Vacation Rental By Owner (VRBO) platforms.
With this property we were able to fund in a week so he could get pool contractors out the following week. Given his track record and beautiful remodels we considered this one a trophy property and pushed the loan-to-value to 68%. Now he’s got this property fully rented out for the entire 2023 high season!
- SFR 4 BED / 3 BATH
- Desert Hot Spring, CA
- Position: 2nd TD
- Rate: 13.99%
- CLTV: 68%
- Appraised Value: $560,000
Looking for a way to get more from your retirement savings? A self-directed IRA (SDIRA) could be the answer. We constantly get asked on how to set this up and asked the firm we recommend providing some insight with our investors:
What is a Self-Directed IRA?
A Self-Directed IRA (SDIRA) is quite simply, an IRA. All IRAs abide by the same laws and possess the same capabilities. Unlike other IRAs held at banks, brokerage firms and other institutions, with a SDIRA, you’re not limited to stocks, bonds, or mutual funds.
What are the benefits?
A SDIRA gives you the opportunity to build a more diversified and resilient portfolio. It allows you to take advantage of alternative investments such as real estate, precious metals, private equity, notes, and more. A custodian/administrator is required to do the record keeping for the assets in your account, but nothing moves in or out of it without your direction. You decide how much, when, and most of all, what to invest in, giving you the freedom to invest in what you know best.
Investing in Real EstateWith a Self-Directed IRA
Real Estate is a popular investment among SDIRA holders because it is a tangible asset that people know and trust. With a SDIRA, you can invest in a wide range of real estate assets: residential or commercial properties, developed or undeveloped land, condos, hotels, mortgage notes, and more. Depending on what type of account you choose, earnings can continue to be either tax-free or tax-deferred.
The level of control and flexibility associated with a SDIRA does come with its own set of responsibilities. For example, investments made with your SDIRA are owned by your SDIRA, not by you personally, making self-dealing prohibited. Click here for more information on SDIRA rules.
The first step is to decide what type of account you want to open. Then, establish how you’ll fund it. Make sure to consult with a legal and/or tax advisor before you begin can help you to answer these questions. If a SDIRA sounds like it could be the answer to your retirement questions, get your copy of the Self-Directed IRAs Basics Guide.
Brokers Always Welcome
Coastal Capital is always looking for referrals from brokers and open to new investors in the fund. Please share this email or connect us directly.
Asset Based Loans on Business Purpose Real Estate
- Loan Amounts: $25,000 to $500,000
Exceptions required for larger amounts
- Origination Fees: 1 to 3 points with a minimum of $2,000
- Serving Location: State of California Only
- Purpose: Business or Investment Purpose Only
- Types: SFR, Multifamily, SFR Additions, Fix & Flip, Light Commercial & Retail, Land.
- Fix Loan Term: 6 months to 18 months
- Rates: from 10% up to 15%
- Loan to Value: 65% without exceptions, higher available
- Loan to Cost: Up to 80% with hold back for exceptions
- No minimum credit score. Low FICO credit score okay
HOW TO REACH THE TEAM AT COASTAL CAPITAL