Financial Distress Is Driving Two Trends In Real Estate

Feb 24, 2023

Increasing financial distress out there is driving these two real estate trends in 2023. 

Consumers are under a record amount of financial pressure from all angles right now. Even the world’s largest corporations and financial institutions that haven’t been focused on sustainable growth are feeling the pinch. 

So, what outcome is that having in real estate? How can investors position themselves to help, and to be well compensated for participating in these trends?

Distressed Assets & Discounts On Real Estate

Consumers have accumulated record amounts of debt. According to recent data, that seems to be hitting a wall with defaults on debt like auto loans up. Inflation just keeps on piling on the pressure. Along with dramatic drops in retirement account balances due to volatility in the stock market, and the collapse of crypto. Then there are massive layoffs and hiring freezes. 

So far this hasn’t resulted in a huge foreclosure tsunami. Though the pressure is there.

This causes immense stress on relationships. Money and finances are one of, if not the top reason couples end up failing. Just like businesses. And we are also seeing that. 

So, companies are being fragmented, and we often see spikes in separations and divorce rates during phases of the economy such as this one. 

While property owners and their agents are still getting their minds around the new direction of the market, and what they can really sell for, many are eager to take deep discounts for swift sales and cash. Even Bill Gates recently listed his daughter’s apartment for a quarter of a million dollars less than he paid for it.

In reality, the physical value of these properties has not changed. It is how desperate and motivated sellers are, and their overburdened financial situation that is resulting in them selling for less. Expect this to increase throughout the year. 

Rising Rental Demand

In fact, continuing from the above, many of these properties may be more valuable based upon their performance. Both increasing occupancy rates and rental rates provide  income. 

While some areas are and will suffer a bleeding out of human capital as big companies close and consolidate offices, or spend billions on new manufacturing facilities in other states, it is also creating a rush of movers. Many of whom will need to rent. 

The division of households due to all of this financial pressure can also mean doubling of rental needs. When couples split, the previous home is often sold or lost, and each needs new housing. Few are in a situation to buy, so they both need to rent. This creates even more demand for rentals, in turn supporting recent increases in rental rates. 

While it is always tragic to see people lose jobs and businesses fail, these two trends do offer investors great opportunities to help meet these needs, and be compensated well for it. 

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund.

Image by Albrecht Fietz from Pixabay