Reilly’s Roundup – August 29, 2023

Weekly insights

• Over the last month, there have been a lot of investors taking summer vacations before the school year and structured life begins again. This lull has allowed investors to take a wait-and-see approach, as Jerome Powell and his band of Fed policymakers decide on the future direction of interest rates. Prevailing sentiments remain optimistic as investors are prepared to jump back into deal-making regardless of the direction of rates, pointing to the strength of local markets in spite of the highest rates we have seen in decades. I believe this optimism will continue to produce strong returns for many projects available to investors today.
• The reasons we should expect continued profitability are 2-fold. First, most investors are savvy enough to understand their numbers and disciplined enough to not overpay and wipe out their margins. Second – location, location, location. From Baltimore to DC down to Manassas, we are surrounded by opportunity. We have both local and federal government jobs, military bases all around, private consulting gigs, and Amazon (still on the way). And don’t underestimate the number of tertiary jobs that Amazon will bring once it is up and running. It’s hard not to be bullish on our area with the right deal flow!
• The most common challenge I saw last week was a sense of urgency. There just weren’t a lot of motivated buyers, as many investors were still enjoying the last weekend of summer. The numbers were good, but there was an absence of investors wrestling for deals. The lack of participation meant that those who were present jumped into some properties with very few bidding wars.

Property Breakdown

Semi-Detached Home in NE DC

PURCHASE:  $385,000

RENO:  $70,000

ARV:  $575,000

DEAL DETAILS:  

This was a fun property to underwrite for the client. We talked for 3 days prior to going under contract because the ARV comps had a 50K range and would heavily impact the profitability of the deal. We were finally able to come to an agreement on how we wanted to proceed given the plans for the property. The client will add a full bedroom and a half bath to make this property a 4 bed and 2.5 bath. This will allow them to differentiate themselves from the lower-end comparables in the area. The client does excellent work and is always very quick to get things done. We agreed that in order to be successful with this project, they would need to exit within 6 months. We are both confident in this occurring given our track record together and the team they have in place. 

Closing thoughts

Fall is my favorite time of year, and as a real estate investor, it may very well become yours too. Fall kicks off one of the most active buying times of the year, as many investors plan to purchase now, complete renovations over the winter months, and resell in the hot spring market. Families tend to move in the spring and summer months to avoid disruptions to kids’ academics.

It’s very likely the Fed is at or near the end of its rate increases for this cycle, and there is a strong belief that by the middle of next year, the Fed will begin to cut rates. So, capturing your larger projects now will allow you to build through the storm in time to deliver during the next cyclical upswing. 

Think of this as the time to load up your pipeline for projects to be delivered in the spring or summer of next year. That’s why Fall should be an exciting time for everyone in our industry.

I put these newsletters together to share the useful insights that I and my team uncover from all the deals we underwrite and the data we pour through daily. I figured, why not share it?

I would also love to have more conversations about the unique perspectives and insights that you may have. So check my schedule below, and let’s chat about our industry, our market, or whatever else comes to mind.

Conor Reilly

Sales Manager, WCP