Commerce Department data shows that rentals increased by 749,000 in the last quarter of 2011.  Additionally, we’re seeing the lowest level of ownership in nearly 14 years.

The good news for investors is that because we are a nation of renters, rents are higher because demand is stronger. Currently, the median rental price is $712/month. And prices are going anywhere but down.

It’s All Good News for Investors

Demand is up. Rent is up. Home ownership is not the current American dream – a place to live is. Let’s look at how investors can take advantage of this situation – Buy & Hold, Flippers & Multi-Family.

Buy & Hold Highlights

This group should consider holding properties longer to maximize your cash flow, especially in this time of uncertainty. You can buy cheap now, hold and rent and sell when the market returns. According to the MSNBC article, homebuyers don’t have much confidence that we are at the bottom of the market. The empty house problem is slowing, but it’s not going anywhere anytime soon. So, if you’re holding, keep on and use this renter’s demand to add a little cash to your monthly bottom line.

The Flipster’s Strategy

Flippers can take advantage of this situation as well. Landlords need inventory, so it’s time to play let’s make a deal! Get in there and get those homes ready to rent and rake in the cash. Now is a great time to scoop of bank-held homes and flip to landlord investors.

Another trend in the market right now is that banks are waiting to foreclose until they clear the REO pipeline. Grab that late list and start contacting homeowners. You may be able to get them out of a bad situation and flip.

Plus, with home prices predicted to fall another 5 to 10 percent with the current unemployment problems, it’s a great time to scoop up flip properties. Your landlords are waiting for the flip.

Multi-Family is Where It’s At – The Money, That Is

For you commercial multi-family investors, it’s the single shining star in the market. More renters mean more investment opps for commercial properties. Get in now while you have a steady supply of lessees.

A little proof for the pudding:

“The steady rise in demand for rentals has tightened the supply of housing, helping to push rents higher. Homebuilders report that the market for multi-family units has been a lone bright spot in the overall housing market.” – MSNBC.com

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That was the message he delivered to the National Association of Realtors in his address at their midyear conference. While the recession, the federal tax system and the new healthcare reform do impact this market, you don’t have to listen to the commercial doomsday story.

The world didn’t end as predicted this past Saturday, and there are plenty of opportunities for you to extend your investment portfolio or get started in commercial real estate investing.

I switched to commercial-only investing in 2005 and my number one tool is the Master Lease Option Method – a strategy for investing in commercial properties without the huge down payment, working with lenders or the personal risk associated with traditional investing.

Here’s how it works in a nutshell:

1. Locate an underperforming property. Check out my list of five great cities for underperforming properties.
2. Become the master lessee (tenant) of the building. Collect rent from the other tenants while becoming responsible for management.
3. Arrange for the property to professionally managed, so you don’t deal with the maintenance, repair or rent collection headaches.
4. Make small improvements to the building that will allow you to increase the rent you charge, and attract more tenants. Any increase in income goes directly to your pockets, since you have already locked in your monthly rent payment as a master tenant.
5. Negotiate an option to buy the property at a later date.

These deals are not impossible to pull off. I’ve done it and I’ve showed many people how to do it. The reason? I want more people to have as much fun as I do at work. My title is Chief Fun Officer. And, frankly, I’m sick of the doomsday story you hear every day in the media. It’s just not happening in my world.

So, if you want to have more fun and expand your wealth through the lowest-risk real estate investing method out there, check out my 3 free videos on the matter at MasterLeaseOptionMethod.com

* Constraints on commercial real estate lending eased during the first half of 2010, a trend that should continue as more lenders re-enter the securitization market and life insurance companies pursue a broader range of deals. Unlike a year ago, financing has become available for properties over $10 million, and some lenders have re-engaged higher-quality, lower-risk transactions in noncore markets. In addition to greater availability of financing across property types, price ranges and markets, lenders also have increased loan-to-values (LTVs) on new loans by an average of 5 percent from last year. Despite these positive developments, potential borrowers continue to face tight underwriting standards and stringent lender requirements compared to historical standards.

* While commercial mortgage originations during the first quarter remained depressed relative to figures reported from 2005 to 2007, conduits and life insurance companies drove up activity 12 percent from last year. During the first half of 2010, U.S. CMBS issuance reached $2.4 billion, approaching the 2009 total of $3 billion but still just a fraction of the $197 billion annual average reported from 2005 to 2007. Even when viewed against a less frothy period, such as 2000 to 2003, activity in the first half still pales by comparison. Recent CMBS issuance included multiple-borrower deals with subordinate tranches, a far cry from the ultra-safe, single-borrower transactions completed late last year, generating optimism the sector will soon offer increased liquidity.

* New CMBS loans price in the 6.0 percent to 6.5 percent range for five-year mortgages, with lenders targeting deals of $10 million or more. While these interest rates may be at the higher end of the spectrum, CMBS borrowers can often negotiate 30-year repayment schedules versus an average of 25 years for life insurance companies, offsetting the impact of interest rates on monthly payments. In addition, LTVs for CMBS loans can push into the low- to mid-70 percent range, versus 65 percent to 70 percent for life insurance companies, assuming the debt-service coverage ratio (DSCR) still falls between 1.25x and 1.35x.

* Next to the CMBS sector, life insurance companies made some of the most impressive headway over the past 12 months. This sector increased commercial mortgage originations by 131 percent during the year ending in the first quarter and recently began to compete more intensely for high-quality deals. While maintaining strict underwriting standards, life insurance companies have begun to actively pursue new business in major markets, increasing their scope to include nearly all price ranges and property types. This demonstrates a strategic shift from last year, when most life insurance companies focused on rewriting maturing loans already in their portfolios. As 2010 progresses, life insurance companies will increase lending as their commercial/multifamily portfolios outperform the broader marketplace; as of first quarter, this segment boasted a delinquency rate of just 0.31 percent.

* Despite the recent delisting of Fannie Mae and Freddie Mac from the NYSE and expectations for government-mandated changes in the quarters ahead, their multifamily lending arms should remain operational, benefiting apartment investors. New loan originations by the GSEs slipped in early 2010 and may continue at depressed levels this year, however, due to a paucity of deals within their target criteria.

* While commercial lending will increase this year, risks to this outlook remain. High and rising delinquency rates, particularly among commercial banks and within the CMBS sector, will drag on confidence. Maturities also pose significant challenges, as declining property values have turned many owners upside down on their mortgages, making it impossible to refinance without additional equity contributions. Approximately $535 billion of commercial mortgage debt will come due between 2010 and 2011, including $110 billion of CMBS. Of the CMBS loans slated for maturity during this period, more than 14.5 percent have DSCRs of 1.0x or less.

from Marcus and Millichap Research Services

Translation Please

That’s a lot of industry jargon but in a nutsell it means that insurance companies are looking for deals, LTV’s are slowly increasing, lenders are willing to negotiate on loan terms, government sponsored multifamily lending is safe for now and at least 14.5% of the loans coming due in the next year aren’t eligible for refinance without a significant cash injection from the owners. That means commercial foreclosures will increase and banks (and owner/sellers) will be looking to offload non-performing commercial deals.

If you’re looking at picking up commercial deals in the next year or so, god for you. I think it’s a smart move. BUT… don’t go in thinking you can get financing for an under-performing or non-performing asset. You’ll need private money and syndication training.

Sam Zell

Sam Zell, one of my personal real estate investing heroes, has put together a $625 million fund to buy distressed securities backed by assets including commercial real estate.

The 67-year-old billionaire filed a private-placement notice last month for Zell Credit Opportunities Fund LP, described as a private-equity fund that received its initial backing from a pair of unidentified investors.

The only thing I don’t like about this announcement is that the media is perpetuating the “vulture real estate investor” stereotype by calling what he’s doing grave dancing. But since he coined the term himself….

The point is when in doubt follow what the really rich, smart guys are doing. And Sam is raising private money to buy distressed commercial paper.  Opportunity!

Oh, and did you catch the part about the money coming from two private investors? That’s raising private money, guys. Even though Sam is a billionaire, he’s not using his own money.  So, have YOU started raising private money yet?

Read the article in its entirety here:

http://www.bloomberg.com/apps/news?pid=20601103&sid=aiM0qVKDpGP8

The problem is that many investors think a 100% loan to cost (LTC) loan is readily available from commercial hard money lenders. Unfortunately, this is NOT the case. Most will require that you or your investment syndicate have a minimum of 30% cash into the deal.

There is no 100% loan to cost commercial loan. And no hard money lender that I am aware of that will lend the money for the down payment anymore. There are some commercial lenders that will advertise a 100% LTC loan but they will either 1) take your upfront fee money and decline the loan for some stupid reason or 2) require participation (major equity + 6-10 points) in your deal.

The way that commercial investors get the money they need to fund the down payment on a commercial investment is typically by syndication. That’s putting together a group of individual investors as equity partners to invest as a group.

So, if you are looking to make the move to commercial investing I think it’s a great decision. But if your plan is to borrow the down payment from a hard money lender, you’re wasting your time. Your time is better spent developing your network of private lenders and investment partners.