{"id":7786,"date":"2023-05-27T23:02:27","date_gmt":"2023-05-27T23:02:27","guid":{"rendered":"https:\/\/imsfund.com\/?p=7786"},"modified":"2023-05-27T23:02:27","modified_gmt":"2023-05-27T23:02:27","slug":"wsj-says-a-housing-bust-is-coming-for-small-time-investors-heres-why-they-might-be-right","status":"publish","type":"post","link":"https:\/\/imsfund.com\/index.php\/2023\/05\/27\/wsj-says-a-housing-bust-is-coming-for-small-time-investors-heres-why-they-might-be-right\/","title":{"rendered":"WSJ Says a Housing Bust is Coming For Small-Time Investors\u2014Here&#8217;s Why They Might Be Right"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div :class=\"{ 'hidden': $store.proContent.showFullPrompt() }\">\n<section class=\"px-4 relative border border-slate-200 mobile-toc lg:hidden\" x-data=\"{open:false}\">\n<button class=\"flex items-center gap-4 my-2 border-none w-full\"><br \/>\n<svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"h-6 w-6\" fill=\"none\" viewbox=\"0 0 24 24\" stroke=\"currentColor\" stroke-width=\"2\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" d=\"M4 8h16M4 16h16\"\/><\/svg><\/p>\n<h2 class=\"font-semibold text-slate-800 text-base m-0 js-toc-ignore\">In this article<\/h2>\n<p><\/button><\/p>\n<\/section>\n<p>Several days ago, the <a href=\"https:\/\/www.wsj.com\/articles\/a-housing-bust-comes-for-thousands-of-small-time-investors-3934beb3\" target=\"_blank\" rel=\"noreferrer noopener\">Wall Street Journal<\/a> published an article about real estate syndicator Applesway Investment Group (owned by real estate entrepreneur Jay Gajavelli), which lost more than 3,000 apartments across four rental complexes that went into foreclosure.\u00a0<\/p>\n<p>What led to one of the largest commercial real estate bursts since the financial crisis of 2008? In a nutshell, Gajavelli\u2019s company held floating interest rate loans where payments ballooned. Inflation brought higher expenses, but rental revenues could not compensate for the difference. Thus, bills became overdue, ultimately leading to these properties\u2019 foreclosures. Thousands of individual investors looking to generate passive incomes (without being a landlord) have now been left empty-handed.\u00a0<\/p>\n<h2>Should Individual Investors Be Worried About a Potential Housing Bust?\u00a0<\/h2>\n<p>Between 2020 to 2022, syndicators raised a staggering $115 billion. As well, there were over 300,000 investors who participated in syndications in 2021, according to <a href=\"https:\/\/www.financialsamurai.com\/real-estate-syndication-how-it-works-and-how-to-participate\/\" target=\"_blank\" rel=\"noreferrer noopener\">Financial Samurai<\/a>.\u00a0<\/p>\n<p>As much as I would like to believe that this is a one-off scenario, I\u2019m leaning towards that this could have a ripple effect that could affect the industry.\u00a0\u00a0<\/p>\n<p>Assuming that other major syndicators carry loans with variable rates (without an interest rate cap), they will feel the financial pressure of increased payments. This is due to the Federal Reserve aggressively <a href=\"https:\/\/tradingeconomics.com\/united-states\/interest-rate\" target=\"_blank\" rel=\"noreferrer noopener\">hiking interest rates<\/a> for the 10th consecutive time since March 2022. And syndicators most likely won\u2019t be able to escape from renewing at higher rates in the near future.\u00a0<\/p>\n<figure class=\"wp-block-image size-large\"><picture decoding=\"async\" class=\"wp-image-153470 sp-no-webp\" title=\"WSJ Says a Housing Bust is Coming For Small-Time Investors\u2014Here's Why They Might Be Right 2\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/05\/federal-reserve-interest-rate-change-1024x464.webp 1024w,https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/05\/federal-reserve-interest-rate-change-300x136.webp 300w,https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/05\/federal-reserve-interest-rate-change-768x348.webp 768w,https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/05\/federal-reserve-interest-rate-change.webp 1200w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" type=\"image\/webp\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/05\/federal-reserve-interest-rate-change-1024x464.png 1024w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/05\/federal-reserve-interest-rate-change-300x136.png 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/05\/federal-reserve-interest-rate-change-768x348.png 768w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/05\/federal-reserve-interest-rate-change.png 1200w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" type=\"image\/png\"><img loading=\"lazy\" src=\"https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/05\/federal-reserve-interest-rate-change.png?twic=v1\/cover=1024:464\/max=1000\/output=preview\" decoding=\"async\" class=\"wp-image-153470 sp-no-webp\" title=\"WSJ Says a Housing Bust is Coming For Small-Time Investors\u2014Here's Why They Might Be Right 2\" alt=\"federal reserve rate hikes since March 2022\" height=\"464\" width=\"1024\" data-twic-src=\"\/blog\/wp-content\/uploads\/2023\/05\/federal-reserve-interest-rate-change.png\" data-twic-src-transform=\"cover=1024:464\/*\/max=1000\"\/><noscript><img decoding=\"async\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/05\/federal-reserve-interest-rate-change.png\" alt=\"federal reserve rate hikes since March 2022\"\/><\/noscript><\/source><\/source><\/picture><figcaption class=\"wp-element-caption\"><em>Federal Reserve interest rate hikes since March 2022 \u2014 <a href=\"https:\/\/tradingeconomics.com\/united-states\/interest-rate\" target=\"_blank\" rel=\"noreferrer noopener\">Trading Economics<\/a><\/em><\/figcaption><\/figure>\n<p>Aside from that, there are a variety of factors where things can go downhill. For instance, having poor property management, underestimating operating expenses, and a shortfall in rental income to keep them afloat could cause the business model to weaken. It won\u2019t be nearly as devastating as the housing market crash in 2008, but I wouldn\u2019t be surprised if we see a handful of syndicators go belly up this year.<\/p>\n<h2>What Should Be Done To Protect Small Investors?<\/h2>\n<p>I personally believe that all of this could have been prevented had the government\u2014at both the state and federal levels\u2014taken more responsibility to protect individual investors.\u00a0<\/p>\n<p>I\u2019ll give Congress the benefit of the doubt that they had good intentions in passing the <a href=\"https:\/\/syndicationpro.com\/blog\/how-2012-jobs-act-helped-change-real-estate-industry\" target=\"_blank\" rel=\"noreferrer noopener\">JOBS Act<\/a> in 2012, allowing syndicators to advertise real estate investment opportunities online. This made it more accessible for American families to invest. On the surface, this sounded like a great idea. In reality, the cracks in the system have led to this devastating outcome.\u00a0<\/p>\n<p>It\u2019s a complex problem that won\u2019t be solved overnight. However, there should be accountability for all stakeholders involved. For one, I believe that syndicators should take responsibility by being transparent about their financial performance to their investors. Regular reporting to all their investors would go a long way in building trust between both parties.<\/p>\n<p>Further, there should be more legal protection provided to individual investors. If I were in their shoes, I would want to know how my investment is doing and not be blindsided until it\u2019s too late.\u00a0<\/p>\n<p>Also, shouldn\u2019t syndicators have skin in the game? If they\u2019re asking for investors to pony up large sums of money, shouldn\u2019t they do the same?\u00a0<\/p>\n<p>These victims are hardworking citizens trying to fulfill their \u201cAmerican dream.\u201d Now thousands of lives (possibly more) are in shambles because of this flawed system. It\u2019s a tough lesson for these small investors who must rebuild their financial nest egg.\u00a0<\/p>\n<h2>How Can You Protect Yourself As An Individual Investor?\u00a0<\/h2>\n<p>If you want to become a passive investor with a <a href=\"https:\/\/www.biggerpockets.com\/blog\/ultimate-guide-to-real-estate-syndication\" target=\"_blank\" rel=\"noreferrer noopener\">syndicator<\/a>, here are a few ways to be proactive and protect yourself.\u00a0<\/p>\n<ol>\n<li><strong>Network with other investors <\/strong>to find a reputable real estate syndicator who can prove they have a successful track record. The <a href=\"https:\/\/www.biggerpockets.com\/forums\" target=\"_blank\" rel=\"noreferrer noopener\">BiggerPockets forum<\/a> is a great place to start.<\/li>\n<li><strong>Research and vet the company<\/strong> to ensure they are trustworthy.<\/li>\n<li><strong>Understand your risk tolerance <\/strong>before you hand over large sums of money. With real estate, there are always risks involved.<\/li>\n<li><strong>Don\u2019t put all your eggs into one basket<\/strong>\u2014or you may be the one left holding the bag.<\/li>\n<li><strong>If it sounds too good to be true, it probably is. <\/strong>Don\u2019t give in to the FOMO. A company should not be overpromising or guaranteeing unrealistic returns in a short time frame.<\/li>\n<\/ol>\n<p>Hopefully, with these tips in mind, you can make educated decisions about what real estate investments suit you. Again, we can\u2019t predict what will be the fallout of this event. It could be isolated. But I stand by that if foreclosures can happen to one syndicator (and unless others are being more diligent), then we may see more on the horizon.<\/p>\n<div id=\"hero-block_62df1a82bfc88\" class=\"first:mt-0 hero-block py-4    has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n<div class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n<div class=\"relative z-30 w-full \">\n<main class=\"py-4\"><\/p>\n<p class=\"has-theme-gold-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Get the Best Funding<\/p>\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Quickly find and compare investor-friendly lenders who specialize in your unique investing strategy. It\u2019s fast, free, and easier than ever!<\/p>\n<p><\/main>\n<\/div>\n<div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n<picture decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  shadow-xl rounded-md hidden lg:block sp-no-webp\" title=\"WSJ Says a Housing Bust is Coming For Small-Time Investors\u2014Here's Why They Might Be Right 3\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Lender-Match.webp \" type=\"image\/webp\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Lender-Match.png\" type=\"image\/png\"><img src=\"https:\/\/bpimg.twic.pics\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Lender-Match.png?twic=v1\/cover=500:500\/max=1000\/output=preview\" decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  shadow-xl rounded-md hidden lg:block sp-no-webp\" title=\"WSJ Says a Housing Bust is Coming For Small-Time Investors\u2014Here's Why They Might Be Right 3\" alt=\"find a lender with lender match\" data-twic-src=\"\/blog\/wp-content\/uploads\/2022\/08\/Lender-Match.png\" data-twic-src-transform=\"cover=500:500\/*\/max=1000\"\/><noscript><img decoding=\"async\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Lender-Match.png\" alt=\"find a lender with lender match\"\/><\/noscript><\/source><\/source><\/picture>\n<\/div>\n<\/div>\n<\/div>\n<p class=\"italic\"><b>Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n<\/div>\n<p><br \/>\n<br \/><a href=\"https:\/\/www.biggerpockets.com\/blog\/wsj-says-a-housing-bust-is-coming-for-small-time-investor\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this article Several days ago, the Wall Street Journal published an article about real estate syndicator Applesway Investment Group (owned by real estate entrepreneur Jay Gajavelli), which lost more than 3,000 apartments across four rental complexes that went into foreclosure.\u00a0 What led to one of the largest commercial real estate bursts since the financial [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":7787,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center 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