Get ahead of the curve with insights into the 2025 real estate market. In this episode, Chris Seveney dives into key trends shaping the investment landscape. First, we explore the phenomenon of cash-poor, equity-rich property owners and the opportunities this presents for investors. Next, we analyze the continued rise in defaults across asset classes and its implications for note investors. Finally, we separate fact from fiction with a reality check on the Washington DC real estate market, debunking the hype and providing a grounded perspective.
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Cash-Poor, Equity-Rich: Unlocking Opportunities In The 2025 Real Estate Market
Major Real Estate Investment Trends In 2025
We are going to dive into some major real estate investment trends that we’ve been tracking through the first two months of 2025. As I’m recording this, we are at the beginning of March. You might not hear this until later on in the month, but I want to talk about three main themes. The first theme that we are seeing in the real estate space is cash-poor, equity-rich property owners, and this is creating a big opportunity for investors who are out in the space.
Next, we are going to talk about the continued rise in defaults across all asset classes, and what that means for note investors. Last but not least, I’m going to talk about why you should not trust the media. I’ll go into a little bit about the narrative around the Washington, D.C., real estate market, which a lot of the videos online I’ve seen on people’s favorite death-scrolling apps are talking about the demise of Washington, D.C., which is far and few in between from what we are seeing where I’m located here in northern Virginia, a stone’s throw over the bridge to Washington, D.C.
The Cash-Poor, Equity-Rich Investment Landscape
Let’s dive in first and talk about the cash-poor, equity-rich 2025 investment landscape. What is happening right now, and what are we seeing in the space? We’re seeing many homeowners and investors, especially, sitting on a ton of equity. They bought properties in 2010, 2015, and 2020. Those properties have appreciated significantly, but they’re struggling with liquidity due to inflation, stagnant wages, and higher borrowing costs. In many instances, they’ve already borrowed once and maxed up to about 75% leverage, which is what most lenders on investment properties do to cover a lot of the expenses.
Again, you’ve got taxes, insurance, and some jurisdictions that are crushing people. What do you do when you’re sitting on 30% or 50% equity, but you can’t access it easily? What’s also prohibitive to them is that little thing called interest rates, which are significantly higher than what many of these investors may have locked in a DSCR loan or other types of loans at 4%, 5%, or 6%, because we’re still seeing those loans starting with a 7%.
In some instances, if you’ve got good credit and low loan-to-value, you can get them back down in the upper 6% as of this recording, but most people are still seeing them right around 7% or higher. The other component to this is banks are tightening lending standards. HELOCs and cash-out refinancing are much harder to obtain. Trying to get a HELOC on investment property is nearly impossible. There are opportunities out there, especially for funds like ours that are debt funds, to step in and try and assist.
Homeowners Struggling With Liquidity: Opportunities For Investors
Let’s talk first about the homeowner, owner-occupied space where borrowers have fallen behind on their payments but do have that equity for a positive resolution. As you know, if you’ve listened to us, we typically work directly with borrowers to try and get them on repayment plans, restructure, modify the loans, and then rework them and turn around and sell them on the secondary market. If you’ve watched any of our past webinars, we have tons of information on how we do this. Go to our website, 7eInvestments.com, to learn more about that.
As we start to see those borrowers in trouble, typically it means there’ll be more inventory, which we are seeing. More inventory typically means more supply versus demand and a little bit better discounts. Because these borrowers have this high equity position, there’s a better chance that you’ll be able to work something out with them because where can they go? They can go rent, but rent is still expensive. The struggle or challenge they have is the taxes, insurance, and the cost of owning that home. Pack on the fact that they may have had temporary job loss.
We’ve talked about the reasons why people sometimes go into default, and don’t wake up one morning saying, “I’m not going to pay today.” Death, disability, job loss, divorce, any one of those, but it does open up the opportunity, as we see going forward, to be a stronger opportunity than we’ve seen over the last five years.
Since COVID and a significant uprise in the amount of money put into the markets, we haven’t seen defaults. They’ve been at all-time lows. We’ve seen them, but not like we saw in 2017 or 2018, which, at that time, was still pretty historically lower than the average. I saw a report that FHA loan defaults, I think, are over 10%. Don’t quote me on that, I saw it on Facebook. I’m sharing what I’ve seen, but I wouldn’t be surprised because it’s more common. The less the down payment, the higher the rate of defaults.
The Rise In Defaults And Its Impact On The Market
With these defaults coming up across the board, most people have seen it and heard about it in the commercial space. I think everybody can read about real estate, and commercial offices are hurting. Multi-family, several years ago, had its doom and gloom. Mobile home parks and lots of self-storage are getting affected.
What hasn’t been affected yet, and is starting to, we’re seeing the cracks, is the single-family homes. Not only because people are falling behind because of taxes and insurance, and people stretched their endemic-era spending and overstretched and racked up credit card debt, those rates are now significantly higher, but property values. Property values aren’t going up 20% per year, which I know newer investors were thinking, “This is going to continue.” It’s not.
Southwest Florida, Texas, and other parts of this country, as you’re seeing from the peaks, are experiencing 20% declines. Washington, D.C., you’re seeing some softening, not like it’s being reported, but we’ll talk about that later. We’re finally starting to see it in the single-home space, single-family homes, and that includes investment properties and short-term rentals. People buckle their belts a little tighter, and people are realizing, if it’s a small group, “I’d rather stay in a hotel and eat at restaurants than have to cook while I’m on vacation.”
We see it in the single-family space. We’ve already talked about the multifamily. Those landlords are facing the squeeze of higher costs. The insurance is crushing people as we continue to move down this path. There are stagnant rents now in markets. The supply that was coming online in some of these major markets is now in oversupply, and the absorption rate, which is how long it takes, or how many units can they fill per month, is slowing down. We also have regulatory hurdles that make it harder to evict non-paying tenants, depending on the state you’re in.
2025 Real Estate: Insurance is just crushing people as we continue to move down this path.
Multifamily And Commercial Real Estate Challenges
Commercial, we’ve been talking about that for a while. The office market continues to struggle. The federal government and a lot of other organizations are returning to the office in those spaces, which should reduce those record-high vacancies in some cities. Commercial office, I think, is going to recover, but it’s going to take several years. It’s a matter of owners of these properties, do they want to hold onto them through that time, or are they going to let them go? You’ve seen some of the biggest firms in the country letting certain office spaces go.
We talked a little bit about 70 and what that meant for us in these opportunities, but also everyday known investors. I get asked constantly, people calling me, emailing me, reaching out to me on BiggerPockets, Reddit, some of these other sites, Facebook, “What does this mean for us?” I believe there’s going to be more inventory in the distressed debt market. We’ve already seen it, and it continues. Over the past several weeks, there was a $600 million pool that we saw. I got, literally on Friday night, another $50 million of investor loans gone bad. There’s a company that closed on a multimillion-dollar portfolio of non-performing loans.
That was a challenging due diligence process, but it was fun. It was almost 30 loans, and it took effort and work. I’ve got to thank Larissa on my team for leading the charge on that. While there’s going to be more inventory, when I started eight years ago, it was easy to get into the space, buying loans of $5,000, $10,000, $20,000. That’s not the case anymore. You still see some of those, but very little. The reason is the appreciation of homes. A lot of the loans now that were 10 or 15 years ago now, and in some of the certain areas of the country, you could buy a house for $30,000, $40,000, $50,000, or $60,000. They’d write loans on those. A lot of those would come back through the pipeline.
Today, it’s very rare. Take Flint, Michigan. I bought a home for $500 in Flint at one point in time, not too long ago. That same home today is probably $80,000 to $100,000. I don’t miss not selling it, I’m glad I did, but somebody’s got a good amount of equity in there. That inventory, the banks and lenders, they’re going to want to offload this. A good example that I can share is we newly acquired this pool. The lender wasn’t experienced in managing non-performing loans.
They wanted to get them off their books. They weren’t bad loans, they didn’t have the manpower of the people, which created opportunities for us and others in the space to acquire these loans at that discount. I think the major thing people have to realize is you have to have the ability to be patient. Rather than overpaying for real estate, step in and make sure the numbers make sense. I think that’s the most important thing for people.
You have to have the ability to be patient. Share on XDebunking The DC Real Estate Doomsday Myth
Let’s roll into our last segment, which I’m going to say, don’t trust the media, the D.C. real estate doomsday myth. Those who have listened to me in the past know I don’t like to get into political discussions. I think there are problems with both parties. In real estate, though, I do not only say one side is great, the other side is awful. I’m down the middle. You will rarely, if ever, see me post anything politically because my focus is on my business, my family, my well-being, and my health.
If you’ve been watching the news lately, you’ve heard fear-driven headlines, “Washington D.C. real estate’s collapsing, office space is dead, property values plummeting, 14,000 new homes have come on the market in D.C.” I chuckle because first off, they were pulling in Baltimore, probably down to Richmond, which are very different markets than D.C. They call D.C. the Beltway. The 495 runs a circle around D.C. That’s what I consider D.C. Metro. In Virginia, it can go out to the airport in Loudoun County because of all the expansion in the government that’s been out there.
Same thing in Maryland, may push out a little bit towards Annapolis and stuff, but it’s not as wide as people think it is. Let’s separate some fact from fiction. The office market is in trouble. That doesn’t mean the residential real estate is struggling. Single-family homes in D.C. are still in very high demand. Government jobs provide economic stability. There’s everyone like, “The government is getting rid of everybody.” Most people who work for the government don’t have two people working. It’s easier to find a job in this region than probably many other locations. There’s such a limited new housing supply.
Again, I’m inside the Beltway in Virginia. On the top of my street, a house went on the market a week or so ago for under $2 million, and it’s already gone. For homeowners who are locked in low mortgage rates, it’s not forcing sales, but I want to share some numbers. D.C. condos have struggled for the last two years. Russell Brazil, who’s big on BiggerPockets, I think he’s president of a real estate board, was in one of the major magazines or newspapers and talked about what’s going on. I’d recommend Googling “Russell Brazil real estate,” and we’ll talk about him.
The media is thriving on negativity because it gets the clicks. The panic-and-sell discount due to fear headlines isn’t happening, but smart investors can use it to their advantage. What’s happening is markets are adjusting, not significantly in this area. Everywhere, we’re going to start to see softening or flattening because if you look at affordability, home prices are way up here, and people can only afford like here. I don’t envision people’s salaries getting brought up.
The media is just thriving on negativity because it gets the clicks. Share on XThe only way to balance that is over time, this is going to come down slowly, and this is going to go up slowly, and it’ll get back to a happy medium. It’s probably going to take a few years, which, my personal belief, is probably going to see lower to stagnant home prices for probably the next 2 to 4 years. That’s my opinion. It was interesting because I did look in, and again, I’ll take data from one of the public sites and draw a circle in Virginia around that Beltway.
At the time I did it, it was around a thousand properties for sale, and only about 30% of those were single-family homes. I think it was like 15% of them were less than a million dollars. Everything else was above a million dollars. Give people the idea that it’s no different than areas of California, New York, and Boston. You’ll see some fluctuations, and one $20 million home sale when there’s very minimal sales in certain areas can skew numbers one direction to the other. The reality is it’s February and March in this area. We finally get good weather. I can go outside and go for a walk. People start to put their houses on the market. That’s pretty normal.
My word of advice is don’t believe the hype sometimes and look into the data. You also don’t want to step in and buy something thinking that the market is completely panicked and then basically let it stay stagnant, or it does go down a little bit. I’m not saying the market’s not going down. What I’m saying is the media is making it perceived like it’s a falling knife and the sky is falling.
Final Thoughts: Investment Strategies for 2025
Final thoughts as we close out this episode and key takeaways from this day, I do believe the cash-poor, equity-rich borrowers are going to create major opportunities for people, and those who have capital, I think, will be able to step in and create win-win solutions. I truly believe that is going to be the case. It has been the case in some of the commercial side of things over the last year plus, and now we’re starting to see that on the residential side.
I think defaults are rising across all asset classes and opening the door for deeper discounts on mortgage notes. This pool that we acquired, we acquired it for a very good price. With some sellers we were talking to not long ago, they wanted 80% plus of the payoff for loans, and in this pool, I think we were 60% or less of the unpaid balance. To give you an idea of the drastic swing over several months as people now are looking to get back to normalcy.
Eighty percent has never been normal, by the way, and you would not make money on those loans. It’s people saying, “Who’s going to bite?” because they gave the inclination there were little assets out there. Lastly, ignore the media hype. Real estate is cyclical. Every market has its ups and downs. Certain markets are more resilient than others. Florida, for example, areas of Florida typically have higher-ups and bigger drops. Where I’m located, D.C. typically has not as significant ups and not as significant downs. I was up in Boston, I felt the same way up there as well.
I hope you enjoyed this episode. Want to learn more? Go to 7eInvestments.com and learn about how we are investing in mortgage notes. Subscribe to the podcast, and if you’re looking for passive income backed by real estate assets, book a call with me or a team member to learn more about our Regulation A or Regulation D 506(c) fund offerings. Thank you all. Take care. Catch you on the next one.
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