Real Estate Market Bottom in 2026

In this episode of Paging Financial Freedom, Daniel Shin, a surgeon and real estate investor, and Lila Kaplan, a former Wall Street professional and certified financial planner, discuss the current state of the real estate market in 2026 and what investors can expect in the months ahead. They explore emerging trends, lending shifts, and where the biggest opportunities may lie for those pursuing financial freedom through real estate.

The conversation dives into the concept of a “credit thaw,” where lending activity is expected to increase significantly, potentially unlocking more deals across the market. They analyze why multifamily real estate may be approaching a market bottom, supported by declining property prices, reduced new construction, and stabilizing rents in key cities like Dallas and Phoenix. Daniel and Lila also share insights from their own deals, including discounted acquisitions driven by distressed sellers and expiring bridge loans. Additionally, they discuss the challenges of competing with large institutional investors such as BlackRock and Morgan Stanley, as well as their cautious outlook on the struggling office sector and growing interest in medical office investments.

Key Takeaways:

 02:02 – Market dynamics: distressed properties, falling interest rates, and increased competition from institutional buyers.
07:15 – Insights from the Dallas market: rent stabilization, reduced construction, and improving absorption rates.
08:12 – Differentiating between pricing bottom and rental/occupancy bottom.
10:30 – Outlook for 2027 and expectations of market stabilization and recovery.
11:58 – The impact of AI on jobs and future demand for office space.
 14:18 – Final thoughts on avoiding speculation and making data-driven investment decisions.

Daniel and Lila emphasize the importance of staying analytical rather than speculative, recognizing opportunities during market downturns, and positioning strategically for long-term gains. They highlight that while uncertainty remains, disciplined investors who understand market cycles and act on data—not emotion—are best positioned to achieve financial freedom.

Transcript

SPEAKER_01 0:01

Welcome to Paging Financial Freedom, a podcast about doctors and spouses and the journey to financial freedom through real estate and tax savings. I'm Dr. Daniel Shin, a surgeon and real estate investor. You might know me on social media as the Doranian Doctor or the founder of Sirius Real Estate.

SPEAKER_00 0:17

And I'm Lila Kaplan, former Wall Street professional, certified financial planner, and the person on a mission to retire my orthopedic surgeon husband in the next five years. I specialize in apartment investing, helping doctors and their families build true financial freedom beyond their W-2 incomes.

SPEAKER_01 0:35

If you're interested in achieving tax-efficient financial freedom through real estate, you're in the right place.

SPEAKER_00 0:41

Let's get started.

SPEAKER_01 0:44

Hi everyone, welcome to another episode of Paging Financial Freedom. I'm Daniel Shin, and as always, I am joined by our co-host, Lila Kaplan.

SPEAKER_00 0:55

Hi, Daniel.

SPEAKER_01 0:56

Hey Lila, how's it going today?

SPEAKER_00 0:59

Uh, everything is good. Happy Valentine's Day.

SPEAKER_01 1:02

So we've we're already uh a couple months here into 2026, and just housekeeping-wise, just wanted to let everyone know that we're about to start inviting guests onto the podcasts. We've mainly been talking just the two of us, but we're gonna start inviting guests and we're sort of formalizing things over here, so we should start having a very regular cadence of episodes very shortly.

SPEAKER_00 1:25

Yeah, I'm really excited about our guests that are coming up, and they're gonna give us so much insight on how they're pursuing their financial freedom.

SPEAKER_01 1:36

So yeah, totally excited about that. Do you want to just give us a quick update of what's been going on in the world of Lila Kaplan, you know, in terms of real estate and everything?

SPEAKER_00 1:46

Yeah, sure. I mean, we've just started the year, so we're looking for new deals. And I'm pretty, pretty excited about 2026 and what it has to offer given what's happening in the market, whether it's politically or economically. I believe 2026 is the year to get really good deals at the moment. We're seeing still a lot of distress in the market. We're seeing interest rate coming down, and we're seeing some of these bridge loan investors that need to get out. At the same token, we are competing with a lot of institutional buyers who have been sitting on the sideline, but now are popping out, you know, to buy not only a single multifamily portfolio, but really multiple multifamily portfolios. So for us, you know, we're still relatively small compared to the Morgan Stanleys and uh the BlackRocks. So that's kind of the challenge that we are dealing with at the moment as we're looking for opportunities in 2026. What about you, Danielle? What's happening in your world?

SPEAKER_01 2:57

Yeah, I feel like I've been just running like crazy ever since the beginning of the year. And in terms of, you know, what's going on, you know, I'm in the, for example, I'm in the middle of a capital campaign right now for a deal in Phoenix. And I can talk about that because, you know, by the time this airs, the it'll be closed essentially. And what it's so interesting in terms of the raising process. This is with a uh an established sponsor that we worked with in the year prior. But I think there is some, there's a little hesitancy amongst my investors about the market of Phoenix. And it's it's like contrasting to what I understand, which is that I feel really firmly like you, that we're at this bottom in terms of valuations and it's this golden window of opportunity, even in places like Phoenix that got oversupplied. Um, but I think it's fighting against a little bit of hesitation there. So we do have some sort of news and uh current events that we're gonna go over in just a second here, where we're gonna talk about that. But yeah, I think that's been a lot of what's been taking up my time. You know, certainly our deals from last year are you know progressing nicely, but you know, balancing uh investor calls and locum tenants work and running the real estate fund has definitely been staying busy over here.

SPEAKER_00 4:18

Yeah, it's not easy trying to balance both jobs. And I honestly I don't know which one's your day job anymore because you're halfway retired anyway. So, Danielle, what do you believe is gonna happen this year? I know there's no crystal ball, but what's happening? What do you think the market will do at the end of 2026?

SPEAKER_01 4:40

Yeah, absolutely. And you know, certainly you're you're right. Yeah, there's no crystal ball, but there are things that are kind of already happening that we can extrapolate to likely continue for the rest of the year. So, you know, I put together this newsletter that I'll be sending out to my guys, and one of the big themes at the top here is talking about what they're calling the credit thaw, but basically the mortgage bankers association is forecasting that the total commercial mortgage originations will surge by 27% to over $800 billion in 2026. So what does that mean for us in plain English, do you think, Lila?

SPEAKER_00 5:20

I mean, that that sounds pretty amazing. You know, for the last few years, they have been very hesitant about allocating any financing. And as you know, lending had been extremely restrictive in the last few years, just because what it what had happened prior years, and plus with all the distressed uh properties. And so even during my last financing in the multifamily, we had to be interviewed. We had extra paperwork. I mean, it was just a lot more requirements by these agency lenders at the moment. So hopefully they're gonna be a little bit more lenient. I don't think so, but at least from the search, I feel like there's gonna be a lot more transactions by the 20 end of 2026, if not into 2027.

SPEAKER_01 6:15

Yeah, I I think you're absolutely right. And I think some of it is also the determination by a lot of these lenders that they have to start cycling the capital again. They can't just keep on giving extensions to some of the current debt owners. So, you know, probably they're going to be closing out and foreclosing on some stuff and offering new capital to new buyers, which brings us to the next kind of conclusion and you know, in the crystal ball is that, you know, what do you think, Lilac? Because I I firmly believe that at least for now, we're somewhere near the bottom of this real estate cycle for multifamily. What do you think?

SPEAKER_00 6:53

You know, I've been talking to my mentors and my other business partners about this. Are we at a bottom? Are we not at at the bottom? We'll never know until we retroactively look or retrospectively look back. But I think we're pretty much hitting the bottom as I'm looking at the Dallas market. I mean, we definitely have a lot less new construction permits that's being handed out. There's a lot more absorption in Dallas as well. So we're actually at about a negative number at the moment in Dallas. Rent is stabilizing, it's it's not increasing, maybe slightly down still, but we're getting to a point where it's more stable. A lot less concessions that we're seeing as well in in at least the Dallas market. And I know in several other markets as well. Maybe not in Austin, but Austin is still dealing with the oversupply of inventory at the moment. So with all of these factors, I think we're pretty much hitting the bottom, if not, you know, by the end of 2026. I believe recovery is coming soon.

SPEAKER_01 8:04

Yeah. And I think it's so interesting because maybe we have to be specific about what bottom we're talking about, because you know, there is a bottom in terms of the entry price into new purchases. And there's a bottom in terms of where the rent is going to be and it's occupancy rate. Occupancy rate, you know, vacancy, right. So, you know, specifically talking about you know, Phoenix, for example, where you know, I'm concluding this capital raise, it's been very interesting. So when I was looking at the CoStar report, rent is probably going to drift down even a little bit more uh this year in 2026 before it stabilizes and then starts heading back up. But there's this concept where you know there are different indicators. And like when is the best time to get the best deal on purchasing something? It's probably right before rents start going up and people kind of turn around and they start getting excited to put more capital into it. So, you know, to get put some hard numbers behind that, I was looking at the data and it said that back in the in the peak, you know, retrospectively, we can look back and say that 2022 was a high. The average per unit price for multifamily in Phoenix was around $300,000, you know, which is which is a lot of money, right? It's an expensive market. And then, you know, this this deal that I'm concluding, it's uh the per unit price is around $175,000. So it's like 40% off. So, you know, unless unless we all think that we're gonna somehow magically drop by 50% like we did after 2008, I think we're probably somewhere close to the bottom.

SPEAKER_00 9:40

Yeah, and and that's exactly what I'm seeing as well in the Dallas market. Um, in my last deal, we bought the property at 34% below, and then and not even below the peak where it was, but really below the the current market. Partly is because the seller was still distressed and had to get out pretty quickly from these bridge loans. And that's where we're still seeing. And I think these bridge loan uh maturities will basically finish by the end of 2026. The financing will be reallocated to other deals. And from 2027 and on, we're gonna see, you know, more of a stability, if not an increase, not only in price, in rent, hopefully, um, but also in the occupancy as well.

SPEAKER_01 10:28

All right. And sort of last piece of sort of news to think about is what do you think is going on in office?

SPEAKER_00 10:35

Oh, that is a hard prediction. I am not really into in the office space, but I feel like the office sector is still in some type of historical crisis at the moment. You know, I do work with a couple of commercial lenders or commercial brokers here in in Denver. And we're seeing a lot of these boutique offices being built out instead of, you know, these major tech centers, if you can call it, uh, or business districts. So I don't know, slow recovery, but I feel like the offices and the corporations will start to pull their people back. I personally love being in an office because I can't work at home. And I am hearing that a lot of a lot more banking, finance, and other corporations are slowly pulling their people back in. And that should help with the prices.

SPEAKER_01 11:32

Yeah, it's interesting. The headline from the newsletters is is that it's still an office apocalypse, you know. Um and when when I talk to seasoned investors, they're like, they're not touching office with a hundred-foot pole, you know, they're staying really far away. And I think the real wild card there specifically is actually AI, because like, first of all, there's remote work, you know, and even though I agree, I'm like much better in an office environment for focus, and I like the collaboration in an office, sometimes it's nice being remote. So you can, you know, take care of things during the day, sort of in your breaks and things like that. So certainly there's there's a lot of reduced office utilization because of remote work, but then there's this whole secondary factor of artificial intelligence. And is the office work going to be offloaded now to an agentic AI agent?

SPEAKER_00 12:26

You know, so it's like that's what's happening in California, right? With these software engineers. They train, you know, for four years in university to come into a job that they were pretty much guaranteed to have. And now a lot of these uh senior level soft engineers are passing the junior level to AI, and now there's no jobs. So that, I mean, that is a crisis in itself.

SPEAKER_01 12:53

It's such a far-reaching thing. And actually, we should make a note to do a whole podcast or two on what we think is gonna happen, you know, to medicine and to real estate with AI. I literally spent three hours today trying to vibe code a an app to find out where I should put my 1031 capital. And that was that was an experience. I'll tell you about it later. But in any case, kind of bringing this to a close, you know, uh I from what I'm hearing from you is, you know, we're probably at a bottom in terms of multifamily valuation. The credit markets are unfreezing in 2026, and probably we should stay away from office.

SPEAKER_00 13:34

Yep, absolutely. And you know what's really interesting that I read recently, and I've been looking in this sector for a couple of years now, is actually the medical office space is the only sector of real estate that is actually providing a great ROI at the moment, risk adjusted, of course. So I'm really interested, and I'm still very interested in acquiring maybe a medical office space, whether it's for single tenant or multi-tenant. So, you know, just looking around and see what other opportunities are out there. And I will say this um opportunities comes from anywhere, everywhere, at any time. And so what I learned based on my uh stand in in on Wall Street is that you never speculate the market because you can't, you don't know where the market is going. And similarly, you shouldn't speculate in the real estate space because even though we've been going through this recession with real estate, you know, we both you and me have picked up pretty great opportunities that people didn't think existed. So no speculations.

SPEAKER_01 14:46

Totally right. No speculating, but making informed analytic judgments, I think, uh based on the data is almost what we should be doing. Well, all right. Well, thanks so much, Lila, for touching base on this podcast. I'm really excited to be having some guests on in the near future. Until then, I'll talk to you next time.

SPEAKER_00 15:04

All right, Danielle, take care. Thanks for tuning in to Paging Financial Freedom, where we help doctors and spouses like you take control of your finances, invest smarter, and build a life by design.

SPEAKER_01 15:17

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SPEAKER_00 15:25

And remember, financial freedom isn't just a dream, it's a decision. So let's get there together.