Author Topic: Any multifamily investors still buying?  (Read 4889 times)

srob

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Any multifamily investors still buying?
« on: January 06, 2016, 08:56:10 AM »
I like multifamily and have a few properties, but cap rates and inventory are so low. Is anyone out there still able to find a good deal on 4+ unit properties? If not, what are you investing in now? Sitting on sidelines? In my area (mountain west) cap rates are 5-6, even lower on nicer properties.

Overseas Stache

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Re: Any multifamily investors still buying?
« Reply #1 on: January 07, 2016, 02:36:11 AM »
Investing in Real estate is always a moving target, you have to follow the returns and that strategy will vary depending on the market. I'm currently purchasing multi-families in TN and I'm still able to get 10% cap rates, so I'm happy but I also realize that I am fortunate that I can still find these deals easily in my area. I will continue to invest in them until the numbers don't work and hopefully in that time I have found some other competitive advantage that will enable to find profitable properties.

One area that interests me that I have heard from Bigger Pockets is called the BRRR strategy. Buy Rehab Re-Finance Repeat. Basically flipping properties to yourself. Once again this won't fit all areas but it might help increase your Cap rates.

arebelspy

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Re: Any multifamily investors still buying?
« Reply #2 on: January 07, 2016, 02:46:23 AM »
All real estate is local.

The more I learn, the more I believe this to be true.

So the answer to the thread title question, I'm sure, is yes. :)

Perhaps not in your local area though.
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Johnny Aloha

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Re: Any multifamily investors still buying?
« Reply #3 on: January 07, 2016, 03:40:17 AM »
Is anyone out there still able to find a good deal on 4+ unit properties?

How do you define "good deal"?  If you ask 5 different investors, you'll probably get 5 different answers.

Your question is too broad to give a good answer ... do you mean small multifamily (under 80-100 units), large (over 100 units), in what location, property condition, niche (student, MHP, senior, etc), etc.  In general though, yes people are still buying!

srob

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Re: Any multifamily investors still buying?
« Reply #4 on: January 07, 2016, 12:17:12 PM »
Thanks for the replies guys! Maybe it would help if I gave you some more info on my situation and what I am looking for.  I am reluctant to post this info here, but maybe you guys can help me out with some ideas--I'm still pretty new at this stuff, and most of you are would probably be a lot smarter about this than I am. What would you do if you were me?

 I feel like I am so close to FI but not quite there, and I have been wracking my brain to come up with a solution. I have four properties in a desirable mountain west medium size metro area, 4-12 units each, (28 units total) all acquired starting in 2010, that have built up a good amount of equity. I would like to sell a couple or all of them and buy a larger one, 30 or more units, using a 1031 exchange. My property values have soared in the last couple of years, some of it my own doing (a bit of forced appreciation from improvements, raising the rents, submetering heat in my 12 plex) but mostly due to the rising market. The inventory of multiunits for sale is very low in my area. What is left is high priced. For example, an old crappy fourplex next to mine just sold for 539k, with two full price offers. It takes in 3800/mo in gross rent but the owner has to pay heat because there is a central boiler/radiators, it has old wiring with fuses!, old windows, etc. ( it sold for 259k just 4 years ago btw and I didn't think it was a good deal then!)

Anyway I feel very fortunate and lucky to own appreciated assets, but at the same time I feel like there is a lot of capital tied up that is not optimally deployed. And most of my properties are older, so it would be nice to get something newer requiring less maintenance. I work full time with a demanding job, large family, pretty high expenses and realestate is a side gig for me, although I do enjoy it better than my day job most of the time. I get 72K/yr cashflow on these right now, managing half of them myself. I could get 1.2M if I sold them all, after transaction costs/mortgage payoff but before capital gains/depreciation recapture. I would like to find a larger turnkey mulitfamily property that I could buy with 25% down that I could get 10% coc return on, after paying all expenses/management fees. Probably a class B property in a decent suburban area. Is that unreasonable? Are you guys seeing deals like this in other parts of the county? I have looked into commercial retail property but I have no experience there. I feel embarrassed to admit it on MMM but my family spends about 70k/yr to live not including 20k rent, and such a transaction would allow ~passive income to cover our cost of living and result in increased net worth over time due to principle pay down.

overseas--I'll have to read up on the BRRR strategy. 10% cap rates in TN sound amazing. What size properties have these kind of rates and what is the area like?

Johnny do you invest in Hawaii? If so, do most people go for appreciation plays there or can you get good cash flow?

 I think you must be right arebelspy, unfortunately my local scene stinks now ha ha. btw I just realized your name is "a rebel spy" for the first time, I always pronounced it "arrebells-pee" or in my mind for some reason. ha ha that makes it much easier now! Thanks for your copious informative posting on this site btw!

 


Overseas Stache

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Re: Any multifamily investors still buying?
« Reply #5 on: January 07, 2016, 01:00:48 PM »
So far I mostly invest in Quad-plexes so as to make use of all my traditional loans and to build up cash before I move on to larger complexes. But yes there are larger complexes about 30 units with 10% cap rates.  Your post makes it seem like you don't know what you are doing but you are CASH FLOWING 72K per year!!! Plus you have tons of equity you are obviously doing a lot of things right.


arebelspy

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Re: Any multifamily investors still buying?
« Reply #6 on: January 07, 2016, 01:28:24 PM »
I do enjoy it better than my day job most of the time. I get 72K/yr cashflow on these right now, managing half of them myself. I could get 1.2M if I sold them all, after transaction costs/mortgage payoff but before capital gains/depreciation recapture.

A 6% cash on cash, with appreciation and principal paydown, and tax benefits on top of it, seems pretty decent to me.

I'd probably work on building more, rather than trading what you have trying to chase yield, if they're in a solid area economically and tenant-wise (low vacancy, high quality tenants applying), and are in decent shape.  The grass isn't always greener, even for properties with paper cap returns of 10%.
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Another Reader

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Re: Any multifamily investors still buying?
« Reply #7 on: January 07, 2016, 02:12:11 PM »
30 units and up are bought and sold by a different crowd.  You are competing with investment groups and other entities with ready cash.  You need to work with a commercial broker that specializes in apartments.  The financing is more complicated.  A 1031 exchange with you selling multiple properties may be difficult to arrange.  If you are finding the smaller multi-unit market in your area to be overpriced, you are probably going to find the same or worse with larger complexes.

Likely you will have to employ an on-site manager.  Lots of insurance issues to consider, especially liability.  Expect to get sued.

I would not own retail.  Too many retail businesses, especially restaurants, fail.  Think rent loss and turnover costs.  Lots of competition on every corner.  They make good plays when they are 50 percent vacant, you can buy them for $0.25 on the dollar and the economy is coming out of a recession.  A small multi-tenant industrial property would appeal more to me.  Tenants tend to be a little more stable.

Good luck and please update us on what you find.


srob

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Re: Any multifamily investors still buying?
« Reply #8 on: January 08, 2016, 10:30:08 AM »
Overseas--Thanks for the vote of confidence. :) I have been pretty selective with my properties, only taking on ones that I knew would give me decent coc returns, but I do feel that luck has a lot to do with my equity build-up since I happened to start investing in 2010 at the trough of the market cycle, which was just a function of when I got a good job and could afford to invest. And about half of the equity that I have is from what I brought to the table with down payments. It sounds like a pretty good plan that you have to work your way up with 4plexes, and it won't take long if you can get decent 10% cap rate properties!

arebelspy--maybe you are right, it is hard for me not to get impatient when I feel like I could be FI already vs waiting a couple years to build up more investments. But maybe the grass really isn't greener. The properties are in good shape and the rental market is hot...no problems finding quality tenants. 3 of 4 properties are totally sustainable long term and I wouldn't think twice about keeping them indefinitely. I am tempted to sell the 12 plex though just because I don't know what the future will hold for it. Most of it was built in the 1920's. It has been updated over the years cosmetically and is very sturdy and in great shape, but it has a fairly inefficient steam boiler from around 1980 and not the best insulation.  It is fine now while natural gas is cheap, and I have passed on much of the heating costs to tenants through submetering, but what happens when/if natural gas prices rise? Plus the wiring is old (mostly cloth sheathed romex stuff) and there are only 2-3 circuits per apartment, most outlets are ungrounded, etc. I am afraid I would need to do a complete gut and remodel at some point, and I think that it would be prohibitively expensive for how much I would be able to raise the rent. I bought it 2 years ago for 500k and could sell it now as is for 700. btw I read your bio--it sounds like you guys have done pretty amazing things down there in vegas to build up that many rentals at such a young age. Impressive!

Another reader--You don't make it sound very appealing to own commercial properties! I think you are right about my market being tight for larger properties too. I thought if I consolidate and go big, it might be easier to buy in another market with more favorable cap rates. I have talked to a multiunit realtor from a national firm and he was going to send me some properties but he never got back to me. :/

Nickels Dimes Quarters

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Re: Any multifamily investors still buying?
« Reply #9 on: January 09, 2016, 04:17:34 PM »
I'm in the midwest and it's still tough to find properties for sale. My ideal is the tri- or four-plex. Lately there have been more duplexes available, but mostly lower end properties that aren't in my target areas.

Until the right deal comes along, my money is still working for me elsewhere and I continue to build my savings. It has been a long wait for the market to change, but life is still good.

NDQ

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Re: Any multifamily investors still buying?
« Reply #10 on: January 09, 2016, 05:19:42 PM »
The commercial real estate guy never got back to you because you are not financeable and he has nothing to offer you that meets your parameters anyway. 

When you have some time, check out the listings on loopnet.com if you have not already done so.  It should give you an idea of what's going on, although good properties sell quickly and there are a lot of pocket listings that never make loopnet or any other public venue.

Johnny Aloha

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Re: Any multifamily investors still buying?
« Reply #11 on: January 13, 2016, 06:46:12 AM »
When you have some time, check out the listings on loopnet.com if you have not already done so.  It should give you an idea of what's going on, although good properties sell quickly and there are a lot of pocket listings that never make loopnet or any other public venue.

Good advice - but be cautious.  Chances are, if it is on loopnet, it's been passed over by experienced investors because it's not good*.

Johnny do you invest in Hawaii? If so, do most people go for appreciation plays there or can you get good cash flow?

I have some properties in Hawaii ... most people buy for appreciation* but cash flow is possible also.

I think you're in a pretty good position and I wouldn't give up your current properties unless something comes along that is too good to pass up.  Networking will be critical because most of the deals in your target asset class and price range are transferred offline (meaning pocket listings).  Also realize you'll be competing with some sophisticated folks...   

* Of course, these are generalizations and the complete opposite may be true!

zephyr911

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Re: Any multifamily investors still buying?
« Reply #12 on: January 13, 2016, 06:52:52 AM »
Swimming in opportunities in Madison County AL. Expect to buy 6-8 this year, not all multifams but mostly.

srob

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Re: Any multifamily investors still buying?
« Reply #13 on: January 15, 2016, 10:02:12 AM »
another reader--I have checked out loopnet for multifamily and retail in a handful of states. There appear to be some good deals out there, particularly in the midwest/south, but they might be in bad areas of town or too rural...it is hard for me to gauge when I don't know the local markets outside of my area. Even some retail NNN properties in the south seem decent with high quality tenants, but the best that I've found only have a few years left on their leases, and that seems risky to me on a 7 figure property. I should start to network as Johnny Aloha advised. It is not my strength but seems necessary if I want to invest out of town. What do I need to do to be financeable? Credit and income are good...too many loans? Isn't it more the property that qualifies for the loan than the borrower when you are talking big multifamily anyway?

You are fortuante zephyr to be in a good area for investing! I have only been able to find a deal a year. (or less) I think most of us would love to be swimming in opportunities! How is the economy in your area? Is it easy to find good tenants and do places fill quickly? Lots of good employers around?

zephyr911

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Re: Any multifamily investors still buying?
« Reply #14 on: January 15, 2016, 10:46:26 AM »
You are fortuante zephyr to be in a good area for investing! I have only been able to find a deal a year. (or less) I think most of us would love to be swimming in opportunities! How is the economy in your area? Is it easy to find good tenants and do places fill quickly? Lots of good employers around?
Fortunate indeed. Our economy is great, with lots of job growth over the last decade and ongoing migration this way. Remington just built a new plant here, GE is adding one, and the defense industry here does a lot of foreign business (my job included) so it's less vulnerable to US budget issues. The Army moved a lot of people here in the last BRAC, and construction is still catching up.

Our current two multifamilies are in an area that's benefitted from the growth of the nearby medical district - mostly 1940s and 1950s homes, but many upgraded or completely rebuilt and an overall upward trend in values. A $10K upgrade to one side of one duplex brought a $2700 annual rent increase, which we foresee repeating on the other side when it goes vacant. Having started with affordable properties and thus less affluent tenants, we don't get the doctors and engineers who are transforming the neighborhood, but we've still done pretty well so far. We've run 100% occupancy for 8 months straight, with only one minor delinquency that we expect to square up soon. That said, we're starting to feel 'hood A is now overpriced, and everything we've eyed lately would be cash-flow negative on our typical financing terms.

Our next target area is close to the Army/NASA base (including a strip that may be opened to the public in the next decade) and is seeing new commercial development and residential investment that are drawing six-figure earners from the suburbs to socialize at new brewpubs amid $40k SFHs and $60k duplexes. Even if no appreciation results, these homes look like cash cows, with 1.3-1.5% ratios. If values go up? Yeesh! It's exciting. I'm working right now on booking some showings and may try to make a package deal with one owner who's liquidating a large portfolio all over town (he has dozens, but only 3-4 are where I'm looking).

Interesting factors - in area B, many blocks are dual-zoned commercial, which presumably increases their potential value, and overall inventory is low, though they don't necessarily move fast. I get the sense that owners are holding out for an eventual rise in value. There are also some signs that the upgrades and rebuilds that swept through the other part of town could proliferate here, with a big new house on a triple lot dominating a street corner near the largest commercial development, and fresh exteriors and building permits popping up here and there. It's definitely an interesting time to be here.

NoNonsenseLandlord

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Re: Any multifamily investors still buying?
« Reply #15 on: January 15, 2016, 06:59:12 PM »
I just bought a SFH at about 50% of market value.  Creative deals is what it takes.