With interest rates so low, renters are become home owners, causing the housing market to soar and leaving the rental market.........well......vacant. Rental vacancies are at an all time low. Landlords are struggling to fill their buildings and some are even looking to sell their once profitable operations. When is a good time to buy apartment buildings? Has the price of these buildings even come down (since they aren't so profitable now)? are there any statistics on this? In other words does this market even fluctuate and can any of us make some money buying a bottom in the multi-residential market? SNTO
Depends on area you're in but just about every Tom, Dick, and Harry are yappin' their mouths off about real estate, just like in 2000 about stocks. Usually, that' not the best time to get in. When people are fed up with houses, many in need of paint, foreclosure sign out front in many neighborhoods, then it may make sense. Also, American real estate agents are crooks. Many people fall for paying 6% of sales price in commissions! They pretend its their "great marketing ability" that sells your property. Many people are not even aware they can negotiate these ripoff commissions. Can you imagine paying 6% to sell your stocks?
rental market is weak especially for larger units. The customer profile has changes considerably as well. However, residential properties isn't the best deal these days. Up until recently we focused on commercial space, which is very depressed these days, if you can find a weak seller. talking NYC metro area here. M.
Finally just signed a one year lease in Chicago. Nice apartment in a decent area. A bike ride away from Wrigley. GO CUBS! FWIW, in Chicago, condos are going up like weeds. For me, it makes little sense to buy now. I want to have every dime I have to trade with. A few years back, I took everything I had and did RealEstate development. If those days came back to RealEstate, I would go back to it. But now it is super tough. nitro
For starters I agree with IndexTrader. I think one of the smartest things I've read about RE investing is to figure out replacement cost (cost to simply rebuild the building minus some depreciation). A builder or developer can do this for you. Once you know this number you can figure out how much the price is inflated due to the hot RE market. However if you can get great financing (think leveraged with low interest) the ROI might not be half bad. Remember -- over the years rents go up on average but the mortgage doesn't. As long as your rental income exceeds mortgage you are cool (unless we have disinflation or deflation -- then you go Ch 11 ) JT
The problem with BUYING income producing property at the high end of a cycle is if/when the cycle turns down. In many areas, there won't be ANY renters to fill those properties. A lot of the HUGE houses being built nowadays have 2-3 people to occupy them. In a down cycle, people can compress living spaces. I remember back in 1982-84, people were talking about building apartments/houses in the 600 sq ft range in order to make it more affordable. But things went the OPPOSITE way. Also, I remember articles in magazines in the early eighties about building economical cars using Kubota 20hp engines for fuel efficiency. But things went the OPPOSITE way didn't they? Properties do not dissapear like say, oil, which must be pumped every minute out of the ground just for the price not to go up! So, in a down cycle with the tremendous debt in place currently, who knows where the bottom would be? Is this a prediction? No. Things might just keep getting reflated all the way to China and maybe it'l be OK but its not my kind of gamble right now.
Like nitro, I'm in Chicago. It's nearly impossible to get an apartment deal to cash flow here (at least in my hood). People are chasing prices up. I'm assuming they're betting on further gains in housing prices, or they're using the interest to shield other income. Even factoring in income tax shield, the numbers don't work.
But if rental vacancies are way up shouldn't these apartments be losing money. Not covering their mortgages because the building is not fully rented. And if this is the case wouldn't it be a bad invesment, one that some might be looking to get out of. and if they all want out of it shouldn't prices come down. I am more likley to agree with this board but part of me wants to find opportunity.
what index trader wrote may be the smartest thing i've read on realestate, anywhere. just want to add, your first house should be bought for one reason, because you and your family are ready for it. no matter what time it is. 2nd/3rd, investment properties all come later and then you start thinking about where we are in the cycle. -m.o.