Who is buying in this market?

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Who is buying in this market?

Arthur P.
Real Estate Broker · Pinellas County · Member since 2016 · 166 posts · 114 votes

Who is buying these multi family properties with 5/6/7 % returns?? Are people buying for appreciation?

What happened to 10% and over.

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
6y
Originally posted by @Arthur P.:

@Russell Brazil I understand the concept but who is buying at these low returns? You can get into stocks with these returns

 Well Im certainly buying and continue to grow rich in doing so. However I wouldnt be buying in all cash.  The greatest aspect of real estate investing is using leverage to purchase it.  Your return is artificially low in purchasing in all cash.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    In good economic conditions margins compress, in bad economic margins increase.

    Who is buying? A few more people than buy during the bad times, including all the people who buy in the bad times.

    It isnt 2010. Returns were higher then, which was consummate with the much higher risk involved in the market at that time.

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  • Mark Allen Kenny
    Investor · New York City, NY · Member since 2016 · 155 posts · 105 votes
    6y

    @Arthur P. Do you mean CoC return or ROI? Also, I'm curious what market you're in. I only buy properties with a 100% ROI in 3-5 years. I'm focused on the Midwest and East Coast.

    3Reply
  • Arthur P.
    OP
    Real Estate Broker · Pinellas County · Member since 2016 · 166 posts · 114 votes
    6y

    @Mark Kenny I look at both. I buy all cash and what I’m seeing are low returns. Looking for new areas in US. Where are you? I’m in NY, FL and Europe.

    2Reply
  • Arthur P.
    OP
    Real Estate Broker · Pinellas County · Member since 2016 · 166 posts · 114 votes
    6y

    @Russell Brazil I understand the concept but who is buying at these low returns? You can get into stocks with these returns

    3Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y
    Originally posted by @Arthur P.:

    @Russell Brazil I understand the concept but who is buying at these low returns? You can get into stocks with these returns

     Well Im certainly buying and continue to grow rich in doing so. However I wouldnt be buying in all cash.  The greatest aspect of real estate investing is using leverage to purchase it.  Your return is artificially low in purchasing in all cash.

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  • Arthur P.
    OP
    Real Estate Broker · Pinellas County · Member since 2016 · 166 posts · 114 votes
    6y

    @Russell Brazil That is great to hear! I am also just not find enough properties. Need more.

    This is why real estate investing is great. People can leverage if they want. Where are you buying? You’re happy with 5% cap?

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y
    Originally posted by @Arthur P.:

    @Russell Brazil That is great to hear! I am also just not find enough properties. Need more.

    This is why real estate investing is great. People can leverage if they want. Where are you buying? You’re happy with 5% cap?

     A cap rate is a significantly different metric than return. Cap rate actually has very little to do with return.  Cap rate is much more of an indicator of risk than it is of return. I much prefer lower cap rates to higher ones, because I dont like the risk involved in high cap rate properties or markets. I buy in the DC, Boston and Charlotte metro areas.

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  • Jon Ferraiolo
    Rental Property Investor · Atlanta, GA · Member since 2016 · 14 posts · 9 votes
    6y

    Just being new, what are some of the metrics/data you look at when evaluating a market? FL, NY and Europe all seem so different, love to hear more about your process

    2Reply
  • Alison Lee
    Member since 2016 · 29 posts · 14 votes
    6y
    Originally posted by @Russell Brazil:
    Originally posted by @Arthur P.:

    @Russell Brazil I understand the concept but who is buying at these low returns? You can get into stocks with these returns

     Well Im certainly buying and continue to grow rich in doing so. However I wouldnt be buying in all cash.  The greatest aspect of real estate investing is using leverage to purchase it.  Your return is artificially low in purchasing in all cash.

     Couldn't the same be said for using leverage? Buying with leverage creates an artificial looking return if you ask me. 

    3Reply
  • Arthur P.
    OP
    Real Estate Broker · Pinellas County · Member since 2016 · 166 posts · 114 votes
    6y

    @Russell Brazil great areas you’re in! If buying cash is pretty much the same

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y
    Originally posted by @Alison Lee:
    Originally posted by @Russell Brazil:
    Originally posted by @Arthur P.:

    @Russell Brazil I understand the concept but who is buying at these low returns? You can get into stocks with these returns

     Well Im certainly buying and continue to grow rich in doing so. However I wouldnt be buying in all cash.  The greatest aspect of real estate investing is using leverage to purchase it.  Your return is artificially low in purchasing in all cash.

     Couldn't the same be said for using leverage? Buying with leverage creates an artificial looking return if you ask me. 

     The return isnt artificial. You are taking on greater risk to magnify those returns, and leverage will magnify your losses as well in that event. Leverage by definition increases your risk. However, I see very little reason to invest in real estate without leverage. The easily managed risk of leverage is what makes real estate the golden goose that it is.

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  • Arthur P.
    OP
    Real Estate Broker · Pinellas County · Member since 2016 · 166 posts · 114 votes
    6y

    @Jon Ferraiolo I rely on broker information and really take a close look at financials. Most financials are not accurate. That’s my number one. A general look into area demographics, job, average income, employers, ect.

    I’m all about cash flow with minimal appreciation.

    1Reply
  • Arthur P.
    OP
    Real Estate Broker · Pinellas County · Member since 2016 · 166 posts · 114 votes
    6y

    @Alison Lee Seems like Russell knows everything and is stuck in his own way of investing. That’s fine but I like to be more open minded. Real estate has many ways one can invest depending on their needs. This is why I love it. Where are you? What are you seeing out there?

    5Reply
  • Arthur P.
    OP
    Real Estate Broker · Pinellas County · Member since 2016 · 166 posts · 114 votes
    6y

    @David Abbate great comment! Where are you investing? What are returns like these days?

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    6y

    Cap rate and return are unrelated (even if buying with cash).

    Return comes from cash flow, principal reduction, and appreciation (and tax benefits).

    Prices are inflated by artificially low interest rates. If we buy for cash, we pay the high prices without getting the benefit of what caused the high prices (low cost of debt). I am not referring to the cash vs. leverage debate. I'm talking about the total cost of REI (price + the cost of debt).

    Many investors are buying and have mid teens for return requirements for passive investments and mid twenties and above for active investments.

    17Reply
  • John Collins
    Investor · Tx, GA · Member since 2019 · 313 posts · 337 votes
    6y

    I am. Struggling with high end rentals .. in the process of selling to go more mid range which are doing well. The market is like a thrift shop, you have to comb through a lot of junk to find a deal that works big picture and with the numbers. Looking at the south - texas, georgia, virginia. Cal is not worth it outside of flips or new dev unless you want to pool together for the multi families. Eventually there are going to have to be more options for middle class rent - will more multifamilies be licensed to go up over exisiting buildings? Which segment will rent caps disturb the most - landlords or tenants? 

    As far as real estate vs stocks - with a certain percentage down (depending on your income) you'll get low enough interest to cash flow immediately. You also have an asset you won't be paying off after 10-15 years. I don't count on appreciation but I like to know I can generate income after 50 without having a job job. @Arthur P. I don't see the point of going all cash if you are using it as a rental? 

    5Reply
  • Arthur P.
    OP
    Real Estate Broker · Pinellas County · Member since 2016 · 166 posts · 114 votes
    6y

    @Mike Dymski great to finally hear some numbers I’m used to. Teens and twenty’s.

    Of course people are buying. I’m buying but I’m curious to know who’s buying with low returns.

    What’s the big difference between cap and roi? Loan payments!

    Where are you seeing these numbers?

    1Reply
  • Arthur P.
    OP
    Real Estate Broker · Pinellas County · Member since 2016 · 166 posts · 114 votes
    6y

    @John Collins great comment! C class has treated me the best. A class I would not do. We need more housing for middle class.

    Retired a few years ago. Have the cash so I’m using it.

    I agree with the south but I’m still seeing low numbers there. Too many buyers raising prices

    0Reply
  • John Collins
    Investor · Tx, GA · Member since 2019 · 313 posts · 337 votes
    6y
    Originally posted by @Arthur P.:

    @John Collins great comment! C class has treated me the best. A class I would not do. We need more housing for middle class.

    Retired a few years ago. Have the cash so I’m using it.

    I agree with the south but I’m still seeing low numbers there. Too many buyers raising prices

    Off market, foreclosure, low bid. At market or turnkey isn't giving me the margins to be worth my while. Overdevelopment for the wrong class of renter has led to stagnation. 

    If retired, I would meet with agents in different area's and ask them to keep their eyes open for you, as an all cash buyer you would be given preference in case of bidding wars or someone who is hesitant about selling. Can contact owners before auction but your margins can get to double digits that way. 

    Otherwise midrange multifamily commercial (5+unit), whether your personal funds or syndication, is doing very well in all markets. 

    2Reply
  • Salvatore Lentini
    Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes
    6y

    @Arthur P. - For me the key is forced appreciation. I find it best to take a Class C or D and improve and reposition to a B. Too much competition in the Class A space and too hard and expensive to try and take a C or D to A without knocking it down or gutting inside and out. You can buy something that doesn't have a great return as is but by adding units (to empty spaces in a multi family or by splitting 3BRs into two 1BRs), making exterior and interior improvements, adding or increasing laundry, reducing expenses etc etc. Increases the NOI, which increases the value and increase your returns. I usually do that and then refi to get my money out and hold onto it. Now I have an improved property, which means less maintenance, better tenants, better cashflow..... rinse and repeat. It's definitely harder than it was to find these deals but they are out there. Got to get connected. Off market opportunities are what has worked for me in the past few years. That and real estate investor friendly lenders (no tax returns or W2s) an area where I am fortunate to have strong connections.

    7Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    6y
    Originally posted by @Arthur P.:

    @Mike Dymski great to finally hear some numbers I’m used to. Teens and twenty’s.

    Of course people are buying. I’m buying but I’m curious to know who’s buying with low returns.

    What’s the big difference between cap and roi? Loan payments!

    Where are you seeing these numbers?

    My active portfolio is in SC and passive investments are all over the country. Every passive investment I review has returns in the mid teens. It would not get funded otherwise. I have an offering in front of me right now...IRR 15% over 8 years (with conservative debt). Portland, OR.

    My active portfolio has market cap rates in the ranges you mention but the returns are much higher (excluding debt).  Buy right, add value, forced appreciation, market appreciation, leverage in some cases, etc. I don't network with any investor who is only getting 6% return (for active or passive investments).

    1Reply
  • Arthur P.
    OP
    Real Estate Broker · Pinellas County · Member since 2016 · 166 posts · 114 votes
    6y

    @Mike Dymski That’s great to hear! I couldn’t get myself to buy a 6% property. Everything brokers send me are under 10% and I can’t do that. So who is buying these properties? I want to know!

    0Reply
  • Arthur P.
    OP
    Real Estate Broker · Pinellas County · Member since 2016 · 166 posts · 114 votes
    6y

    @Salvatore Lentini Great comment! Really seems have to work the off market route

    0Reply
  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    6y

    What I want to know is where you are buying an in place 10 cap lol. Unless you are buying in the worst areas/high risk areas that’s hard to find. 

    It doesn’t matter what the cap rate is. We have low interest rates, so we have low cap rates (they are always correlated long term). Just like when we had 7-9% mortgages, cap rates where above that. 

    Appreciation is the name of the game in low cap rate markets like NYC, Cali, big cities; etc. Many of the inexperienced/Secondary/tertiary investors say appreciation investing is risky. I say cash flow investing in high cap markets are  riskier than appreciation investing in low cap markets.

    Btw, Most business plans in NYC are delivering IRRs in the 10-20 range depending on level of risk and asset type/location.

    4Reply
  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    6y

    Also returns may have been higher in 2009-2011, but how many people actually bought? Very few is the answer. If you look at investment sales numbers they were essentially nonexistent in most markets Bc Debt/equity liquidity was gone. 

    3Reply
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