Who is buying in this market?

Buying & Selling Real Estate
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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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  • Charlotte Dunford
    Investor · Johns Creek, GA · Member since 2017 · 463 posts · 488 votes
    6y

    @Arthur P. It is tough to get 10%+ for multi family which is why I transitioned to mobile home parks where I buy at 10% cap rate going in. I'm looking at 15%+ cash on cash year one.

    5Reply
  • John Montgomery
    Member since 2019 · 52 posts · 37 votes
    6y
    Originally posted by @Russell Brazil:
    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.

     What is the maximum leverage you would have on a property?

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    @John Montgomery

    Personally I use 75% ltv. I personally dont feel comfortable with really high ltvs like a lot of people cashing out all their money in a brrr.

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  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    6y

    You can buy even a 6 cap with todays low interest rates and without counting any appreciation you are over a 10% return. This is factoring in mortgage principal paydown. Rates are low and the price of real estate reflects that. It's definitely not the time to be buying in cash.

    1Reply
  • Junior Soares
    Contractor · San Jose, CA · Member since 2018 · 262 posts · 407 votes
    6y

    @Russell Brazil

    I agree with Russell

    Investing in Real Estate is a long term play and utilizing leverage at these historically low rates are prime reasons why myself and other investors continue to purchase in this market. As the great Warren Buffet says, it's not about timing the market but time in the market. Works the same with real estate and leveraging your money. And same as stocks, when the economy isnt doing well then buy more real estate than you could at higher prices. This way, you're never Missing out and you never get out of the game. I have properties generating 15% COC return from earlier purchases a little after 2010 and have some producing 4-7% with recent acquisitions last year. In the end, when your tenants paid down the remaining 75% of your loan and you now collect that cash, it's all worth it on top of a nice net value of the property.

    4Reply
  • Courtney Coleman
    Flipper/Rehabber · Jonesboro, GA · Member since 2018 · 7 posts · 7 votes
    6y

    @Jingwen Dunford this is the market I want to jump in this year...mobile homes. I flipped a unit a few months back. Bought the trailer for $4K, sold it for $10K in exactly 1 week. No renovations or anything. Sold to another investor who was looking to buy and hold. I had no idea what I was doing. I just saw the opportunity and took it. Next I'd like to purchase, renovate, then flip, as well as purchase a few to hold. I've read Deals on Wheels. Do you have any other suggestions on where to go to learn more?

    5Reply
  • Shane H.
    Member since 2018 · 433 posts · 208 votes
    6y

    I don't think very many people are buying these properties that you keep asking who's buying them... that's why a broker is sending them to you... because they are sitting on the market... 

    3Reply
  • Erik W.
    Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
    6y

    One of the great ways to find better returns is by re-positioning a property to a higher standard (I think someone else mentioned this already) but here I am specifically interest in the lower cost of renovation vs. a new build.  Let's take a place I was looking at a few weeks ago as an example.  20 unit apartment with about 1000 sq ft per apartment.  Price was $1.1 million.  They needed some work, but approximately half of the units had been renovated nicely within the last 1-2 years.  It was also in a good location close to employment, services, and attractions.  The cost per square foot = $55.

    Compare that to brand new builds which are between $120 - $150/sq ft.  You can do a lot of rehab on a place and bring it from C+ to B+ or A- with that kind of margin.  Let's say you spent $20/sq foot or $400,000 total ($20K per unit) to freshen up & put some sparkle on it.  Turn an ugly duckling into a swan and still be in for 1/3 to 1/2 the cost of a new build.

    Although I'm getting into multi-family, I also still buy houses I call "little ATMs" too.  $30K "all in" and get $600-$650/rent.  Cash flow is typically $200-$300/month per door for $30K.  That's 8%-12% return on capital, but if you can get into them for nothing then your return is theoretically infinite as well as significant in terms of real dollars when you have several dozen.

    1Reply
  • Steven Lowe
    Real Estate Agent · Scottsdale, AZ · Member since 2019 · 448 posts · 320 votes
    6y

    It also depends on your exit strategy.  If you are a long term buy and hold investor then current market conditions are not as applicable to you because you're not looking to get in, renovate and sell the asset within a year like some investors out there.  

    0Reply
  • Account Closed
    Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
    6y
    Originally posted by @Arthur P.:

    @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!

    I’m working on a deal that is a 7 cap with a 7.8% cash on cash.   But I can and will hold this for the next 20 years.  Between rent raises and loan pay down I’d rather be buying what works than doing nothing with my downpayment money.  It’s a property just over a million so it isn’t a duplex by any means. 

    1Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    @Arthur P. Real estate is also being heavily influenced by other asset classes and the relatively low yields across the board. Stock market PE ratios fairly daunting and there is lots of profit taking and favorable cap gains treatment. I think of it as accidental help:

    What’s the most risk free investment? US Treasuries are the usual benchmark or similar indexes, so it’s a return over risk calculation.

    The big money (Goldman’s, sovereign wealth funds etc) for a while now has concluded that real estate is a safe play even at 4% with the possibility of being actually profitable as well.

    All that liquidity seeking yield and safety has to go somewhere and it’s being parked in real estate, multifamily, new construction and increasingly workforce singles.

    2Reply
  • Esteban I.
    Tampa, FL · Member since 2016 · 14 posts · 2 votes
    6y

    Funny enough, I thought that a 6% cap rate is low and this thread shares the same opinion. Whenever I do CAP rate analysis, all the market rate/MLS listed homes are right at "6%" to seem like a good deal.

    1Reply
  • Brian M Sweeney
    MBA, CFP®, EA · Columbus, OH · Member since 2018 · 175 posts · 207 votes
    6y

    @Arthur P. If you are buying rentals you better have a very long term time horizon. Commercial property shouldn’t be bought unless you are developing or have a 1031 exchange.

    1Reply
  • Jason Arcuri
    Real Estate Agent · Southbury, CT · Member since 2013 · 160 posts · 98 votes
    6y

    @Arthur P. Still getting them in Connecticut

    0Reply
  • Terrell Garren
    Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
    6y

    Old retired dude here.  Much harder work but I'm still finding the occasional 1% off market deal.  I self manage and pay cash since I'm too old for debt.  Much like buying cash flow; however, diversification is a good thing and I enjoy the business.

    I'm building two new SFH rentals 3BR/2BA 1100SF, $140K each. Once rented, I plan to sell to my sons at cost to get them started. With me doing PM for free, they will be close to 1% and 40% ROI with leverage. Also, likely few problems with it being new construction.

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

    @Jonathan R McLaughlin good point! Like your thinking but just hard for me to swallow to buy a property for 4%

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

    @Syed H. I will never buy on appreciation only. Of course cap matters. What are you talking about?? That’s your return.

    Upstate NY is where I found them. 15 and even over 20% a few years ago. They have tripled in value but if I sell can’t find anything better to purchase. Love the cash flow.

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

    @Syed H. I bought and heavy. That why it’s hard for me to buy under 10% now. Bought couple last year at that but I can’t go under that

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

    @John Montgomery good point! Where I’m at in my life 50% leverage. I prefer cash

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

    @Henry Lazerow explain how you change the cap with interest rate?

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

    @Junior Soares good thinking! This is why real estate works for everyone. I’m looking for today money. Cash flow. Not in the future. There’s a big difference of 4% or 15% on a mill

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

    @Courtney Coleman mobile home park is an option I have started to explore because or greater return.

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

    @Shane H. That’s what I was thinking but some are pending!! Couldn’t believe it.

    0Reply
  • Junior Soares
    Contractor · San Jose, CA · Member since 2018 · 262 posts · 407 votes
    6y

    @Arthur P.

    I couldn't agree with you more! You're absolutely right. There is such a wide range of options for everyone in this game! 100%

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

    @Erik Whiting that’s a good play but even construction costs have gone up making the number slim. Have a few little atms as you say but I want to get rid of them.

    0Reply
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