Rental Property Investor · Columbia, SC · Member since 2020 · 244 posts · 275 votes
Hello BP,
I've been getting a lot of notifications from my Zillow saved search criteria for multifamily properties. All of these properties have a high sales price and I definitely would not "win on the buy". Yet these properties are still selling, investors are buying them.
My question is, what is the value that investors are finding in purchasing at market price right now? Is it that because rates are cheap on loans? Even when I run the numbers, it doesn't make sense to buy. I'm trying to make sure I'm not missing anything.
In addition, a lot of these properties were purchased in the last 2-5 years are are being sold at or near double the price. Again, I'm looking for input from other investors to ensure that I'm not missing something or if I need to look at things in a different light.
Rental Property Investor · Edmond, OK · Member since 2017 · 1k+ posts · 1k+ votes
5y
Something to keep in mind is that a lot of people are buying properties with large down payments and leveraging those large down payments with super low interest rates. I've seen people selling SFH, condos or townhouses in extremely high cost of living areas and using those funds as down payments for "expensive" MF homes in other areas. When you are putting 25-35% down on a MF property and locking in a 3% interest rate for 30 years, your cashflow numbers look a lot better. I've seen a lot of buyers taking the equity from the SF homes they sell and doing a 1031 exchanges to either exchange into multiple single family homes or MF homes.
Rental Property Investor · Edmond, OK · Member since 2017 · 1k+ posts · 1k+ votes
5y
Something to keep in mind is that a lot of people are buying properties with large down payments and leveraging those large down payments with super low interest rates. I've seen people selling SFH, condos or townhouses in extremely high cost of living areas and using those funds as down payments for "expensive" MF homes in other areas. When you are putting 25-35% down on a MF property and locking in a 3% interest rate for 30 years, your cashflow numbers look a lot better. I've seen a lot of buyers taking the equity from the SF homes they sell and doing a 1031 exchanges to either exchange into multiple single family homes or MF homes.
@Ryan Copeland tons of info to digest here, I think one way people are looking at it is using FHA low down payment loan options with rates at an all-time low buying the MF property and then living in one of the units and renting out the other(s) and covering their mortgage, basically living payment free. Happy to help if you have any more questions!
Rental Property Investor · Columbia, SC · Member since 2020 · 244 posts · 275 votes
5y
@Cassi Justiz that is a possible scenario, but I think that is a very low percentage of buyers. I agree that it does happen, but at the rate these properties are selling I just feel it's a low percentage of that route.
Why sell your property to buy another property at market value to put 30+% down, when you can just refinance your property to get a lower interest rate? Or even do a cash-out refinance. One of the reasons I think the scenario(s) you described are fewer.
Lastly, I haven't gotten a quote for 3% on a MF property yet. I'm going through a cash-out refinance now and I got 4.375%.
@Ryan Copeland I agree with @Cassi Justiz too, just different ways of accomplishing the same thing I guess. You will probably get different reasons from everyone you talk to, all to take into consideration.