Are you still finding multifamily are over priced ?

30 Replies

I know this has been discussed before sometime back. I'm Curious to what other are running into.  

I keep looking at apartment building for sale, run the numbers, earthier I'm doing something wrong or sellers is way off.

Example;

11 units asking 550k,

Ran the numbers, did scenarios of different amounts of down payments to see when there was a cash on cash return of at least 10%.Had to get to 50% of property value down before that happened, realistically I think the true value is around 340K. With a 100k down she has cash on cash return of just over 10%.

This is just one of many I have looked at; I’m assuming the trend is to over price and hope that an international or institutional invest comes along?

Orrrrr, am I out there like Pluto man. 

It's a seller's market for sure. I'm mostly active in TX and GA. Compared to 1-3 years ago where I was seeing people buying Class C properties in the meaty part of the curve for what those units sold for I'm now seeing people have to pay top dollar to put a property under contract. 
A lot of the low hanging fruit has been snapped up creating a lot of competition for the inventory that's left. You really need to know what you're doing in order to make sure there's enough "meat on the bone" to avoid over committing. Buying properties at a premium doesn't leave much room for error.

In your example those units are only $50,000 per unit, if you can get $800 a month or so out of those you are damn close to hitting the 2% rule, if you cant make money there than that place either has some major issues or your numbers are off.

Originally posted by @Kevin Harrison :

In your example those units are only $50,000 per unit, if you can get $800 a month or so out of those you are damn close to hitting the 2% rule, if you cant make money there than that place either has some major issues or your numbers are off.

 Its the different in markets, the average rent for this this building is 495,  don't know about your state but Illinois Insurance for multifamily is going through the roof, I received an insurance quote for 16k a year for a 21 unit we were looking at, taxes 32k, very expensive to business here. 

Ha! I'm in the same position in Florida. Most properties that I am seeing and putting in offers are being priced at "Potential Value" and the sellers aren't really budgeting on price. In my case, if the numbers don't work, I keep it moving. Like @Darryl Dahlen said, you don't want to over-commit yourself to a property that will turn into a headache financially 

Originally posted by @Mike Campbell :
Originally posted by @Kevin Harrison:

In your example those units are only $50,000 per unit, if you can get $800 a month or so out of those you are damn close to hitting the 2% rule, if you cant make money there than that place either has some major issues or your numbers are off.

 Its the different in markets, the average rent for this this building is 495,  don't know about your state but Illinois Insurance for multifamily is going through the roof, I received an insurance quote for 16k a year for a 21 unit we were looking at, taxes 32k, very expensive to business here. 

Good god man!!! lol. Find a new market, it sounds like the government is trying to put you out of business.

But seriously that really sucks.

I spent lots of time finding a right deal for Multifamily and didn't work for me (Chicago-Western suburbs). It is obviously a seller's market and the overpriced, especially in good neighborhoods. I just saw a 6-apartment building in B+ class neighborhood with average rent around $1050 p.m. for $550K i.e. around $92K per unit (2BR 1.5BTH). It is not attractive enough when run all numbers.... for me, the minimum COC is 15%, anything less than that is not worth spending time on, unless I see significant appreciation in short term.

I do 100% of my apartment business in mid- Michigan.  Two bedroom units are going for $30k a door.  I have purchased a 20 unit and a 17 unit in the last three months.  There are plenty of owners that have "had it up to here!" with their tenants (tenants that THEY chose oddly enough...) so there will always be motivated sellers.

They have always been overpriced in my area, which is why I build new ones.  People still buy and sell them so go figure.

You can go on the MLS at any time in my town and their are only a handful of multi's for sale, all are over 100 years old and cash flow negative.

Wow! Insurance at $16,000. We have property all over the country and we pay 180 to 220 per unit. I would seriously explore this with an insurance agent or property management firm to get this under control. Do you have a heavy claim history?

Originally posted by @Nicolas Paez:

Wow! Insurance at $16,000. We have property all over the country and we pay 180 to 220 per unit. I would seriously explore this with an insurance agent or property management firm to get this under control. Do you have a heavy claim history?

 No heavy Claim damage, 3 claims in 10 years, We are getting quotes from others, country company doesn't want apartment buildings because they see them as tooooo risky, wellsfargo told us if we would have contacted them a year ago things would be different, multifamily rates are and will be going up.

All the numbers you guys are talking about is ridiculous. I can get duplexes for 15k and 4 unit buildings under 30k

Of course not including renovations but wayyyyy less than the numbers you guys mentions.  Thats also generating rents of 500-650 per unit

495 rents a door you will be dealing with a very intensive tenant base.

Multifamily is overheated right now. Most of my clients we are buying retail strip centers. Office and industrial is starting to come back in secondary suburban markets where most of the value can be unlocked.

In urban cores institutional money pays such low caps that is does not make sense for regular investors at those levels.

Originally posted by @Douglass Benson :

I do 100% of my apartment business in mid- Michigan.  Two bedroom units are going for $30k a door.  I have purchased a 20 unit and a 17 unit in the last three months.  There are plenty of owners that have "had it up to here!" with their tenants (tenants that THEY chose oddly enough...) so there will always be motivated sellers.

@Douglass What cities are you investing In in Mid Michigan?

As everyone else has said, yes multi's are over priced almost everywhere right now. In Atlanta, You can't even find a duplex under 300k unless it's in a war zone, inside the perimeter. Maybe outside the city in a C neighborhood you can get one for $150k with gross rents of $1,500, barely touching the 1% rule. It's seriously gotten ridiculous. The only 2 options are finding motivated sellers, which of course is difficult but they are out there if you hustle to find them, or 2, sit on the sidelines waiting for the next downturn... but of course that could be 3 years, it could be 8-10 years.

I would have to agree that it's a Seller's market. In Cincinnati there is very little available in the multi family arena. Off market deals are your best bet, but barring that, it's just a waiting game. 

I would also have to agree. It looks like a lot of the multi-families that are listed for sale in my area (Oakley, Hyde Park, Mt. Lookout) are priced for owner-occupied investors. I blame that HGTV show "Income Property." LOL

My girlfriend is in the process of house hacking a property in Hyde Park so she can decrease her monthly housing expenses from $1350 down close to $500 while still staying in Hyde Park. 

From my perspective, I don't really look at the MLS anymore because of the above reasoning and focus on finding off-market deals.

Maybe it's naive to think this but (being from Champaign) I think you have some special considerations. Multi-family in town is dominated by maybe 4 big players - so much so that any of the smaller players are usually 6 flat and down, with building conversions more of a factor. So, add that to increased costs and a hot market and you're competing with a larger pool of buyers for an even smaller pool of properties. 

The big guys can pay more because they have the efficiencies and can keep their costs low. It's going to be interesting to see what the current building is going to do to their business models (as competition for student tenants increases). I wouldn't be shocked to see the big players develop trouble over the next 3-5 years as that added capacity comes on line and challenges their margins.

Originally posted by @Shawn Q. :

Maybe it's naive to think this but (being from Champaign) I think you have some special considerations. Multi-family in town is dominated by maybe 4 big players - so much so that any of the smaller players are usually 6 flat and down, with building conversions more of a factor. So, add that to increased costs and a hot market and you're competing with a larger pool of buyers for an even smaller pool of properties. 

The big guys can pay more because they have the efficiencies and can keep their costs low. It's going to be interesting to see what the current building is going to do to their business models (as competition for student tenants increases). I wouldn't be shocked to see the big players develop trouble over the next 3-5 years as that added capacity comes on line and challenges their margins.

 Shawn;

There are major high rise apartment building being built as close to campus as possible, they rent out a four bed room apartment getting something like 1k a month per room, and getting it from the students, in my opinion what this is doing to the older apartments buildings and the ones further away from campus is causing less of a student population to rent too, and the more rental units there are, well we all know what happens, rent falls. not for the newer building but the older ones.

As far as there only being only 4 big players, not hardly, the newer buildings are institutional investors, In my opinion this is why the smaller buildings 10 to 20 or so are trying to get while the getting is good, but there numbers simply do not add up.   

@Chris Field - Tell me about building multis.  In my hometown area there is a longtime lack of rentals, soon to be even worse as the university kicks professors out of faculty housing after 2 or 3 years.  I want to build some small multi-families (this is rural but educated South; I want to build old-style garden apartment buildings, 4-12 units) but haven't yet done the research on how to make them financially viable.