Is the Time to Buy an Apartment Passed?

6 Replies

It depends....I know not that helpful but hear me out

Regional focus 

The Pacific Northwest is experiencingsolid  population growth and that should lead to increasing prices but Seattle area cap rates are not attractive in MHO. Other areas of the country have great cap rates.  South of Chicago (Bradley, monee area ) can see caps that are good but growth prospects are average at best

Valuations

Getting crazy but there are always pockets of value.  For example we're closing on a place with 7.0 cap rate and that is with below market rents and a building in great shape. No work needed !!

Strategy 

Buy and hold approach offers better prospects  given longer term focus but will take longer to find a "deal". A flipper is a tough spot to be in given increasing prices and huge interest in rentals from all the newbies coming to market.  The competition  is only picking up

Karen,

I agree with the article and what Mike posted. MF properties are trending to be a good investment...if you can find one and purchase it at a decent price, as Mike mentioned "caps that are good but growth prospects are average at best". 

There are numerous articles and news stories regarding "potential" home buyers. The SFH buyer market trends are becoming like the Chinese stock market...Hot today, crashing tomorrow. Many people have lost the aspect of "owning" a home is more beneficial than renting.

http://realestateconsulting.com/owning-costs-more-...

http://www.nytimes.com/2015/06/24/business/economy...

http://abcnews.go.com/Business/buying-home-versus-...

Originally posted by @Karen Schimpf :

... Do you think it is a good time to buy an apartment building? Or will we see more renters buying homes? ...

It really depends on where you buy... more renters would buy if it makes sense to buy than rent and if they have adequate access to capital.

My real estate lawyer was telling me that the market for old apartments is a bit tight for making a profit so there are a bunch of builders that are just building and selling apartment building for that profit.  Giving landlords options in the market.

We purchased buildings in 2003, 2005, 2009, 2011 and 2015.  The only thing that keeps me from buying apartment buildings is finding the right deal.  That is true regardless of circumstance or economics.  If you take a macro view of everything, you can convince yourself of anything.  Do what makes the most sense, makes sure the numbers work and pull the trigger.  

  

Multifamily has been frothy for awhile.

If a deal comes along then sure it makes sense to buy and hold. Most of what I see is owners pushing 3% vacancy rates and saying rents are growing 4 to 5% a year. That is not sustainable and is a micro bubble from the markets heating up.

2 factors at play is the rents rising at a pace faster than renter incomes and the increasing of building supply. Back in 2009,2010 nobody was hardly building new. Today it's a developer gold rush to see who can pump projects out the fastest. I think in about 2 to 3 years vacancy will rise closer to 10% and rents will flatten down to about 2% increase or less a year. This will be from where the supply starts catching up to and outpaces the demand.

Nobody knows for 100% certain and the market could still be humming along strongly then but I won't buy at those low cap levels as there is no buffer for market corrections. I like high caps and longer term debt to have exit options with a property and being able to time the implementation when I want to. If you use short term debt or buy at a low cap rate it can limit your options.     

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