Multifamily Markets Strengthening In The Shadows

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Many of the markets I am seeing at present are looking extremely strong for multifamily apartments. It is interesting to see that quite a few primary markets (Phoenix, Colorado, Charlotte, Indianapolis) are still seeing stable occupancy rates and growing rents in both Lifestyle and rent by necessity apartment groups. In many cities, I am seeing significant quantity of unit construction starting too take place and housing prices rising extensively. Here is my question - If there is extensive construction in many of the US Primary markets, quickly rising home prices and rent growth, at what point will affordability in both SFH prices and Rents impact the apartment sector in these markets and leave the large construction base bare? Does this growth have a point where people can’t hang anymore? The markets I am reading into having strong growth in both rent and SFH prices giving me the idea that markets may be pushing towards their peaks. In saying this Im extremely interested in finding some Secondary or Tertiary markets that may still be on the turn from rock bottom. I would love to hear your thoughts on secondary and tertiary markets that you are seeing make the turn from the shadows!! Let me know your thoughts on either!

@Josh Oaten Best of luck finding a secondary and tertiary market on the rebound from rock bottom. All the easy (and not-so-easy) fruit has been picked. 

All the research reports I read point out that we're in a Goldilocks type period. Things are hot but not too hot but everyone seems to be in mortal fear of an upcoming downturn. I'm in full agreement that a downturn will come but don't know when. 

My biggest concern with tertiary markets has always been the buyer pool. It's easy to get into a deal but getting out is a pain. That's why I tend to shy away from those types of market (it's proven to be a good strategy for a lot of people though).

The US Economy is still booming with no sign of stopping yet. some A type buildings are slowing down because of over supply issues in some markets. 

There are always people who are Bullish and some that are Chicken Little, some were calling it for 2 years, and waiting for gold to go bellow $1000oz.

Its hard to tell what would happen in the next 2-4 years, some markets have good fundamentals like job and population growth that would last for years to come.

If this bullish cycle passes 2022 it would certainly be one of the longest "recoveries ever".

In saying that, it is expected after the crises of 2008.  like the saying the highest the growth the longer the fall would be.  This is the revers of that. 

If you buy in areas that have good tenant demand, buildings with value add upside potential and don't over pay so you can cash-flow, the risk is lowered. 

@Omar Khan Thanks for the insight, it is becoming somewhat of a waiting game in many people’s eyes I feel. I would be interested to hear what types of material you are reading in MF and would love to talk about you ideas on the industry further
@Hadar Orkibi Totally see your point here. It may be better to find stable, Linear markets that still have room to grow and invest for cashflow, rather than just sit on the sidelines waiting for the downturn. Do you think that the multifamily industry is over saturated with investors at the present time due to the growth in real estate since 2008?

It has more attention the in previous cycles, especially now that so many people been educated and doing syndication. 

But there are still deals out there! there are juts harder to fined. 

Hi @Josh Oaten , I echo what @Omar Khan is referring to. However I just put a 30 Units MF under contract in Tertiary market of Indiana. I'm not planning to sell it for at least 10 years or more. I'll refi in 4 years to take equity out. In my opinion if you go to those markets you have to at least have some signs of job growth. Then you have to underwrite it very conservatively sine CAP rate and price give you more room. Also the current owners are struggling to sell so in my case I was able to negotiate full owner financing (4.5%, 30y amortized, 30% down, 10 year balloon). In addition you'll want to creating a month to month operation plan for the first 2 years just to make sure your own't run out of money before stabilization. I invest in Indiana and GA and be happy to give you more direction and help you speed up your search. Feel free to msg me. Here are some basic reports to get your started. You can google the names

  • a.Marcus Millichap 2018-U.S.-Multifamily-Investment-Forecast
  • b.IRR Viewpoint Report 2018
  • c.Milken-best-performing-cities-report-2017

@Keivan Darius Hit the nail on the head. The main idea here is: there are deals are out there to be made. A full owner financed at 4.5%, 30 yr am, 30% down with a 10 year ballon is a deal! 

Keivan - Quick question for you. I have not invested in a multifamily deal (yet), but I have been in the educational phase for a while before I pull the trigger w/ a few ex-teammates I played ball with. As it relates to exit during a potential downturn, where are you predicting interest rates to be which then directly affects your cash flow forecast?  Also, what type of structure/terms are you looking for during the refi at the 4-year mark if you plan to hold on to it for while?

@Larry Caper Some reports from GlobeSt.Com suggests that rates are going to go up again next year. This will cause Cap rates to go up as well. I'm guessing in 4 years Cap rates will go back down again after some of the absorption for new units are complete.  Then rates will have to come back down to normalize the market, which would be the best time to Refi. However since these are all hopes, I had to negotiate 10 year term with the owner. This way I have time to wait for rates to come back down for me to Refi. Also message me if you have any questions, you can Join our small group (Webinar).  We review and share lesson learned for each deal that me or someone else in the group is working on.