Investor · Seattle, WA · Member since 2021 · 4 posts · 5 votes
Hello Bigger Pockets Community,
I’m looking at investing in Multi-Family rentals in the Anchorage area.
Currently considering 4 Plex properties, and also looking at 5-8 unit buildings.
Based on running the numbers, Cash on Cash returns are significantly higher in the Anchorage area vs. my hometown (Seattle).
Since I’m an out of state investor, I’d like to get local investors take on the following:
Appreciation – Zillow lists the appreciation forecast at around ~4% for 2021. Are investors seeing this market appreciating, or has appreciation been significantly slower? (I’m personally seeing many properties on the market for months, as well as price reduction)
Rent and Vacancies – Based on recent listing I have seen online, it seems as if rents are dropping. Are others seeing the same thing with their properties? Have vacancy rates been high?
Areas to Avoid - Are there locations in Anchorage that you would suggest avoiding?
Other considerations – Are there other considerations that I should take into account while looking for multi-family properties in Alaska?
Investor · Anchorage, AK · Member since 2018 · 73 posts · 75 votes
5y
@Andrew Girgis - What is it about Anchorage that appeals to you as an out of state investor? If you’re looking at cash flow, there are many other regions that out perform us. If you’re looking for appreciation, then I would gravitate towards the low tax warm weather states. They have a major edge in population growth. Anchorage has actually seen a population reduction over the past decade, which has not slowed in the past few years. There are still some good investments to be had up here, but as long as you need to take a 4 hour plane ride to visit your investment you might as well look at the whole country and find the best return for your time and dollars.
If you’re still set on our market then @Chris S.’s summary was spot on...
Property Manager · Anchorage, AK · Member since 2017 · 175 posts · 160 votes
5y
Hey Andrew,
I will take a crack at these.
Appreciation – Zillow lists the appreciation forecast at around ~4% for 2021. Are investors seeing this market appreciating, or has appreciation been significantly slower? (I’m personally seeing many properties on the market for months, as well as price reduction)
-We dont get much appreciation here lately, especially in multi units. I manage properties and dont sell them, so hopefully a realtor can chime in if they have seen something different than me @Jamie Rose
Rent and Vacancies – Based on recent listing I have seen online, it seems as if rents are dropping. Are others seeing the same thing with their properties? Have vacancy rates been high?
-Rents are dropping, but mostly in the North from what I have seen. A lot of the B-A class properties are holding about the same. C class are getting hit, but still not horribly yet. At least in the places we manage we have had to dorp the price by around $50 for these units, but in mid/south Anchorage they have been holding. There are a lot of really old buildings in Anchorage that havent been updated since the boom in the 80s. A lot of those really low rents you see are in those.
Areas to Avoid - Are there locations in Anchorage that you would suggest avoiding?
- As an out of state investor I would avoid Mt. View and certain parts of Fairview. You can get better returns in this area, but if you don't have a PM that is really on top of it your place may have other issues. It is easier to get good tenants in South Anchorage, Eagle River, Midtown, downtown (I dont invest here personally though, too congested but I dont like downtown places)
Other considerations – Are there other considerations that I should take into account while looking for multi-family properties in Alaska?
- Utilities. Most buildings over 3 units, hell even 2 for some, aren't separately metered except for electric. This means that you will need to pay for the heat in the winter, and water/sewer for your building. You can try charging them back to the tenants, but it is pretty much the standard here that the owner pays for utilities in anything over a triplex except for electric.
- Make sure to factor in snow removal. Sometimes its not bad, other times it could be hundreds a month in the winter.
Property Manager · Anchorage, AK · Member since 2017 · 175 posts · 160 votes
5y
Oddly enough it's actually been easier to fill units. I think that people are hesitant about buying houses right now maybe? So they are renting more. Or it may just be that the current renters have more options so they are more willing to move. Either way, my average vacancy rate is close to 3 days right now because it has been super easy filling places, even in the winter which is usually the rough time.
Investor · Anchorage, AK · Member since 2018 · 73 posts · 75 votes
5y
@Andrew Girgis - What is it about Anchorage that appeals to you as an out of state investor? If you’re looking at cash flow, there are many other regions that out perform us. If you’re looking for appreciation, then I would gravitate towards the low tax warm weather states. They have a major edge in population growth. Anchorage has actually seen a population reduction over the past decade, which has not slowed in the past few years. There are still some good investments to be had up here, but as long as you need to take a 4 hour plane ride to visit your investment you might as well look at the whole country and find the best return for your time and dollars.
If you’re still set on our market then @Chris S.’s summary was spot on...
1) Appreciation: We've seen Anchorage appreciate more this year than almost any other year but not every genre of property has. SFH's have appreciated exceptionally well, 4plex's have increased some but less than SFH's and commercial multifamily has slowed down. The best appreciation is out in the Wasilla/Palmer area. It's also projected to appreciate more, is cheaper and has newer buildings on bigger lots.If you want appreciation, may advice is to buy in the valley or buy a property in Anchorage that you will force appreciation into by renovating but they may or may not fit your strategy.
2) Rents and vacancies: This is another advantage of renovating one of the many 70's vintage Anchorage buildings is that you reduce vacancies, turnover and time to fill units exponentially. Usually, the highest and lowest ends of the market are hit first and the hardest. Owning a more middle of the road building helps keep you in the affordable bracket that's most consistent. In your case, that would be a small commercial building that is on the nicer end of location and/or condition or a 4 plex building that could rank slightly less but still be nicer than average. The most ideal property in this context is a Zero Lot Line that is 2-3 bedrooms, 1-2 bathrooms, and maybe a garage. These are desirable, affordable, found in more sought after areas and are newer when they have a garage but they are only single units.
3) Areas to avoid: I can tell you that you have higher crime, turnover, maintenance/repairs and cashflow in certain areas. The areas that rank highest in these vectors are Mt.View, Reka Street, and 29th-32nd between Arctic and Spenard. Spenard used to be thrown in this mix and has seen significant gentrification over the last 10 years. The opportunity to take advantage of an area of Anchorage that will see more appreciation than others has been largely missed here but, IMO, still exists in Fairview. I own and self manage a 5plex on Bragaw (that's south Mt.View aka the fancy part), two 4plex's in midtown, a 4plex in Fairview (that I live in) and a duplex in Fairview (one is being remodeled right now) and just got under contract to buy another duplex in Government Hill a downtown neighborhood. On the flip side of that, Chris is right again in pointing out Eagle River and South Anchorage as the areas that have less vacancy. I've also seen leases that have tenants pay an equal share of a gas bill. Lot's of places are starting to use individual roll off garbage cans instead of dumpsters.
4) Other considerations: What Chris said. I've seen people add house rules to your lease with rules about windows being open during inclement weather. This is another reason why I prefer to renovate property. I know it's not for everyone but I don't have house rules and I don't need them because my properties attract really great tenants. There's lots of considerations from the differences from street to street, to property condition, to utilities, to strategy, to the accuracy of the property taxes, to foundation type, to earthquake damage, to the building age and the building construction methods used at the time, to inspecting for electrolysis on pipes, etc. The most important thing is to do your due diligence and make sure you choose a great agent and property manager. Spoiler alert, you'll be hard pressed to find better people on your team than myself, @Jamie Rose, And @Chris S. We are all active contributors here, offer services and are successful local investors who want to see you be wildly successful.
@Allen S. - Specifically looking to drive Cash on Cash returns, in a market with some room for appreciate growth.
I'm curious to get your input on other markets that you may be investing in down south that offer better Cash on Cash returns. Right now most of the West coast (WA, OR, CA) offer significantly lower returns.
The coastal urban markets have chronically suffered from cap rate compression and low returns, partly due to an extremely high demand, and partly due to demand from foreign investors who look at US real estate like a lot of people look at gold. They don't need a return, they just need to not lose too much. This prices out actual investors and locals who aren't billionaires looking to do the same thing. You'll notice a similar but less exaggerated price inflation for residential properties with 4 units or less, as the increased demand is driven by owner occupants who are able to use an FHA or VA loan to buy with less of a down payment than an investor.
If you’re looking for returns with some potential upside, I would aim to be in from of the major demographic trends. AZ/NV/ID... or pretty much anywhere in the south. As much as I love my state, demographics are not on our side right now. We are such a small population that could turn around in a heartbeat but with the current economic climate I have my concerns. They just cancelled the cruise ships again this year and you can speculate as easily as I can about how the oil industry will fare under the new administration or how oil prices will holdup through another year of lower (global) demand. These things are important to you because in Alaska they mean jobs, and those jobs provide the bulk of the tenants in the properties you’re looking for.
I would also recommend looking at industrial or retail and not just residential real estate. If you’re truly about the returns, then your time and energy should seek the best fit for your goals. Don’t undervalue your own time either... if you had family here or worked up here then that would somewhat mitigate the hassle of traveling to Alaska, but if you are location agnostic, then I hope you are also asking these same questions about Flagstaff and Omaha and Savannah.
Flipper/Rehabber · Anchorage, AK · Member since 2017 · 223 posts · 177 votes
5y
@Andrew Girgis@Allen S.really nailed it with that comment. There's a way to make good investments here but I agree with him that if I didn't live up here then I wouldn't invest up here unless I needed an excuse for write offs when I visit to hunt, fish and snowmachine. You can buy nicer, newer, property, that sees more appreciation in the lower 48