Where are the Multifamily Market Opportunities?
Find a market with jobs, low rental housing supply and rents that are affordable.
The Multifamily market has been cooking for several years as the demand for rental housing created by the crash and millennials who choose to live in cities.
As the cycle continues, investors begin to ask, “how long can this last?”
If you are a developer or investor, the ability to look at a specific market and identify the characteristics in play are critical to your success. Firms like firms like Axiometrics, acquired by RealPage, specialize in providing monthly multifamily market data.
Primary markets with the most demand and development, are showing signs of oversupply in the class A units. In these markets, free rent concessions have begun to show up and rent growth has slowed.
Say goodbye to rent growth of 12, 14 and 16% year over year is no more in most markets. The healthy markets for the near future suggest 2 - 3 % annual rent increases.
Are there still multifamily market opportunities?
While primary markets ability to absorb all of the new units has begun to cool, the secondary and tertiary markets still show signs of opportunity for investors and developers.
What’s the key? The fundamentals of opportunity remain the same. Where are the jobs? Where is supply tight, and rent is still affordable.
Tech jobs pay well and drive up the demand for high end housing.
Things to watch?
The cost of construction is rising based on the tight labor market. This has not slowed development, but it is driving the cost of developing new units and repositioning older units.
Millennials continue to want to live downtown, are not getting married and do not want to move to the suburbs. Until then, multifamily demand should remain strong.
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A local real estate investor can grow big, and gain efficiencies not available to investors who spread their portfolio over multiple markets.
Brian Murray, founder of Washington Street Properties shares how he moved from his position as a college professor to a full time real estate investor in Watertown, NY. His focus on local real estate has created multiple opportunities for growth and the ability to contain expenses.
Advantages to investing in local real estate
There is no substitute to seeing your portfolio daily. If you find something is not right, you can address it immediately. This nips the problem in the bud and can reduce the cost of the fix.
Local knowledge provides you the real time ability to know if your rents are too high or too low, and to make adjustments accordingly. This helps maximize income.
Opportunities for growth
When you are visible in the community, brokers, owners and potential tenants know who you are. Brokers and Property owners looking for a buyer will contact you first because they know what you have done and that you can close.
When you have more properties in a single market, you can accommodate tenants needs for more or less space
Contracts for service.
Many investors focus on just one asset class which supports the notion of specialization. However, if you specialize in one local market, you can gain pricing advantages from vendors not otherwise available. The same service provider for roofing, electrical, parking lots, plumbing, carpet cleaning, lawn care, etc. can service multiple properties for you. When vendors have the opportunity to do more work for you, they are willing to provide a discount.
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It is said that the First Multifamily Deal is the hardest. For Jason & Pili Yarusi, they realized that there are efficiencies in multifamily are greater than what you can get with smaller properties.
Once they decided to move forward with multifamily, the question turned to where?
Jason & Pili are residents of New Jersey, where real estate prices are prohibitive for investing due to compressed cap rates and tenant laws do not favor landlords.
The markets they found to support their criteria:
The first member of the team in was property management firm. The criteria for selecting a property management firm:
How did you find the property?
Their property manager led them to a property that had been on the market previously. They believed it had some value add potential. They analyzed the deal, and made an offer. The seller countered, but quickly they realized they were too far apart.
After six months of a continued search, they circled back, and made a second offer to the seller. This time, they provided numbers to back up their offer and explained the reasons for their offer. The seller came down $600,000 and requested that the buyers pay their brokers commission.
After analyzing hundreds of deals, making multiple offers, and always being disciplined, their efforts paid off.
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Retail Commercial Real Estate is NOT DEAD! Despite of what you’ve heard about how Amazon killed retail, it is fake news.
The Amazon effect has made it challenging for older stores and malls that attempt to continue operating as they did twenty years ago. However, this challenged subset of retail is not reflective of the whole asset class. The rest of the class is doing great!
My guest, Commercial Real Estate Broker, John Crossman with Crossman & Company, discusses the retail sector and provides an overview for what is working.
There are multiple types of retail real estate, including: strip mall, neighborhood shopping center, community center, power center, lifestyle center and enclosed malls.
Since the beginning, healthy retail has relied on the surrounding two miles of residents for support. This continues to be true today. If a community has jobs, and a minimum of 10,000 residents, you can have a healthy retail center.
Successful retail centers have a component of civic purpose. Centers that have been architecturally designed, without function continue to fail. People want and need connection with others. A successful retail experience provides this both a connection and a sense of community. A good example of a center is a grocery store.
Evolve and survive!
The rules have changed. You cannot limit your search to a big box retailer to fill an empty big box space. You have to get creative and look towards non traditional tenants such as; healthcare, education, office, church, and gyms.
The upside for these tenants is, less expensive rent than downtown, easy parking and access to retail shops & entertainment.
Tenant space requirements have changed. Space in the range of 800 - 1500 square feet is always in demand. Space that is larger than 1600 square feet is more difficult to lease.
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Private Money can be the solution to your real estate investing when the bank shuts you down.
That’s exactly what happened to my guest Jay Conner after years of successful borrowing and repayment from his bank line of credit he used to fund his real estate deals.
At first he did not know what to do. How was he going to continue without the $1 million line of credit from his bank?
In just ninety days, he found $2,150,000 of private funds at his disposal, and he thanked his bank for shutting him down.
What is Private Money?
For the uninitiated, private money is synonymous with “hard money”. Hard money is typically provided through a broker for periods from six months to one year. The average interest rate is greater than 15% and requires additional loan origination fees from two to ten percent of the loan.
Private money lending connects the borrower and the lender direct. The rates tend to be more than you will get from a bank, but less than Hard Money. The length of the loan can go from two to five years, and be interest only. This allows the borrower to season the property before obtaining long term traditional financing.
Who has private money to lend?
There are two sources of private money. The first is your warm market which includes friends and family. The second is those private money lenders who are already in the business of lending their private money.
What are the benefits of using Private Money?
There are many including:
CREPN Radio listeners, goto: www.jayconner.com/CREPN
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