Investment News
Multifamily Comeback In 2011?
The CCIM Institute’s magazine, “Commercial Investment Real Estate” reports the following:
“The strongest net effective rent gains in history may occur between 2011 and 2015 as 75 million echo boomers finally can afford to strike out on their own, says RREEF Research. This pent-up demand along with a below-average supply, limited by financing constraints and fewer construction starts in 2010 and 2011, will boost rents quickly.”
The Phoenix market has depressed pricing for multifamily, especially the smaller properties that saw a huge speculative run up during the recent boom.
With the depressed pricing, high cap rates and the coming “pent up demand” maybe now and the next year or two will be a rare opportunity with a quick payoff. It’s sure starting to look this way.
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The Current and Coming Window of Opportunity for Multifamily Investors.
Investors in small multifamily properties, 2-4 units, have a window of opportunity now and for at lease another 6-12 months. Prices are very attractive and there are many options where cash flow can be substantial.
What is difficult is financing. You need that 20-25% down plus healthy reserves and very solid credit, plus not more then 3 other leveraged properties.
The larger properties 5+ units and especially mid sized and larger properties with commercial financing will have that window open up in the coming year as loans come due and are unlikely to be renewed.
At the same time it will be difficult to finance these properties, though cash buyers will be in a very good position to buy well positioned properties.
Multifamily To Recover Faster From Current Downturn.
Some news purporting the strength of multifamily in the next phase of the cycle.
Housing experts predict that multi-family rental properties and apartments will recover fastest from the current downturn, followed by housing in cities that didn’t overbuild.
The market is likely to hit bottom in the next few months, says Bernard Markstein, senior economist and director of forecasting for the National Association of Home Builders.
“Next year will see slow but steady improvement, as home builders are controlling their inventory,” Markstein says.
Apartments and other multi-family residences will snap back quickly once businesses start hiring again, predicts Victor Calanog, director of research at Reis.
Baby boomers looking for retirement homes and first-time home buyers also will lead the way out of the decline, predicts Bill Singer, a securities attorney and trader who is a member of Forbes.com’s panel of financial gurus.
In Greater Phoenix we did overbuild but in certain sub-markets we did not. While there is plenty of hosing, land and lots with pipes sticking out of the ground ready to be built once the demand picks up, not everyone will be as eager to live on the outskirts: it will take a while if ever for people to get comfortable, en mass, with the idea again.
The central location, Scottsdale, Phoenix, Tempe don’t have much room to grow except infill plus the population is increasing naturally plus the draw of a reviving urban city. These will help sustain and grow the demand for multi-family housing in Phoenix.
While rents in many areas have decreased they are holding steady in the urban areas. Once the market picks up, higher prices will keep people from being able to buy a home or condo. Plus as the economy becomes more mobile and agile there is no need for a growing population to even own real estate. Owning is not fore everyone and this maybe a realization that finally takes hold: for many it’s better to rent and there is nothing wrong with that.
