Optimistic 2012 For Real Estate Market
With tight mortgage conditions and struggling sales for new homes we are left with a large demand and interesting opportunities. Consumer prices decreased in October which means low wage workers and others struggling will find more affordability in the market. With this decline, the Federal Reserve has more flexibility when creating and executing fiscal policies to help stimulate the economy. The National Association of Realtors (NAR) predicts that 2012 will be one of the best years on record for housing affordability. Lawrence Yun states ”[h]ousing affordability conditions, based on the relationship between median home prices, mortgage interest rates, and median family income, have been at a record high this year” (Carla Hill).These favorable affordable conditions will dominate next year and most likely will be the second best year on record since 1970. Hopefully credit restrictions will continue to loosen which will allow buyers to take advantage of these great opportunities. Even though lower loan limits could restrict liquidity in the mortgage markets, existing home sales are forecasted to increase 4-5% in the new year. Mortgage rates are expected to be at a record low and the Federal Reserve is committed to keep them low through 2013. With these low rates, homeowners have the opportunity to refinance and therefore reinvest savings into home improvements. The housing market and economy have struggled for the past two and a half years but recent stats and predictions forecast a very optimistic 2012.
Apartment Building Permits Increase as Home Ownership Declines
In the decrepit home market builders have found a way to make money in apartment buildings. The number of permits has jumped 65% in the last 12 months and have hit a three year high! You may certainly point the blame at the housing bust, as millions of Americans are struggling in our nation’s current economic situation, facing foreclosures and financial stress. “People who can’t afford to buy a home, rent,” Champion said. “That’s why the apartment market has stayed healthy.”"You’re not going to see apartments as an economic driver,” said James Marple, senior economist at TD Economics. “But it’s renters who are clearly going to drive the demand for housing.” (Derek Kravitz). On that note, it is important to consider that vacancy rates have been at an all time low for the last 12 months as well. Approximately 65% of Americans own homes, down from 70% toward the middle of the decade. This trend has left plenty of opportunity within the multifamily sector and should continue over the next year, with relative certainty.
How Low can CAP Rates Go?
As property values and access to capital continues to improve, multifamily professionals are breaking ground with new developments every day and acquisitions are heating up prior to the typical fourth quarter busy season. One of the most promising interests within the multifamily sector is the increasing decline of cap rates. The question remains; How low can cap rates go? Just about a year ago, people were under the impression that there was a once in a life time opportunity when cap rates hovered around 2.4%. Now, we are facing rates as low as 2.1%, as of August 2011. A large wave of hungry capital targeting multifamily housing coupled with improved fundamentals is what is leading these compressed cap rates. As long as the market stays strong and strategic, there’s no reason why these cap rates would not remain stable or even decrease even further. The ever improving debt and equity markets are proof that cap rates will continue to remain compressed.
Moons Aligning For Apartment Buildings: Will The Success Continue?
The Multifamily market has heated up and has currently grasped a lot of interest among investors. However, will this trend continue? It has been said by many financial analysts and former investors/developers that apartment investments “is the place of stability.” “probably the only real estate sector where you see this stability.” (Russ Apple) In addition, Multifamily investments will continue to thrive due to a number of different demographic and economic situations. First off, there is every reason to believe the live/work segment will increase among generation X and Y cohorts, with people teaming up to share expenses (i.e. housing!). In addition, last year the United States Census Bureau reported that 50% of those who filled out the survey are running their business from their homes. Lastly, the National Credit Foundation found that 42% of individuals who purchased a home in the lifetime do not own one now, nor do they ever expect to again. For more information or intrest in aquiring/selling assets, contact me at 310-774-3788 or email info@heidiprosser.com.
Commercial Real Estate Slowing: EXCEPT For Multifamily Housing!
It has been said that the recovery in commercial real estate has slowed. Over the past few months, the market has slowed down and there is real concern for commercial loans not being able to be paid back in 2013. Over $150 billion of commercial real estate loans are coming due at the end of 2012 and according to estimates, $100 billion will have trouble refinancing. However, the one commercial sector doing well is the multifamily sector. This is because the single family housing industry is experiencing so much turmoil, and people are renting more than ever. What does this mean for the savvy investor? Invest in Multifamily housing! The safest and most profitable form of real estate on the market right now.
An Investors Take on the Housing Crisis!
When a crash exists in one part of an economy, it often leads to a boom in another. As the housing crisis consumed the U.S., where plummeting values forced many people into foreclosure, the apartment building or multifamily sector has prospered. The population of young adults is growing at a rapid pace. In addition, multifamily construction is at an all time low, which leads to high occupancy rates. If the population of young adults continues to grow at this pace, which it will, there will not be enough multifamily living to meet demand. Multifamily and apartment buildings are currently in high demand and will continue to be for several years as we struggle to get released from our current economic situation.
Multifamily/Apartment Building Conference: Los Angeles
Every year the city of Los Angeles holds a conference to discuss the current economic situation and progress of the multifamily sector of real estate. The best of the best knowledgeable individuals will be there to give their input at the 2011 “Realshare” convention, on October 20th, 2011. This will be held from 8 a.m. to 5 p.m. at the Westin Bonaventure Hotel in Downtown Los Angeles. For more information visit http://www.globest.com/news/2015_2015/losangeles/314637-1.html.
The Safest Way to Invest in Real Estate; Multifamily Housing
Multifamily investment opportunities are fantastic ways to build a solid steady income and help secure ones financial future. Although buying apartment buildings is not exactly recession proof, multifamily buildings have proven to maintain their values in comparison to other real estate sectors. The confidence of investors builds from the correlation that the decline in home ownership results in an increase in rental properties and thus, a continual driving demand for apartment buildings. Apartment buildings are certainly one of the safest real estate investments. However, there are always risks associated with it but there are several important things one should know to avoid and mitigate some of this risk. It is extremely critical to know exactly what you are buying and to base all decision based on risk factors that could arise as an owner. In addition, it is very important to make sure that you make sure that a prospective buyer get a comprehensive due diligence report from a qualified expert which includes a phase 1 environmental report. Make sure that you hire an inspection company that is knowledgeable, especially in environmental risk, in order to save yourself future problems.
Multi-family housing trends: Buy Now!
Any smart investor knows it is always best to buy when the market is down. Looking at these recent trends on multi-family housing clearly shows that the market has been steadily declining since 2006. However, our economic state is slowly improving and it is certain that the market is stabilizing and will soon be on the rise again. For the savvy investor, this is the perfect time to invest as you maximize the opportunity for profit and minimize risk in a down market. In addition, as we are focusing closely on apartment buildings or multi-family homes, it is also important to consider the comparison to other types of properties. As you can see in the “CA Multifamily for Sale,” the trend is very smooth and does not contain very many blips. When you look at single family, industrial, or retail properties for example, they all are much more inconsistent. To gain more insight and comparison, go to— http://www.loopnet.com/Los-Angeles_California_Market-Trends .
Why buy multi-family residences?: Some common misconceptions
Real estate investment has been consistently geared toward single family investments, buying residential pre-foreclosures at a significant discount. Investors feel more comfortable buying “what they know” and avoid different or more complicated projects. However, for the more savvy investor, the lack press that multi-family residences are receiving comes as a distinct advantage as many investors buy in to common misconceptions associated with these larger investments. Here is a list of these misconceptions along with the truth behind multi-family investments.
The first misconception is that you must possess highly specialized knowledge. However, just like within residential investing, surrounding yourself with a solid team of professionals will help lead to good decision making. In a multi-family transaction, commercial real estate professionals must view the property as an investment. If the opportunity is not making financial sense to either the buyer or the seller, the deal should expire.
The second misconception regarding multi-family investments is that you need outstanding credit in order to purchase. It is important to know that banks look more at the ability for the property to produce adequate revenue then an individual’s credit score. Therefore, with the property producing adequate cash flow, one may purchase a building with a 600 credit score. Loans are available to up to 90% of the purchase price and many lenders don’t ask for verification of assets or income, which makes it easy for the first time investor to get in the game.
The third misconception is that you need a ton of time in order to follow through with a multi-family transaction. However, in most cases, the time spent on purchasing an apartment building is equal to that of a single family residence. Note that when purchasing an apartment building you are buying multiple units apposed to one single family unit. Therefore, you have more purchasing power when investing in multi-family residences.
The fourth misconception is that you must have experience. No experience is required for buying or selling an apartment building. A solid real estate team can make buying an apartment building simple, and financing is available for first time investors in addition to streamlined loan processes making approvals quick and inexpensive.
The fifth misconception is that these deals are harder to close then single family residences. Although there are subtle differences to commercial Vs. residential real estate, the inconsistencies don’t outmatch the profit margin.
The sixth and final misconception is that there are a ton of tenant problems. When buying an apartment building never manage the property on your own. Instead, higher a property management company who receives a percentage of the gross rent received. In addition, pay close attention to your cap rate when trying to determine whether the property will produce the desired income. Cap rate is equal the net operating income/sales price. “With lending guidelines tightening on residential properties and personal income increasing for Americans, rents are expected to climb in growing markets. This will make apartment buildings an even more attractive investment over the next 3 years.”
| 
