Anyone who reads my blog assumes that I have a bias for multifamily investments.  I just think they’re the safest niche of commercial real estate…so to assume that would be correct.  But my greatest bias is toward taking considered ACTION.  So many investors miss the best part of the market by aiming, aiming and aiming some more before pulling the trigger.

My Dad taught me a valuable lesson when I was a youngster.  He asked me if I had mowed the lawn as asked.  I replied: “No…but I’m thinking about it.”  He said:  “Well now…thinking about something is a step, but not a very big one.  And now we’re talking about it…an even further step, but still not very big.  To sink a long putt you have to take your time, read the green and envision your success.  But at some point you have to actually strike the ball.  Planning improves success, but without action planning is useless.”  I went out and mowed the lawn right away.   I’d like to tell you that I learned the lesson my father offered me immediately, but like many 14 year old kids it took the message a few weeks to sink in.  Of course, now the message is clear: ” Words and thoughts take a back seat to action.”

“The best time to make an offer on a building is while the firemen are  still moping up.  After its rebuilt the price will go way up.  The multifamily market has taken some hits over the past few years…but I feel now is a good to start a portfiolio…or to expand one. Take action now…call Rick Bean at 503.577.1034 or email me at rick@rosecitycre.com.

Years ago a bright and energetic fellow as running around Eugene with a waffle iron in his trunk trying to get folks interested in a new type of shoe that was designed for running.  The waffle pattern was purported to offer superior traction and performance.  Someone I love and admire was made the same offer given to so many around town:  “Give me $20,000 and I’ll sell you 10% of my new shoe company.”  Today that slice of Nike is worth considerably more than the original offering price.  Many thought about it, few acted.

My question to those that are thinking, talking, and considering investing in apartments is this:  “Will your story 10 years from now be that you thought about investing in multifamily?”  To paraphrase my father’s wisdom: “You are in no danger of making a profit on the good investments you don’t make.”

Take action! Contact Rick M. Bean at Rose City Commercial Real Estate today: 503.577.1034 or rick@rosecitycre.com.

 

To be a genius in 5 years make smart real estate investments today. To minimize risk a conservative investor should consider:

• Buying a multifamily investment with no debt, or very low Loan to Value debt.
• If any debt is part of the deal make sure it is positive leverage! (Finance rate percentage is lower that Cap Rate.)
• Buy in a city who’s in “Recovery Mode”.

Use Portland as an example of a Recovery Mode city:

• Apartment prices per unit will be low
• Absorption is high…no worries that rapid building will drop revenues
• High barriers to entry (That’s PDX alright!)
• Rents starting to rise (PDX!)
• High occupancy rates (Portland is above 95%.)

When a conservative investor buys in the Recovery cycle they are buying in at the bottom of the market.  Buying in with little or no debt assures them that they can make much higher

I have chosen a boutique approach because I believe each investor deserves to have a strategy custom tailored for their needs.  If you would prefer individual attention rather than “shoehorning”…contact me at Rose City Commercial Real Estate: rick@rosecitycre.com or 503.577.1034.

returns than the bond market…and have their profits paid monthly from cash flow.  Because they have taken a very conservative acquisition strategy and used good timing, they are substantially sheltered from the pain of a further downturn. Even the combination of a reduction in occupancy and reduction revenues is not likely to impact them because of their superior Debt Service Coverage Ratio. Since they are buying in a Recovery market the inertia is for increased revenues and profits.

At the end of the year they will shelter their taxes with depreciation.  When they go to sell…their gains can be rolled over using a 1031 Exchange.  I know of an investor with several thousand multifamily units  that started out with a triplex in Eugene.  He made a nice return on the plex…but 36 years later the taxes still are deferred.  Now that’s a good deal…but I digress.

The Ultraconservative Approach: How to Invest

A truly conservative approach to multifamily investing would be an all cash purchase.  Let’s say you bought a 15 unit property that the listing agent said was a steal at a 7.5 Cap and $1,000,000.  For the right seller we might be able to offer $850,00 cash, conditioned only on books and records and physical inspection contingencies.  A 30 day close  has great value…particularly if the Seller is motivated.

Remember…this isn’t a sexy deal…as a conservative investor you’re more focused on:

• Avoidance of equity loss.
• Stability
• Cash flow.
• Preferential tax treatment on profits.

To achieve these you’re willing to give up some long term appreciation. (After all: you had your money in a bond that guaranteed a loss of buying power.)

The Cap rate is the ratio of the first year operational revenues- operational expenses compared to the sale price.  This allows us to see what kind of revenue generating machine we’re looking at without clouding the picture with capital expenses and financing costs.  In our example, after paying all of the operational expenses $75,000 (7.50% of the offering price, or 8.82% of the price paid) is left for profit, capital expenses and loan payments. We call this NOI or Net Operating Income.

Since we paid cash there is no loan to deal with.  The listing agent didn’t mention a capital reserve in his proforma…or he might have put in $150/unit per year in.  We don’t believe him.  As conservative investors we will set aside $350 per unit for a replacement reserve.  We will also pre-fund at closing an operating reserve to the tune of $10,000 and a replacement reserve at $15,000.  This will increase the original equity requirement to almost $900,000 due to closing costs, etc.

YIELD:   Our increased reserve fund payments took care of our capital expenses, but reduced NOI by to $5,025.  That left us a $69,750 year 1 return on a $900,000 investment or 7.75%. Please note that we can take depreciation based on a 27.5 year basis…so we have tax sheltered a significant portion of our profits.   Because we bought in at the lower end of the market we can expect an increase in cash flow over the next few years.    

Are you a conservative investor? Call Rose City Commercial Real Estate today at: 503.577.1034 oe e-mail me at: rick@rosecitycre.com.

 

 

 

 

By Erika Schnitzer, Managing Editor

Portland, Ore.—Portland-Vancouver-Beaverton has the lowest apartment vacancy rate, 4 percent, among the top 75 U.S. MSAs, according to the U.S. Census Bureau’s latest report.

While the unemployment rate has declined, it’s still relatively high at 9.6 percent, according to the U.S. Bureau of Labor Statistics. But, as Greg Frick, partner at HFO Investment Real Estate, points out, “even when we had high unemployment, our vacancy was about 10 percent, so we didn’t fall that far. We’re not typically a boom-or-bust market; we’re really slow and steady.”

Some good news includes Intel’s commitment to invest in an existing plant in Hillsboro,

A perfect storm for profits: Last week we learned that Portland multifamily was the nation’s 3rd leading market for rent escalations; This week our fair city is celebrated for having the lowest vacancy rate in the nation.   Contact Rose City Commercial Real Estate immediately: rick@rosecitycre.com or 503.577.1034.

says Frick. And the market’s continued in-migration and urban growth are expected to help the market’s recovery.

In the multifamily arena, construction remains extremely limited. The market typically averages between 4,000 and 5,000 units per year, Frick tells MHN; in the last two years, about 750 units were permitted each year.

Meanwhile, concessions are burning off, and the market is experiencing between 5 percent and 10 percent rental growth. But, Frick adds, “we’re typically the lowest on the West Coast for rent numbers, so 5 percent in our market does not equate to the same dollar amount as some of the other markets.”

On the investment side of the market, Frick reports, “there’s been a lot of money chasing deals … [for the] Class A institutional stuff.” In-core Class A assets are trading at sub-5 cap rates, while suburban Class A deals have traded between 5 percent and 5.75 percent. Meanwhile, B and C asset values have held steady.

“We are seeing some B/C stuff trade, but it’s not at the fevered pitch you’re seeing in the Class A,” Frick tells MHN. “There’s institutional money chasing deals now, trying to get into this market because of the demographics and low vacancy.”

As far as the recovery, Frick points to the bond measures that are trying to get passed, and the resulting increase in taxes and utility charges, that could have a negative impact on the apartment market. “Those are a couple of expense items you don’t really have control over,” he notes. “Will we get enough rent growth to keep pace? How much will that be eroded from these added operational costs?”

While Portland’s livability factor poises it for a strong recovery, Frick notes, “we just need …[to] get some jobs in here and wage inflation so apartment owners can really capitalize on that increased demand.”

 

 

It is a bullish sentiment that gathered steam through 2010. With few projects initiated in 2009, there will be a shortage in the supply of rental apartments this year. Combined with a stabilizing economy, continuing uncertainty in single-family home prices, and echo boomers boosting demand, it will be heaven for multifamily in 2011.

Expect rents to grow at rates unseen since the early 1990s, when the sector experienced a similar pullback in construction. However, will these good times be sustainable? Or will heaven crash back down to earth as soon as 2012?

There is compelling evidence that effective rents will indeed post strong growth in 2011. Despite moribund economic growth in 2010, apartment vacancies fell sharply, ending the year at 6.6% after starting from a record-high base of 8%. Concessions that included subsidies for utilities and broker commissions as well as months of free rent were withdrawn swiftly.

This article is reprinted from National Real Estate Investor.  Their articles are insightful, timely and reliable. 

The time to buy is when the market is heading up.  All the signs are there suggesting the best multifamily climate in years.  To learn more about investing in Portland’s multifamily market, call Rick Bean at 503.577.1034 or contact him at rick@rosecitycre.com.

National effective rents grew by 2.3% in 2010, a healthy rebound given the record 2.9% decline in 2009. And this was when about 94,000 apartment units came on line and jobs were growing at a disappointing rate.

A rising tide …

Inventory growth will contract significantly in 2011. Reis projections add up to only about 51,000 units coming on line in 79 major metro markets. This is less than half of the

via Heaven for Multifamily in 2011, Closer to Earth in 2012.

I’ve to talked to property owners, brokers, title companies…but nobody seems to know of any properties for sale that fully meet the needs of one of my clients.  He has no 1031 or 1033 Exchange deadlines to worry about…but he does have cash sufficient to purchase 60 to 80 quality units in the Portland area.  Wilsonville doesn’t hit his sweet spot…nor does Gresham or much East of I-205.  Vancouver is possible…West and Southwest PDX would be winners. 

He’s willing to pay a fair price for quality. 

He takes real pride in ownership:  fixer-uppers are not his thing.   This is a knowledgeable investor who puts little stock into overly optimistic proformas.  The challenge for me is to deliver value to him he can’t find elsewhere by himself.  Off-market deals, pocket listings are more likely to get consideration than something on Loop-Net or Read more