Oh, yes, we do hear rumors that prices are falling in some parts of the country. Let me put it this way- when you are lying on the ground, it is really hard to fall.
Although it has gotten harder to get a loan, prices have no downside to go to. They are already at rock bottom. Fact is, the number of properties on the market and average time on market hit their peak a year ago. There are less properties now, and they are selling faster. And prices are holding steady, even creeping up in some areas.
I was wondering if with the low prices if it is difficult finding renters in your area. Some of my experience is that such areas have a glut of investors picking up properties with a resulting large rental inventory.
I have never had to wait more than three days to rent a property after it was advertised. Perhaps this shows that I am pricing my rentals too low, but I feel I am solidly in the lower middle range of the price scale. Perhaps it is because I like to do a beautiful job on my rehabs. Or perhaps there are just lots of renters with so many foreclosures- who knows?
The last time I checked all three major automakers had their headquarters (and significant operations) in Michigan: GM, Dodge (Chrysler LLC), and Ford...the auto industry is HUGE in michigan...
It seems to me that, with such a high unemployment rate, MI will surely be offering large incentives to attract new employers. So if a person has the means to track what employers are moving in and where, then MI offers one of the best investment opportunities in the country. Just invest where the jobs will be (to oversimplify). The economy in MI overall seems to not be as bad as people like to believe, at least according to Chris, and when it rebounds, It certainly seems like the people with the balls to invest now (in the right markets in MI) will be the people who are laughing at the rest of us as they take their profits to the bank a few years from now. The phrase "buy while the blood is on the street" comes to mind.
If I had the means to do so, I would likely be strongly considering MI as the focus of my future investments.
Besides the rehabs, are large 10+ unit aparment buildings and office commercial buildings cheap in Michigan also, mainly the capitol region Chris? Also is rental demand higher than supply?
Chris, can you elaborate? Is there not a general rule of thumb when valuing these types of properties? How do you value your buildings? Past year vacancy, actual or full?
Most people value based on current occupancy. There are two problems with this- one, an owner may offer unrealistic incentives to increase occupancy just before sale, increasing the apparent value; and two, a number of tenants may coincidentally all leave at once just before sale, making the apparent value unrealistically low.
You can use a low current occupancy as a bargaining chip, but in my opinion the true value is established by the average occupancy over the past year. Of course this is just theory as I do not currently own any multi-family properties, but I think the logic is easy to follow.
Thanks guys. This makes sense. If I even tried making an offer based on the 3 occupancies, the seller would never go for it since it would be way below market.
My investors go off of debt service ratio and market value, not occupancy. Sure the more the better on
rented units. Do the current 3 rents pay the mortgage and over head?
"You can use a low current occupancy as a bargaining chip, but in my opinion the true value is established by the average occupancy over the past year."
This is a good statement. DO NOT put too much into the current situation. What matters is your market rate and the condition of your units.
Most leases run out within 6 months anyway. They could all move out?...or 2 can move in at a higher rent? Who knows? hopefully you do!
Point being...the rental situation will be in your hands in less than a year.
So if you believe you can fill the units quickly by dropping the rent $100.00. then use that number in your offer calculations.
BTW, It doesnt look like you will cashflow based on some statements you made about needing 100% to make money.
People shopping for portfolio of REO specifically block Michigan and OH, due to the unclear path to recovery
Recovery? From what?
Oh, yes, we do hear rumors that prices are falling in some parts of the country. Let me put it this way- when you are lying on the ground, it is really hard to fall.
Although it has gotten harder to get a loan, prices have no downside to go to. They are already at rock bottom. Fact is, the number of properties on the market and average time on market hit their peak a year ago. There are less properties now, and they are selling faster. And prices are holding steady, even creeping up in some areas.
Here in the Lansing area, anyway...
Chris
i THINK IF YOU LOOKED AT DIRECT EMPLOYMENT by automaker, and then went 2 generations "out" to suppliers, it would be rather significant percentage.
Chris,
I was wondering if with the low prices if it is difficult finding renters in your area. Some of my experience is that such areas have a glut of investors picking up properties with a resulting large rental inventory.
Thanks in advance for your response,
Ed
I have never had to wait more than three days to rent a property after it was advertised. Perhaps this shows that I am pricing my rentals too low, but I feel I am solidly in the lower middle range of the price scale. Perhaps it is because I like to do a beautiful job on my rehabs. Or perhaps there are just lots of renters with so many foreclosures- who knows?
Chris
The last time I checked all three major automakers had their headquarters (and significant operations) in Michigan: GM, Dodge (Chrysler LLC), and Ford...the auto industry is HUGE in michigan...
It seems to me that, with such a high unemployment rate, MI will surely be offering large incentives to attract new employers. So if a person has the means to track what employers are moving in and where, then MI offers one of the best investment opportunities in the country. Just invest where the jobs will be (to oversimplify). The economy in MI overall seems to not be as bad as people like to believe, at least according to Chris, and when it rebounds, It certainly seems like the people with the balls to invest now (in the right markets in MI) will be the people who are laughing at the rest of us as they take their profits to the bank a few years from now. The phrase "buy while the blood is on the street" comes to mind.
If I had the means to do so, I would likely be strongly considering MI as the focus of my future investments.
Besides the rehabs, are large 10+ unit aparment buildings and office commercial buildings cheap in Michigan also, mainly the capitol region Chris? Also is rental demand higher than supply?
Thanks for the feedback, I appreciate it.
So Chris, do you have any exisitng holdings in your local market (Lansing area)?
What about Kalamazoo? Seems job growth is stable there?
they are posted the same as SFR.
I think the average occupancy over the past year is more realistic than the current occupancy.
Chris
Chris, can you elaborate? Is there not a general rule of thumb when valuing these types of properties? How do you value your buildings? Past year vacancy, actual or full?
thanks
Most people value based on current occupancy. There are two problems with this- one, an owner may offer unrealistic incentives to increase occupancy just before sale, increasing the apparent value; and two, a number of tenants may coincidentally all leave at once just before sale, making the apparent value unrealistically low.
You can use a low current occupancy as a bargaining chip, but in my opinion the true value is established by the average occupancy over the past year. Of course this is just theory as I do not currently own any multi-family properties, but I think the logic is easy to follow.
Chris
in MF I look at historical occupancy and temper that w/ current and forecasted market conditions.
Thanks guys. This makes sense. If I even tried making an offer based on the 3 occupancies, the seller would never go for it since it would be way below market.
My investors go off of debt service ratio and market value, not occupancy. Sure the more the better on
rented units. Do the current 3 rents pay the mortgage and over head?
OLDOG, the three units does not cover mortgage and ovehead. With four, it would be close and with the fifth unit rented, I cash flow.
"You can use a low current occupancy as a bargaining chip, but in my opinion the true value is established by the average occupancy over the past year."
This is a good statement. DO NOT put too much into the current situation. What matters is your market rate and the condition of your units.
Most leases run out within 6 months anyway. They could all move out?...or 2 can move in at a higher rent? Who knows? hopefully you do!
Point being...the rental situation will be in your hands in less than a year.
So if you believe you can fill the units quickly by dropping the rent $100.00. then use that number in your offer calculations.
BTW, It doesnt look like you will cashflow based on some statements you made about needing 100% to make money.
Thanks everyone for the valuable insight. The building historically has 4 out of the 5 rented. Rent units are clean.