U.S. apartment vacancies near historic high

[MJ DeMarco]

Blame the recession and the glut of cheap housing and people who are living rent free in foreclosed homes.

U.S. apartment vacancies near historic high: report - Yahoo! News

 

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[kurtyordy]

could mean good opportunity to buy at a discount

 

[G_Alexander]

Saw this news in the elevator at work today. Vacancies rose to 7.54%!!

I am curious to see what vacancies look like in college campus areas. I am guessing they were not hit as hard, as demand is always insanely high (especially around my school).

Now really is the best time to get into the market pretty much anywhere (except a few places).

But ONLY if you have CASH. And enough cash to keep you afloat for a while if/when you become one of the renterless owners. Cash is KING.

I am just in the saving/credit building stage. Looking to partner up with some money-men and get into something local. Couple pockets of real estate are poised for growth around here in Chicago.

G_Alexander

 

[Bilgefisher]

This has me a bit concerned with the SFR market becoming saturated with rental homes. I am curious to see if there will be a shift in a few years back to apartments. Certainly a great opportunity to buy now.

 

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[randallg99]

according to an IB report I read recently, it compared the current existing population vs occupancy capacity and in layman's terms, the population either has to grow by 10% or the amount of living space has to decrease by the same amount for a "healthy" and stable market to occur. But apartments are not alone: hotels, malls, retail, warehousing, industrial are all showing cracks.

I won't go on my lending/FRE/FNM tangent, but I've always suspected overbuilding was a serious problem leading to the near historic high in vacancies, but if that report stated holds true, then we're only in the 3rd inning.

 

[G_Alexander]

There will without a doubt be a shift back to apartments; a major one. Given the economy recovers, the baby boomers children, the echo-boomers/millenial generation, will be at a peak through 2018. This will bring vast amounts of new renters to the market. With all the overbuilding though, I don't know how much of a eutopia the market can achieve. Investors need to analyze their markets carefully and act accordingly.

G_Alexander

 

[bflbob]

I've always used 8% vacancy when valuing properties I look at, so I'm still in the black on this one.

 

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[hakrjak]

I've always used 8% vacancy when valuing properties I look at, so I'm still in the black on this one.

I use 10%... Still that 7% figure seems artificially low -- I know in my area you can get a house for as cheap as you can get an apartment, so why live in a crappy apartment?

- Hakrjak

 

[RealOG]

The 7% figure is a national average. Apartment markets are very localized, vacancies can vary hugely even by neighborhood. Hell, even by building!

 

[hatterasguy]

Seems like a good chance to get into deal to me.

I think betting that our population is going to rise is a safe bet.

 

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[CashFlowDepot]

My son owns an apartment locating company in Austin Texas. He says their vacancy rate is very high - even by the colleges. But for him that's good because apartments pay a higher commission when he finds a tenant.

He usually gets 100-150% of the first months rent.

You don't need money or credit to buy real estate, including apartments, if you learn to buy creatively. Ideally you should buy real estate with seller financing and avoid going to banks.

Even if you don't buy, you can master lease a whole apartment complex and pay the owner a flat rent per month while you pocket the difference.

 

[RealOG]

You don't need money or credit to buy real estate, including apartments, if you learn to buy creatively. Ideally you should buy real estate with seller financing and avoid going to banks.

Even if you don't buy, you can master lease a whole apartment complex and pay the owner a flat rent per month while you pocket the difference.

We just submitted an offer to a seller that included an element of seller financing. The seller will carry back 10% of the purchase price. The property appears to be operating well, so the additional leverage wont impact our ability to carry it.

The master lease thing is usually difficult to pull off. Most seller's want out of a property, which is why they are selling it. They would have to have a lot of confidence in your ability to manage it better than them. A master lease is like a seller carry back, except that the seller likely still has a mortgage on the property and will go into default if you stop paying the lease.

I have heard of lease options on apartment buildings, but almost always they are non-performing properties. Sellers are in such a desperate situation they are grasping for anything to get out of trouble.

That said, if you are a BAMF you can really make a lot of money.

 

[hatterasguy]

Are the banks giving you hell with seller financing?

I know a commercial guy who does a lot of shopping centers. He said banks want to see a lot of blood in the deal, they didn't want to see seller financing.

 

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[CashFlowDepot]

If you get ALL seller financing then there is no bank.

I have never been to the bank or a mortgage company to buy investment properties. I always get seller financing and usually 100% and sometimes with zero% financing.

For my first rehab, i got zero% financing and zero payments until I got the house fixed up and sold.

In this market is it easier to get than ever before all you have to do is ask.

If money is needed, it is much better to bring in a private lender than going to a bank.

 

[RealOG]

Are the banks giving you hell with seller financing?

For apartment buildings? Not yet - but we haven't closed the property. In fact we are still negotiating the contract. As long as the DSCR (debt service coverage ratio) is very strong (1.25+), legit (documented and underwritable performance), the bank seems to have no problems with it.

Granted, we are getting into the deal with a low amount down, but the deal will still require a decent amount of cash. This may be what the bank is flexible about. We will likely have a capital improvement escrow account since we plan on ~$100k over in improvements over two years when we get in there.

Honestly, the terms of the loan sounds too good to be true so I am skeptical as all get out. However, the source of the loan appears to be trustworthy. Here are the terms:

• $1.4M, FNMA
• 6.05% APR, fixed for 10 years or 5.86% APR, fixed for 5 years
• 1.25 DSCR
• 80% LTV
• 30 year amortization
• Non-recourse

There are other items (like annual reporting, local property management, etc.) as well but left them out.

 

[RealOG]

In this market is it easier to get than ever before all you have to do is ask.

I could not agree more. Sellers are looking for any offer - regardless of how ridiculously low it is.

If any of you followed my older posts from middle of last year, I was getting frustrated in my offers as other investors were out bidding me on all my deals. I looked at their offers and could not understand how they were making money.

Today is a much different story. Some of those very same investors now have those properties on the market and I am bidding on them again, but at a reduced price.

If money is needed, it is much better to bring in a private lender than going to a bank.

I don't believe this to be true. I really think it depends on the situation. For apartments, I have (and continue to) do it both ways. I have found that the opportunity is what dictates which way to go.

A side note to CashFlowDepot (and anyone else who wants to listen):
I have been noticing you make a lot of blanket statements without many facts to back them up. I like the black/white views you have on things (too many wishy-washies out there), but a lot of your views will be immediately discounted without logic or facts to back them up. Spend a little more time to justify your views and you'll get a lot more supporters.

 

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[hatterasguy]

Interesting, I'd be interested in hearing how it goes with the bank. I have been hearing that they are giving people hard times with seller carry backs on that kind of property.

Those terms are fantastic! Let me guess its a local bank? They seem to be making the best deals now.

Your correct on the competition. I'm finding it pretty easy to grab building lots this year. Far less competition and whoever is left only offers sane prices.

 

[CashFlowDepot]

When you get bank financing, who control the terms and conditions? the bank does

You have no say so in how the loan is structured. They say we have this one or that one and you get to pick but you cannot go outside the box.

If you rely on bank financing and you don't get approved you are out of luck.

When credit markets tighten up or the rates go to double digits, it could force you out of business if you only know how to buy by going to the bank.
Many were forced out of the market when the credit and down payment requirements changed.

When you get bank financing, the loan will show up on your credit report.
There is no privacy with that.

When you get bank financing, you pay points, loan fees, application fees, junk fees, appraisal fees, doc prep fees, survey fees, inspection fees, -- and of course the loan office or mortgage broker works on a commission so you have to pay that too.

But...

When you get seller financing or private money funding you don't have to do any of that.

With seller financing who controls the terms and conditions on the loan? You do.

With seller financing pr private money, you can create financing with zero payments and zero interest for as long as you need to turn the property around. Try doing that with a bank.

With seller financing and private money you can structure the payments so the house can afford it. Yes, you can get $600 a month payments on a $300,000 house - who said anything about interest - I know because I've done it.

With seller financing and private money you can afford to pay more because you don't have to pay any fees for getting a loan. And you can close next week -- no waiting and waiting and waiting.

With seller financing and private money, you can do substitution of collateral, equity participation and just about anything else you can dream up.

With seller financing and private money you have the opportunity to renegotiate the note every time the seller or lender needs some extra cash or when you offer the seller extra cash in exchange for a discount off the note. A bank won't do this.

With seller financing and private funding you don't need cash or credit to get in the game so you don't have to wait to start building your fortune.

With seller financing and private funding, you can use a different property as collateral instead of the subject property or instead of cash for a down payments. The banks want skin in the game in the form of cash.

When other people are shut out of the market because interest rates are double digits or credit dries up, you are still in business if you know how to buy (and sell) with creative financing.

The last time I used private money, I got financing at 2% interest to accrue and I have his 6 month old grand daughter an option for 10% of the net net profits and we closed in 24 hours. Try doing that with a bank.

Seller financing and private money can be used to buy houses, commercial properties, new construction, mobile home parks, land, apartments, high rises, and anything else. I've done it.

 

[CashFlowDepot]

for commerical properties, banks usually want a 5 or 10 year balloon.

What happens if the interest rates are 14% when your balloon pops? You will have a hard time financing and your property may not cash flow anymore. You'll have a hard time selling because there will be fewer buyers who can afford to buy with 14% rates.

If you don't refi whent he balloon pops, you could lose the property.

When you buy with seller financing or private money, you don't have to worry about any of that.

 

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[unicon]

Cash Flow summarizes creative alternatives very well.

What people fail to realize is that bureaucratic packageing is a secondary priority instead of the creative priority of structuring deals. In fact institutional packageing is full of ignorance as surfaced in the subprime loans.

Just reversing that thought process opens up a whole dynamic and learning that is of more substance, an extension of the concept of zero based spending.

If one thinks zero based spending is impossible then it is! Controlling the acquisition structuring and terms is the educational priority and the growth priority.

Buying into what banks try to sell you is slow lane. The creative alternatives on every deal are unlimited.

Not only are the direct implications of the deal important there are also indirect implications like permanently reducing tax assessements and your property tax by lowering the bureaucratic sale price.

Take this another step further and use your own deal to reduce assessed values and taxes on other properties using your own property as a comparable.

It goes on and on and on. The financial structuring alone can overtake all profitability expectations on deals.

Nothing is instantaneous with banks.

 

[CashFlowDepot]

You're right Unicon

When you buy creatively, you can obtain your FASTLANE objectives much easier and FASTER than you ever could with institutional financing.

Need to maximize cash flow - no problem

Need rapid amoritization - no problem

Need no payments - no problem

Need to get in to the deal with zero down - no problem.

There is unlimited opportunity.

 

[CashFlowDepot]

Trillions of dollars was pulled out of the stock market and other investments. It's just sitting in the bank or in a self-directed IRA account earning anywhere from ZERO to 1.5%. ( some is under the mattress)

All of those people would love to get their money working for them at 4- 5-6% and they would gladly put up the money to finance the great deals you find.

They will even finance your buyers or buy the note that you create when you sell to owner occupants.

You can eliminate banks from your life when you learn how to use private money to finance your deals.

As I stated in my previous post, you can get really creative when working with private money lenders. zero payments, zero interest, equity partication, substitution of collateral, etc, etc.

Private lenders wants a SAFE investment and that means that you need to buy below market for properties that need work. Ideally at not more than 70-75% but 65% is better and safer for you and the private money.

For a property in really good condition they will lend at a higher LTV.

A good friend just got private money financing for a 150 space mobile home park - price tag $1,200,000.

See my previous post for other advantages of using private money financing or getting seller financing.

 

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[AroundTheWorld]

All of those people would love to get their money working for them at 5-6% and they would gladly put up the money to buy the great deals you find.

Yes, they sure would. And, there are a lot of different investment opportunities for people that would like to see a return like this (or even a little more).

wink, wink. :smxF:

 

[KyJoe]

I am curious to see what vacancies look like in college campus areas. I am guessing they were not hit as hard, as demand is always insanely high (especially around my school).

Almost everything I have is walking distance to a major university. My rental records look just like the previous years, at least so far. What I have noticed is the shear number of distressed cosigners. I often have parents cosign for the apartment. This year I have had a pretty high number of them turnout to be duds when I ran their credit. One recent guy had a major amount of property foreclosed on him in Fl. On the flip side, I have never had this many tenants buy houses/condos. One tenant's parent manages rental property for a big company 75 miles away from me. She said they are having big vacancies, and the loans on many are revolving. Many are going down the tubes. Single family flips are still good, at least as long as the 8k tax credit last (end of the year).

 

[CashFlowDepot]

If you're dealing with the owner directly, you can get very creative and get some or all of the purchase financed by the seller.

They rarely need ALL their sales price in cash. They will take some cash now and some cash later ( especially if you show them how it is better to get 5-6% interest from you instead of letting that money sit in the bank earning 1%)

Even for the cash they do need, you can get it from a private lender instead of using your cash.

In situations where you are buying at auction or from a bank, you can purchase creatively by structuring creative terms with the private lender.

Personally, i like equity participation. Then I have NO mortgage payments. Instead of making monthly payments, I share the cash flow ( when there is any) and profits when I sell the house. No payments is a great position to be in during these uncertain economic times.

YOu can be creative on the buy and the sell side.

 

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[hatterasguy]

I don't know, I am using hard money but I find it to be pretty expensive. Also in my experaince their are always strings. You can be quite flexible, but like anything nothing is free. Personaly I always look at the bottom line and for that bank financing is the cheapist.

I can't wait until my business is that the levels of my uncles, where a bank gives my company a nice seven figure LOC. Nothing like just being able to write checks for what you want. Another plus side is the interest rate is about half of what a private investor will give you. 3% vs 6% on $2m makes quite a difference.

 

[SteveO]

I have not had a lot of time lately and may not check back here too often.

All markets have individual quirks that drive what may or may not take place. There are not a lot of transactions taking place in the markets that I follow. Since the general rules governing most markets are lower leverage and much lower price per unit valuations, only the severely stessed owners are selling. These sales are generally taking place with lender cooperation or are driven by the lender.

Most owners of multi-family will wait for a better environment to sell.

Sometimes you will find someone that has owned a place for a long time and still has equity. RealOG found one of these recently. But, as Hatt stated, the lender will not likely cooperate with a seller carryback these days. It may work if the seller owns the property outright. These are few and far between. There are usually price premiums placed on these as well. Plus, no seller in their right mind would turn over an asset to you without getting cash in hand. You could run it into the ground and they would be stuck picking up the pieces in the event of a default.

Raising money for deals is something that I have direct experience with. There are groups that specialize in funding apartment deals. They still want you to come to the table with money. It is possible to use private money but you better be prepared with your securities knowledge. There are a lot of rules to follow.

I have found that there are many investment opportunities out there. Anyone that wants to invest in an apartment deal should really do their homework. Many are collapsing these days. Especially the TIC's that were done with inexperienced sponsors. Not to mention the dishonest ones.

A typical deal is going to look for IRR's between 18 and 25 or strong cashflow greater than 9% with upside at the end. Investment broker/dealers usually have a handful of sponsors that they use for these types of deals.

 

[CashFlowDepot]

I'm not talking about using HARD MONEY loans. they are way tooo expensive and short term.

I'm talking about borrowing money from private individuals like dentists, your next door neighbor, your barber, the plumber, gradnma, anyone who has lazy money sitting in the bank or an IRA and needs to earn more than 1/5%

Bank financing may work fine now - but what will you do when it is 12-14% interest rates?

The time to learn how to find private money is when you don't need it.

If you go to the weekly Entrust meetings you'll find a room full of people who have money sitting in their Roth and they are looking for someone to keep it busy for them.

Just talk to people Ask if they are happy with what they are earning now. If not, then you can explain how they can finance your deals and earn double. What's double of 2% -- you'd pay only 4%!

 

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[Russ H]

Excellent point, Jackie-- I have a Pensco account, and never even thought of all the other Pensco acct holders who have all their money in self-directed IRAs-- and are looking for a place to park it.

One of those "I coulda had a V8" moments: Put together a viable plan, and show how they can make money on their $$$-- seems to reason some of them would want to try it.

Having had no experience doing this (SBA and mortgage co's always seem to want to give us money), we haven't had to work at this.

But it bears looking into-- as you say--- better to figure out how to tap into this market before you need the $$$.

JScott- my memory is fading, so you may not have said this-- but weren't you or Phlgirl going to be looking into getting extra funding this year? Seems like contacting owners of self-directed IRAs might be one of those avenues, esp if the banks still have their panties in a bunch about the lending crisis.

-Russ H

 

[CashFlowDepot]

You'll only need a few private lenders. It's not like you have to spend most of your time looking for money. Once you find a private lender they will stick with you like glue if you keep bringing them good investment opportunities. Many will say just let the money RIDE instead of getting a payoff.

Some want monthly checks. Most do not want monthly checks and prefer to get paid annually. Some want short term deals initially. Some want to keep their money "out there" and prefer long term opportunities.

So, you just match the private lender to the type of deal you are working on.

If you're doing a rehab, use a short term private lender

If you want to keep the property long term, use a long term private investor.

All self-directed IRA and Roth holders are excellent candidates. many of them already understand the real estate game but just don't want to be actively involved anymore. They would rather lend out their money.