We are in an Imperfect Market

What is an imperfect market?

From my analytical point of view and from the numerous conversations I have had with other investors and brokers, I rate the current market as stable.  Cap Rates and interest rates have been at historically low levels some time, Sellers have not been willing to budge on prices, and the amount of inventory has felt “sparce” for close to a year. It certainly is not a market for the faint of heart or those that hope a deal will just fall on their laps.  Still, it has become predictable. 

That is not to say there is not volatility.  We all feel the effects of Covid in our everyday lives, and the Multifamily investing is not immune.  

Agency Loans (Fannie and Freddie) are being more closely scrutinized than a year ago…this is not necessarily bad.  The kicker is Fannie and Freddie currently requires 9 months Principle & Interest (PI) upfront.  

• For every $1,000,000 in leverage, at current rate of 3.5% on a 360 month amortization schedule, you will pay approximately $40,000 over 9 months.   

• With a purchase price of $10,000,000, with $8,000,000 leveraged through an Agency loan, you need to bring an additional $323,312 to the table at the close.  

Occupancy levels and rent increases are another area of concern.  This is an are that we always have to be concerned, one that really can make or break a business plan.  Nothing new here.   Our portfolio has not been hit hard by the pandemic.  That is not to say that folks aren’t struggling and that we aren’t paying close attention.   I have heard some properties only receiving 70% of scheduled rent.  Again, there are always lower performing properties, and I have not heard of a city/state/national trend.    

Where we are looking

I feel good about the multifamily market.  It has held steady thus far, as people will always need a place to live.  

We are not wavering on our strategy of management or investment strategy, just tweaking the knobs.  

We have made adjustments to our collections above and beyond what has been mandated, and have not lost “significant” revenue in doing so.  We feel that if you treat people like you would expect to be treated, they will do the same.  

I am looking at two different types of investments:  Apartments and Developing RV Parks.  Both coincide with our long-term strategy of building wealth.  Longer term holds, take advantage of relationships with lenders, return cash to our investors.  

If you would like to find out more, please…

RV Parks – fits with national trends.  Low cost to develop, can refi and pull some if not all of money.  Availability of land.

Expand Search:  Midwest (Louisville, Lexington, Indianapolis).  Strengths of marketplaces.  

Summary:  These are “different” times.  But aren’t all times “different”.  Stick to CORE set of investment beliefs, be open and creative to other options.