How Can You Invest In Real Estate?

 

June 22, 2016

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Jonathan J. Miller

CFO Development Capital Solutions LLC

 

 

A real estate investment can give you the best of both worlds – current income at good rates and long-term gains with high upside potential. Add in the possibility of leverage with borrowed money and you can see why more fortunes are made in real estate than any other business .

You can start your own empire on a small scale. Here are some possibilities:

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Single-Family Homes.

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 This is the easiest place to start because there’s nothing fancy about it and the downside is small. Banks are happy to finance you with a mortgage or a construction loan.

Just buying and selling short-term – flipping homes – is tricky because prices won’t jump in just a few months. Instead, buy a dilapidated or foreclosed house and fix it up. If you manage the costs right, you’ll see a good return within a year.

Be sure to hire an inspector before you buy, there are always more repairs than you think. You’ll need to hire and supervise a general contractor or individual contractors, which can be grueling because they often work on more than one project at a time. You’ll need to deal with permits and inspectors. You’ll need to consult with real estate agents to ensure there’s a market for your product. Everything will take longer than you thought. But if you can bull your way through this nightmare once, the second and third time will be a piece of cake.

Once you’re comfortable with contractors and permits and real estate agents, why not go all the way? Buy a piece of land and build a home from scratch. You’ll have greater leeway to meet local market tastes and you’ll get a bigger return. Be sure utilities are accessible, and spend a lot of time scouting regulations and codes.

Important data you’ll need! What are the prospects for home prices? Don’t just take a real estate agent’s word for it, do your own research. Check home price trends in the “Tools” section at FHFA.gov. You want a recent history of steady price increases (but not above 10 percent a year – booms are dangerous). Check the local economy at BLS.gov, search for “metropolitan payrolls” and look for your metro area; you want jobs growing at least 1.5 percent in the past year.

 

Single-Family Rentals.

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 Buy your house, fix it up, or build from scratch, and then rent the place out. It’s easiest to start with a smaller home because you’ll have the greater number of potential renters – you’re competing with apartments after all. It’s also best to start small because you may find that being a landlord is not for you. You’ll need to find tenants, collect rent, make repairs, be on call for complaints, it can be a hassle. You can do a lot of work yourself but everything takes time. Also be prepared for the tenant from hell – find out beforehand about eviction procedures, and keep a lawyer handy.

Important data you’ll need! Find out how many renters are in your area and what kind of rent you can expect. Go to the “QuickFacts” section of Census.gov. In addition to the owner-occupied housing rate (the inverse is what you want) and gross rent, you’ll find demographic information that will help you market your rental. Also check the  FHFA.gov and BLS.gov sites above, because you’re more successful in a growing market.

 

Apartment Rentals.

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 Once you’re happy being a single-family landlord, buy a house and cut it into apartments. Or buy an existing apartment building. Or build some townhouses on your piece of land. In many markets the economics favor apartments. You’ll have to deal with different permits and regulations and you may need a permanent manager if you own enough units. But if you’re handy with tools you can easily manage a dozen units yourself.

Buying or selling an apartment property – or turning it into condos – is different than selling a house. which is why many investors cut their teeth on a single-family rental first. An apartment property is basically an income stream with a net present value. The potential for large gains is tied to leverage and low-cost financing. The financials and tax treatments can get complicated. But because it’s difficult it can also make you a lot of money.

Important data you’ll need! As above, use the free info the government collects and publishes at  FHFA.gov, BLS.gov and Census.gov. It’s highly detailed, very comprehensive, and better than most private research can provide. You want to be investing in a market with a growing appetite for housing.

The internet makes it much easier for investors to market and manage properties, from traditional listing services to social media postings, and with apps that help you manage repairs, communicate with tenants and handle your accounting. Investors only need to make two crucial decisions – does this investment suit your style? and is the timing right?

 

 

Top Ways that Real Estate Investment Property Returns Profits

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June 16, 2016

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When you purchase a company's stock certificates, you're looking for appreciation in the stock value, and perhaps dividend income if the company pays it. With bonds, you're looking for income yield on the interest rate paid by the bonds. With a real estate investments, there are more ways in which to realize a superior return on investment. Learn the ways in which your real estate investment can increase in value, as well as provide good cash flow.

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1.  Cash Flow from Rental Income

As is the case with a stock that pays dividends, a properly selected and managed rental property can provide a steady income stream in the form of rental payments. Rental property returns typically exceed dividend yields.

Real estate investors have more control over risks to their cash flow. Though there are slumps in real estate prices and slow markets, people who own residential investment property usually lease it for many years, without experiencing corresponding decreases in rent amounts.

 

2.  Increases in Value Due to Appreciation

Historically, real estate has shown to be an excellent source of profit through the increase in investment property value over time. Of course, analysts cannot always predict real estate trends, which vary significantly across the United States.

 

3.  Improving Your Investment Property - More Value at Sale

While it is providing cash flow, you can also improve your investment property to earn more profit should you choose to liquidate it. Upgrades to the appearance and functionality of an investment property can significantly increase its value. As trends and styles change, keeping the property interesting to renters can help you retain its value.

For a maximum return on investment, make note of improvements that actually increase a property's value. Installing energy efficient appliances and windows increases a property's value, as does adding a bathroom and remodeling a room. Insulating a property also increases its value.

 

4.  Inflation is Your Friend When it Comes to Rent

Though your fixed mortgage payment will remain constant, inflation drives up home construction costs as well as rents. Population growth also creates housing demand and drives up rental prices when supply cannot keep pace.

 

5.  Making Use of Equity

The equity in your investment property will increase as you pay down your mortgage. Though equity is usually determined when you sell a property, some real estate investors take out equity loans when interest rates and loan terms are favorable and use those funds for other real estate investment projects.

 

6.  Find that "Steal of a Deal"

Finding a value-priced property is the most effective way to increase your net worth. Such deals aren't easy to come by, and savvy investors do their homework, browsing property listings frequently, to take advantage of opportunities when they arise. 

Investors who wish to increase the value of their portfolio with real estate should also ensure that they have their financial ducks in a row. Good credit scores are a must, as is having the cash savings for the required downpayment -- usually 20 percent for investment loans.

 

~Jonathan

 

House Flipping 101: Investing with No Money

 

March 17, 2016

 

I didn't believe it either at first, but once I started networking and talking to people about investing in my real estate ventures, I discovered that money is, in fact, everywhere. It is possible to invest in real estate without using a cent of your own money.

Turns out, many people are dissatisfied with their current investments and are very open to other ways in which they can get a better return on their money.

Don't get me wrong, if you can get money from your bank, then go for it! But today, we will purposely leave out banks and traditional financing options and discuss ways in which you can finance your very first real estate deal with money not loaned from a bank. Some of these sources of financing are avenues you've probably never even thought of, while others are lying there right under your nose.

 

Where to Find Money for Your Real Estate Deals

If there is one place the new investor should go when they are first starting out in their career is there local Real Estate Investors Association (REIA) meeting. Although these meetings are notorious for being "pitch fests," if you can around the obvious sales pitches, there are plenty of people at these meetings who are willing to invest with you. Additionally, events organized by the Chamber of Commerce, meetup.com, as well as any business get togethers are also ideal places to meet potential investors.

 

Option #1: Private Money Lenders

Private money lenders could be just about anyone you meet or know. Private investors are just regular people like you and me who have retirement accounts or disposable income reserves that they are looking to invest. In most cases, they are not actively seeking new investment vehicles – but if you know them and talk about what it is that you do, then chances are very good that they may actually approach you instead of you approaching them.

And if you do approach them about a better opportunity to invest their money, it's very rare that they won't at least sit down with you and hear you out. Provided that you have a solid plan, they are more than willing to listen to and consider what you have to say.

What most new private investors don't know is that there are other options for them to invest their retirement money. So when you talk to them about investing, they may not even think about their retirement accounts like 401(k)s or IRAs that can be rolled over with real estate as the investment vehicle. As long as the transfer of those funds is done correctly, that money can be used to fuel your investments with zero tax penalty to them.

 

Option #2: Friends and Family

Like private money investors, friends and family are somewhat similar. You approach them in the exact same way, but they may need less convincing than people who are not close friends or family.

However, borrowing money from family is never as easy as it seems. Families always seem to come with their own sets of complications – whereas with friends or associates, these kinds of emotional issues tend not to occur. Just keep in mind that whenever family is involved in business, things can get complicated fast.

This didn't stop Donald Trump and many other now famous real estate investors from starting their career using funds from mom, dad or Aunt Gertrude. Just make sure that you pay it back no matter what or Thanksgiving dinner could be very uncomfortable.

 

Option #3: Hard Money Lenders

Lots of new investors shy away from hard money lenders and I'm not exactly sure why. True, hard money lenders do charge extremely high rates as well as points – but if you’re new to investing in real estate and you’ve worked your numbers so that they are very favorable even despite the high interest rates, why not use them?

If you're not familiar with what a hard money lender is, it is a person with money who lends it at a very high interest rate – and then charges points on top of that as well. You'll probably find that these kinds of money lenders are most useful for shorter term real estate investment deals like house flips.

Just be aware that you can typically expect a hard money lender to loan you money at anywhere between 10% and 16% interest, with perhaps 4 points on top of that.  A "point" equals $1,000 for every percentage point of the loan – therefore, four points on $200,000 would equal $8,000.

 

Option #4: Partners

Partnering with people who have money is a great way to get started investing in real estate. A typical scenario is where you might have a private investor who funds you all the cash for the investment and you do all the work. You then split the profits 50 – 50. Although you might be giving away 50% of the profits, it's a very easy way to get some real estate investing momentum this way. This partner might be a coworker, a friend, a business partner, another business owner, or even another real estate investor.

There's no need to draw up a formal partnership in the classic sense with these kinds of investors – simply work on a deal-by-deal basis. It's far safer this way and protects your interests. Once again, I've met some of the best partners of my real estate ventures at local networking events - and of course the multiple monthly REIA meetings I attend regularly.

 

Be Creative When Investing in Real Estate

Although we listed 4 potential sources for funding for your real estate investment, there are 100 different ways to mix and match the funding mentioned here for any kind of deal. For example, you could have a hard money loan for 20% of the deal, 50% of the deal comes from a private money lender, and the remaining 30% comes from your mother and father. The possibilities are endless, so be creative and think abundance.

 

After all, money is everywhere – you just have to go out and get it!

~Jonathan

 

 

 

March 9, 2016

10 Things You Absolutely Need To Know About Buying A Home

 

 

Ready to buy a home? Buying a home is one of the most significant financial decisions you’ll make in your lifetime. From figuring out pricing to why you should consider a realtor, here are 10 Things You Absolutely Need To Know About Buying A Home:

 

1. Use a trusted realtor. We all know that realtors get a cut of the sales price of a home which makes some buyers hesitant to use a realtor: they believe it drives up the overall cost. Keep in mind that the seller, not the buyer, pays the commission. Brooke Willmes, real estate agent at SPACE & COMPANY in Philadelphia, says that potential buyers should keep in mind that a listing agent (the agent representing the seller) doesn’t protect your interests and “that agent would simply pocket both sides of the commission.” That means that you’re not saving money. A savvy realtor who works for you can protect your interests and guide you through the buying process – from negotiating a price to navigating home inspections.

 

2. Remember that a house purchase involves a contract. When you’re buying a house, there are papers to sign. And more papers to sign. Many of those papers – which are actually contracts – look like “standard” home buying contracts with no room for negotiation. That isn’t true. Contracts are meant to be negotiated. You don’t have to sign a standard agreement. If you want more time to review your inspection, wish to waive a radon test or want to make a purchase subject to a mortgage approval, you can make that part of the deal. That’s where a savvy realtor can help. See again #1.

 

3. Don’t necessarily buy for the life you have today. Chances are that buying a house will be one of the bigger financial commitments you’ll make in your lifetime. Before you agree to buy what you think might be your dream house, consider your long-term plans. Are you planning on staying at your current job? Getting married? Having kids? Depending on the market and the terms of your mortgage, you may not actually pay down any real equity for between five and seven years: if you aren’t sure that your house will be the house for you in a few years, you may want to keep looking.

 

4. Think about commitment. I’m not talking just about your mortgage. When you get married, the laws of your state generally determine how your assets are treated – and ultimately how they’re distributed at divorce. The same rules don’t necessarily apply when you’re not married. That means you need to think long term. When you buy a house with your significant other who is not your spouse, make sure you have an exit plan if things don’t go the way you hope. It’s a good idea to have an agreement in place with respect to titling, mortgage payments and liability, repairs and the like: it’s best to get it in writing (and yes, I’d recommend getting a lawyer).

 

 

5. Look beyond paint. It’s often the case that your dream house has that one room that you’re already fantasizing about changing. Willmes says to remember that it’s fairly inexpensive to fix cosmetic issues (a bit of paint or some wallpaper) but making changes to kitchens and baths can be expensive. She says, “People tend to focus on the cost of cabinets, appliances and counters but sometimes forget about the cost of labor which can double to triple the cost.” That doesn’t mean that you should give up on a house in need of a significant fix but you should factor in those costs when determining whether you can afford to buy.

 

6. Buy the house you know that you can afford. This can be different from the price that your mortgage company believes that you can afford. When my husband and I bought our first house, we were approved for a mortgage of about three times more than we ultimately ended up spending. Fresh out of law school and working for established firms, our finances looked good on paper. But we dialed back our expectations because we weren’t convinced that our income and expenses would remain at those levels. We were right: two years later, we started our own business just as the economy turned south. The less expensive house meant that we could still make our payments even with less income in pocket. So what’s the best ratio to use? Some lenders suggest that you can afford mortgage payments totaling about 1/3 of your gross income but others suggest closer to 28% for housing related costs including mortgage, insurance and taxes. There are a number of factors including your projected income, interest rates, type of mortgage and the market. Ask your mortgage broker to help you understand what’s in play
 

7. Don’t fixate on the purchase price. The purchase price is just one piece of owning a house: be sure to consider all of the costs associated with your potential new home. That includes the cost of insurance, homeowner association fees and real estate taxes – depending on where you live, those can quickly add up. And it’s not just home improvements that can cost money: maintenance costs dollars, too. It’s a good idea to ask questions about upkeep for extras like swimming pools, fancy heating and cooling systems and out buildings. Finally, Willmes suggests that you make sure you’re comparing apples to apples: a condo with a large fee that’s priced low may be more costly than a higher priced one with lower fees while a cheap home with high taxes may cost you more a month than a more expensive one with lower taxes.

 

8. Consider your student loan debt. Following the housing crisis, lending laws tightened. Student debt isn’t merely an annoyance: it’s treated like real debt. Jason Griesser, a licensed Prospect Mortgage Branch Manager in PA, explains that a major revision to FHA guidelines in 2015 negatively affects many first-time homebuyers with student loan debt. Prior to this change, a borrower with student loans deferred for more than 12 months could discount that debt from their liabilities: now, for purposes of determining purchasing power, a borrower is charged with 2% of the outstanding balance of the student loan regardless of deferment status (in a non-FHA, or conventional loan, it’s just 1%). If your student loan is in deferment and you’re planning on buying a home, Griesser suggests enrolling in a properly documented income-based repayment plan so you have the documents your lender will need to properly assess your ongoing liability.

 

9. Don’t get carried away by the home mortgage interest deduction. Many taxpayers are tempted to buy more house than they can afford by figuring that they’ll save enough with the home mortgage interest deduction to make up for it. The mortgage interest deduction is only deductible if you itemize on your Schedule A: only about 1/3 of taxpayers claim the itemized deduction. You itemize if your deductions exceed the standard deduction: for 2015, the standard deduction rates are $12,600 for married taxpayers filing jointly and $6,300 for individual taxpayers (those rates stay put for 2016). Assuming that you do itemize, remember that your out of pocket will still be more than your tax savings (if you’re in a 28% bracket, paying $5,000 more in interest will only “save” you $1,400 in taxes). And you can’t count on the same level of savings forever: mathematically, the longer you own your house, the less you will owe in interest. That’s good for building your equity but it means a smaller deduction come tax time.

 

10. You don’t have to buy a house. There’s no rule that says you have to buy a house by the time you’re 35 – or ever. Buying a home is a big decision and while it can be a sound financial investment, it’s not for everyone. There is a lot to consider, including the housing market, interest rates, timing and your future plans. You might want more flexibility or mobility, or your career and family plans may be in flux. If you’re not sure about a neighborhood, consider renting as a test drive: a realtor can help you with that, too (see again #1). Even then, you don’t have to pull the switch: there are healthy rental markets throughout the country and in some areas, young professionals are choosing rentals over homebuying to preserve cash and remain mobile. That’s showing in the stats: last year, the U.S. Census Bureau reported that the home ownership rate was 64.9%, not counting borrowers in risk of default. In contrast, ownership in 2010 was nearly 69%: for purposes of context, a one-percent change in the ownership represents well over a million homeowners.

 

 

 

 

Healthy U.S. housing market continues, helped by favorable labor market

 

Feb 22, 2016
The U.S. housing market is continuing to see positive momentum, helped strongly by low and falling unemployment rates, sparking a series of interrelated events that has led to increased demand among renters and buyers. In turn, the U.S. housing market is healthy with little chance of a housing downturn in the next year, according to the latest quarterly housing market barometer released today by Nationwide, a leading insurance and financial services organization.

The forward-looking Health of Housing Markets Report (HoHM Report) evaluates the housing health for the U.S. and 400 metropolitan statistical areas (MSAs). Performance rankings show that the housing markets in the vast majority of metropolitan statistical areas and divisions are healthy. This suggests that most local housing markets may see sustainable expansion over the next year.

 

The Top 10 MSAs in the index are, in order: Springfield, Ill.; Niles-Benton Harbor, Mich.; Milwaukee, Wis.; Akron, Ohio; Dayton, Ohio; Battle Creek, Mich.; Springfield, Ohio; Midland, Mich.; Toledo, Ohio; Saginaw, Mich.

 

The Bottom 10 MSAs, in order, are: New Orleans-Metairie, La.; Sherman-Denison, Texas; Watertown-Fort Drum, N.Y.; Sioux Falls, S.D.; Hammond, La.; Odessa, Texas; Austin-Round Rock, Texas; Casper, Wyo.; Dallas-Plano-Irving, Texas; Houma-Thibodaux, La.

 

More information about the HoHM Report, including the methodology used, can be found at www.inthenation.com/housing. The HoHM Report is released on a quarterly basis online and in print.

 

This material is provided by Nationwide Economics and is general in nature. It is not intended as investment or economic advice, or a recommendation to buy or sell any security or adopt any investment strategy. Additionally, it does not take into account the specific investment objectives, tax and financial condition or particular needs of any specific person. We encourage you to seek the advice of an investment professional who can tailor a financial plan to meet your specific needs. The economic and market forecasts in this report reflect our opinion as of the date of this presentation/review and are subject to change without notice. These forecasts show a broad range of possible outcomes. Because they are subject to high levels of uncertainty, they may not reflect actual performance. Case studies and examples are for illustrative purposes only. We obtained certain information from sources deemed reliable, but we do not guarantee its accuracy, completeness or fairness.

 

 

Top 10 Rental Investment Cities

Single Family Real Estate Investing 

 

Feb 10, 2016

America’s top 10 cities for single family rentals might not be where you’d expect. While many think that San Francisco, Brooklyn, or Las Vegas are the top real estate markets, it isn’t necessarily the case. Using a number of factors including annual job growth, gross rental yield, and the median price of an investment home, Development Capital Solutions LLC has identified the top ten single-family rental investment markets in the U.S.  They are:

1.  Charlotte, NC                     6.  Birmingham, AL
2.  Orlando, FL                        7.  Tampa, FL
3.  Baltimore, MD                    8.  Indianapolis, IN
4.  Cincinnati, OH                    9.  Milwaukee, WI 
5.  Jacksonville, FL                 10. Nashville, TN      
                                              

Real estate is a solid long-term investment, and the cities listed above represent some of the best investment opportunities for real estate in the U.S. Among other factors, these cities top the country for job growth, while maintaining a reasonable cost of entry, and strong gross rental yields.

~Jonathan Miller

 

 

 

 

 

Buy and Holds in PA may not be a bad Idea

Region’s real estate market shows no sign of slowing down

 

February 1, 2016 12:00 AM

 

By Tim Grant / Pittsburgh Post-Gazette

The Pittsburgh region’s residential real estate market hit its best year ever in 2015, with a record number of homes sold and dramatic increases in the prices that buyers were willing to pay — good news for real estate brokers and sellers alike.

 

Momentum in both the city and the suburbs should continue into 2016, even if the pace slows as interest rates rise on mortgages and a lack of inventory limits buyers’ choices, noted Howard “Hoddy” Hanna III, chairman and CEO of Howard Hanna Real Estate Services. The O’Hara-based company with 205 offices in eight states and more than $12 billion in sales volumes last year is estimated to be the nation’s fourth largest real estate company.

 

Pittsburgh real estate gained an impressive 6 percent in value in 2015 and Mr. Hanna expects another strong year in 2016, although his guess is that prices will increase closer to 4 percent or 5 percent.

 

He and other industry experts predict the new year will see interest in hot city communities fuel demand for communities nearby; continued population growth as more students decide to live in the region after graduation; and more first-time home buyers entering the market as rising rents show no sign of slowing.

 

Interest rates, which have been at record lows for several years, could go up another 50 to 75 basis points, but Mr. Hanna doesn’t expect rising rates to dampen housing prices here unless there is a marked change in unemployment or other dramatic events come into play.

 

Everybody’s moving there

 

Pittsburgh-area neighborhoods that have been hot in recent years continued that pace last year and, in some cases, warmed up others nearby. Lawrenceville continued to hold the top spot; followed by the Highland Park/East Liberty community; and then Downtown, which Mr. Hanna said has seen the highest percentage of growth.

 

As popular communities become overpriced and over populated, buyers create new markets nearby, he said.

 

“Five years ago, we probably really wouldn’t be talking about East Liberty,” he said, adding, “As demand got so great in the Shadyside area and then retail came back in East Liberty, buyers said, ‘Well, it will cost me $500,000 to buy in Shadyside or $300,000 in East Liberty.’”

 

Those pressures have seen old homes in Friendship that may have been converted into multi-family or boarding houses being turned back into single-family homes again. And Greenfield is becoming a budget-friendlier alternative to Squirrel Hill.

 

The leading communities for home sales and price appreciation outside the city of Pittsburgh were: Mt. Lebanon, which had a record year of 515 homes sold and sales volume of $136 million; Cranberry, which had the second highest sales and volume; Peters, which had 357 homes sold and sales volume of $143 million; and Adams, where 266 homes sold for $106 million in sales volume.

 

Limited inventory might put a damper on the number of units sold in some of those communities in future years.

 

“As good as home sales are in Adams, Cranberry, North Strabane and Peters, the percentage of sales in those areas is not what it used to be because there just aren’t that many new developments and new plans coming on board,” said Mr. Hanna.

 

“It’s a national problem that it’s very difficult to get financing to develop raw land,” he said.

 

Tight inventories have led to rising prices nationwide, according the S&P/Case-Shiller Home Price Indices. Home prices in the 20 cities it tracks rose an average 5.8 percent since November 2014.

 

“While continued price increases will begin to impact affordability, they are necessary to encourage sellers to list their homes for sale,” said Kristin Reynolds, an economist for IHS Global Insights, a Lexington, Mass.-based company that tracks national housing prices and sales.

 

For the moment, Gregory Hammill, president of the Pennsylvania region for Howard Hanna Real Estate, said, the increase in the rate of sales in the region has accelerated faster than the rate of new listings.

 

“We still need more inventory,” Mr. Hammill said. “Buyers in the market want to find a house they like. They don’t want to pick one for the heck of it.”

 

Looking for the impact of energy slump

 

So far Mr. Hanna said the real estate market hasn’t seen a ripple effect from the energy industry downturn in Western Pennsylvania, something that could impact places like Washington and Greene counties. “A lot of housing was based on part-time workers coming in. A year and a half ago, you couldn’t rent a hotel room in rural or south suburban Pennsylvania because all the hotels were taken up by the workers they were bringing in from Colorado, Texas and Oklahoma.”

 

As the industry has been pulling back, jobs have been cut. Mr. Hanna said real estate brokers will be watching to see if that shows up in home sales and prices.

 

But other economic indicators in the region are strong. More first-time home buyers bought homes last year than had done so since 2010. The percentage of first-time buyers who bought homes through Howard Hanna Real Estate jumped from 28 percent in 2014 to 37 percent last year.

 

Enough apartments? Too many?

 

According to Jeff Burd, president of Tall Timber Group based in Ross, this year will be the fourth consecutive year that developers have built more than 2,000 apartment units in this region. There were 2,347 units built in 2015. In 2016, he said, 4,548 apartment units are on the drawing board.

 

“We were normally around 1,000 to 1,200 new apartment units a year in the mid-1990s,” Mr. Burd said. Many of those units will rent for between $2,000 to more than $3,000 a month.

 

Mr. Hanna said the explosion in apartment building has a lot to do with developers earning more profits.

 

“Some of the new places Downtown are renting for close to $3 per square foot, and you can rent almost any of the good Downtown office buildings for that with brand new space remodeled,” he said. “It costs more to build an office building than it does to build an apartment building. You are getting the same or more per square foot.”

 

 

 

 

 

 

Fourth-Quarter Surge Lifts Multifamily Investment Sales to New Record In 2015

 

Continued Investor Demand Expected to Keep U.S. Apt. Sales Strong in 2016, Though at More Moderate Pace. Activity of Foreign Buyers Could Be a 'Wild Card'

January 13, 2016

 

 

Ending 2015 with the strongest quarter for multifamily investment sales on record, investors poured $150.6 billion into apartment properties in 2015, shattering the total set the previous year by about 16%, according to preliminary apartment sales data for the year compiled by CoStar. 

The $47.3 billion in apartment sales for the fourth quarter of 2015 far exceeds the previous quarterly record of just under $38.4 billion set in 2014. It also qualifies as the highest quarterly sales total for all commercial property types since 2007, when Blackstone Group's $39 billion buyout of the Equity Office Properties office portfolio and other mammoth trades produced a quarterly average of more than $50 billion in office investment sales. 

The sales totals reflect CoStar transaction data for all 2015 apartment sales collected through Jan. 11. 

Very high pricing for apartment properties in many markets, a slowdown in lease up of newly built properties and downturn in apartment rents over the last three months of 2015 may cause sales to moderate somewhat this year. 

"In general, we are more conservative with our projections for 2016," Vaisman said. "While 2015 was another record year for apartment volume, the annual growth rate has been slowing," said Ethan Vaisman, real estate economist for CoStar Portfolio Strategy. 

JLL 's preliminary sales research for 2015 confirmed the highest apartment sales volume on record, with analysts for the global real estate services provider predicting more of the same in 2016, albeit at a moderated growth pace of between 5% and 10%. 

JLL expects the apartment sales story to be much the same in 2016, with an influx in foreign buyers playing a larger role in purchases. 

"While institutional investors made up the majority of buyers in 2015, we expect foreign dollars to be the wild card in the year ahead," said David Williams, international director and leader of JLL’s Multifamily Capital Markets team. Williams expects previously lagging cross-border investment into the apartment sector will increase in 2016, providing a boost to multifamily sales volume and pricing. 

JLL noted a series of factors converged in 2015 to pump up sales volume, ranging from large portfolio deals such as Lone Star’s $6.8 billion acquisition of Home Properties, Inc., to above-average rents hikes seen across many U.S. apartment markets. 

Increased liquidity also played a big part in boosting multifamily sales, fueled by a surge in loan origination volume through third-quarter 2015 from Fannie Mae, Freddie Mac as well as accelerated lending by banks and conduits. JLL believes the extremely liquid lending enviornment will continue to support apartment sales in 2016. 

Buyers and sellers of multifamily property will both certainly keep a cautious eye on rent growth in coming months. While apartment rents driven by rising occupany posted phenomenal gains in the first half of 2015, U.S. rent growth lagged in the second half, according to recent CoStar analysis. 

The Federal Reserve’s recent interest rate increase is also expected to become a bigger factor for apartment buyers and sellers in 2016, according to Christine Espenshade, managing director with JLL’s Multifamily Capital Markets. 

"In theory, prices should come down due to the Fed’s recent increase in rates, but multifamily net operating incomes are continuing to rise, so that may not play out as expected," said Espenshade. "We may see some bumps in the road over the next couple of months, but well-capitalized owners both foreign and domestic should do very well and push volumes to the upper limits yet again." 
Editor's note:This story has been corrected to restate that foreign buyers will play a larger role in sales this year, rather than replace intitutional investors as the top apartment buying group. 

 

 

 

 

Banks Double-Down on Home Foreclosures, Creating Opportunities for Investors

 

Nov 16, 2015 Bendix Anderson

 

Just when it seemed like there weren’t any more foreclosed homes to buy, banks are finally taking action to clear their backlogs of bad home loans.

“Legislative and legal dams that have held back some foreclosure activity for years,” says Daren Blomquist, vice president at RealtyTrac, a data firm that tracks foreclosure trends. “In states such as New Jersey, Massachusetts, and New York, a flood of deferred distress from the last housing crisis is finally spilling over.”

 

Many of these properties have been in default for a long time, and may even be vacant. They may eventually sell at low prices that drag down overall home prices in their markets. These thousands of homes may also provide an opportunity for investors.

“Many of these homes will be hitting the market for sale in the next six to 12 months,” according to RealtyTrac.

Banks seize homes in judicial foreclosure states

 

The number of homes repossessed by banks spiked 66 percent in the third quarter compared to the year before. Banks seized 133,811 properties in the U.S. during the period, roughly the same as in the second quarter, but a huge increase from the third quarter of 2014.

 

A few states top the list for the biggest increases. In New York State, the number of bank repossessions more than quadrupled, rising 469 percent to reach 4,435. In New Jersey, the number of bank repossessions more than tripled, rising 351 percent to reach 6,858. Bank repossessions also rose 34 percent in Florida—not a huge percentage increase. But because banks have been more consistently busy in Florida, the increase represents a high number of homes: 22,252 bank repossessions in the third quarter.

 

These foreclosures took a long time to happen. Properties seized in the third quarter had been in the foreclosure process an average of 630 days—close to two years.

The number of bank repossessions also rose, though less starkly, for different reasons in a states like Texas, Michigan and Washington. In these places the foreclosure market has settled into a normalized pattern close to or even below pre-crisis levels. “In those states the overall housing market should easily absorb the additional foreclosure activity with little impact on home values,” says Blomquist.

Fewer sales to institutional investors

 

If more foreclosed homes come up for sale that may provide an opportunity for some institutional investors to resume buying. Institutional investors bought just 16,000 homes or 1.9 percent of the single-family houses and condos purchased in the third quarter. That’s a slight increase from 1.6 percent in the second quarter, but it’s steep decline from 5 percent a year ago, according to RealtyTrac, which defines “institutional investor” as any buyer that purchased 10 or more homes in the last year.

 

Eighty metros posted a higher share of institutional investor sales than the national average. For the most part, these towns were outside the housing bust cities where investors once bought foreclosed homes. Instead, these were largely class-B markets, were investors might find houses for sale at prices low enough to make them profitable to operate as rental properties.

 

The cities with the highest share of institutional buyers were Montgomery, Ala. (9.8 percent), Columbus, Ga. (7.1 percent), Muskegon, Mich. (6.0 percent), El Paso, Texas (5.5 percent), and Jacksonville, Fla. (5.5 percent), according to RealtyTrac. Other major metros with a high percentage of institutional investor acquisitions included Cincinnati, Ohio (4.9 percent), Memphis, Tenn. (4.8 percent), Orlando, Fla. (3.8 percent), Cleveland, Ohio (3.8 percent), and Columbus, Ohio (3.8 percent).