Help: Acquisition Slump

[Account Closed]

I’ve been flipping/developing for 6 years in the Minneapolis area. However, I’m currently in the midst of the biggest acquisition slump of my career. I’ve always been diligent with my mailings, but in this (unsustainably?) appreciating market there simply is someone willing to pay you more than I am for your property. I know I need to evolve with the market, but I have a very hard time not sticking to the model that’s worked for me over the years. The way I conduct my business, I could absorb a market pull back. I sleep well at night with this strategy, but I can’t honestly say it’s not frustrating striking out so frequently. As odd as this may seem, I almost found things easier in a softer market a few years back. My local market feels saturated with guys doing the exact same thing as me. I’ll hang up and listen.

[Michael Tempel]

I feel your pain. I am focused on management vs. acquisition since it is just getting beyond ridiculous in Minneapolis and I don’t personally have the excess cash to jump in. I am seeing owners make money, you just need a little more capital and likely will have a smaller spread on returns. The game is just different.

The reality is we are likely buying high on all asset classes right now. I know a lot of big owners that are sitting on a ton of cash and waiting for a correction. The stock market is another area everyone is waiting for corrections to buy bargains. From the brokers I spoke to, they are expecting a record amount of properties to come market in 1st/2nd quarter. Many MF notes are coming due and interest rates are rising so between the current appreciation and selling for less due to interest rate increases pulling down prices, exiting is happening without 1031 exchanges....the spread to sell now vs. tax deferment is simply that good.

The reason you see so much new construction other than unit shortages is they make money on the construction and usually sell to national REITs for a profit that are okay just moving cash around with very low returns (sometimes 0%).

The problem is you see a high percentage of market rate, shortage of affordable housing and when interest rates climb, economy changes, there will be a frenzy of concessions in the class A arena that unfortunately pulls down B/C. The good news is there will be a shortage of C class, but as an owner manager, cities are really pushing for rent control....I had a horrible time raising our rents 8% in Mpls....units were purchased $300 average under market rates. The city seems to feel we need to ensure housing is affordable with 0 incentives to do so. Our taxes increased 20%!

I see a huge opportunity in affordable housing, cities are begging for it right now obviously. I just don’t enjoy it or feel like it is something I want to be an expert in personally. Something to keep in mind if looking to pivot.

I cannot predict the future, but there will be a corrective cycle at some point....if I would of bought in the last one mid 2000’s....could of retired 10 times over.