Is "Stupid" Money Chasing Millennials in Your Market?

[Michael Ealy]

Have you heard of the expression "stupid money"? It is when a herd of investors or speculators seem to be overpaying for an asset.

In my market in Cincinnati and I guess almost everywhere in the country, "stupid money" seems to be overpaying for apartment buildings. We've seen cap rates drop several basis points in a short span of time.

At first, I thought "stupid money" is really dumb - overpaying for buildings but...it seems that it's not "stupid" at all. Money is flowing into apartment buildings because it seems Millennials across the country are now preferring to rent long term vs. buy. 

In my local market, I've seen movement of people from the suburbs back into the city as well.

Keep in mind some of that "stupid money" is from institutional investors and private equity firms with full time acquisition analysts and market experts (not newbies like here on BP). For example, a lot of them paid 9% cap for buildings in C areas in Cincinnati less than 5 years ago and the cap rates are now 6-7%. 

Crazy!

Have you seen this in your local market as well? "Stupid money" chasing the Millennials' trend to rent apartments as a long term housing solution vs. buying?

If so, share it here. Also, if you are, share how you are making money from apartment buildings today.

If I get quite a few responses, I might share how I make money with apartment buildings today...even if I seem to be "overpaying" for them.

[Marc Winter]

IDK, I read this 'crazy money' and low cap rate stuff and I gotta say, it's all about the total number of staws.  It's not the first one, not the last one, it's the total of the straws that will break that poor camel's back.

Example:  I have been blessed with two of the most beautiful Millenial daughters a proud papa could ever hope for.  They both earn over 6 figures.  Both added a middle name: Independent.  They both live in their own apartments in a Millenial ghetto in Brooklyn--chic is more than just an adjective to those living that lifestyle.  Rent for a 450 sq ' apt runs about $2,500 plus utilities.  Bargain, right?

Savings?  Nah, nothing more than a month's rent.  Party?  Hell yeah, bring it on!

Until, a few months ago, when #1 got married and told me she wanted to have a baby and, oh yeah, "we want to move out of Brooklyn.  Too urban, we want something more (wait for it) -- SUBURBAN. A nice place to raise a kid".  She wanted better schools, room to run and play and all the stuff that my parents wanted.   

The moral of this little tale is that this stuff goes in cycles.  Life, Real Estate, stocks, world views, love and marriage, youth and older age.  It's all cyclical.  Figure out the cycle as best ya can.  If and when that happens, we'll know which straw we are really looking at.

Cheers!