End of year rant

[Mary Cronin]

Is it just me?

I look at most multi-family deals I come across - and most are in California - but all the same ...

Why do "investors" pay 2x or more for buildings?

Examples ...

Small town - 14k pop - 7 unit; sellers paid $499k; for sale for $299k; 2-0/1 @$425/mo, 2-1/1 @ $450 and 3-2/1 @ $525; 50% expenses, 1 unit vacant needing rehab before renting - worth by my estimation about $200k at tops using seller's numbers and rehab estimates.

Same town - new development on riverfront (remote area on the Sacramento River) put $5.525M into 12 units (all 3/2) short sale for $5.5m hard money @ 12%. Nice unit config but worth around $675k by seller's numbers if generous with cap rate

My town: 11 units @~$595k as a short sale; 4-1/1, 7-2/1; 3 section 8 tenants paying the highest rents so some upside in rents; paying both resident manager and management company (upside if get rid of resident manager); paid $600k; short sale for loan balance plus arrearages totaling ~$595k; now in foreclosure and still wants full asking. I put value around $390k by seller's numbers

My town: 190 units in best school district asking $9.5m, 21% vacancy, worth ~ $4.5m at 6% cap rate. Upside if vacancy filled. ($9.5m was a drop from original $12.5m)

My town: 29 units @ $1.63m all 1/1 at market rents; no remodeling since built in early 60s so not a lot of appeal to tenants. In best school district, but not big enough for families.

Nearby town: 32 units, paid $1.250m in 2007; asking $3.5m - decent mix; most rents at or close to market; only vacancy is resident manager's unit; good condition; etc. 5.96% cap rate but no foreseeable upside

With my investors wanting 9-12% COCR, I'm not finding anything worth buying. Half of the ones I find have negative cash flow to boot.

RE friends have said it was San Francisco Bay Area people applying San Francisco numbers to their investment, so they accept negative cash flow, and paying too much. I can do better with 8% dividend paying pipeline companies.

So, am I crazy?

I know, I know - look elsewhere.

Mary

[Xing Zhu]

Very similar to stock investment situation, a high dividend stock typically has no growth potential, while a growth stock yields no dividend. In the anticipated new high tax environment, investors would prefer higher growth to dividend.