Alaska Multifamily Investing - What's rent got to do with it?

[Jamie Rose]

What's rent got to do with it?

Everything. 

Rents drive the multifamily investor's business model. Put another way - rents are the heart - that help you beat the returns on your savings account or your ETF. 

--> Here's my plead to you - ready to invest? Please work with a real estate agent / team that knows investing (owns over 20 units is a good baseline...) - and is invested in your market - it matters greatly. Hit me up. 

I have a client in contract on a multifamily building in the Anchorage areas at the moment. As is often the case - the current rents are low for the market. As it sits - owning this building is not very profitable. The average rent across the units comes to $1048. The average operating expenses for this property require rents to be at about $1050 to break even. These are mostly 2br / 1 bath units with covered parking and all utilities but electric included. 

As it is - it is not a great investment to hold. With higher rents - it creates positive cash flow. 

So... what could the rents be, what should they be? Optimistically, conservatively, and in an average market rate scenario? 

--> This is where keeping an eye on the rental market helps us as investment minded agents make calculated, and market beating decisions. <--

Real estate has become much more popular in the last five years. This makes finding a deal more challenging. It often means we need to find something with a value add - or rental arbitrage dynamic like this to beat the average.

So - If rents in this building on the high end are $1400 a month, and on the average side - $1250 - across 10 units - that's a big upswing in monthly cash flow. 

10 units x $200 a month rental increase = $2,000 a month in free cash flow. (we were at just break even with rents at $1,050. So $1,250-1,050 = $200 a month difference)

10 units x $350 a month in rental increase = $3,500 a month in free cash flow. 

Rents have been rising nationwide in a big way with the increase in inflation. Rents are not static, they are a market just like everything else. Professionally - I like to advise people on what the high end of the rent range is - and then what is a middle/conservative range. While we like to see maximum income - we also want to be well positioned for any pull back in the rental rates - so that we shouldn't get into a negative cash flow situation. In the situation above - I'd encourage the client to make sure they're excited about a best case scenario - but still will be happy with a more conservative scenario. 

I constantly check in with professional property managers to get a sense of which way the rental market is moving. Alaska has trends like everywhere else - but we also have a very heavy seasonal trend. Rents are lower in December/January than they are in June/July - often by 15-20%. 

I follow national reports and entities as well --> 

--> this shows top 10 MSA's in danger of a pullback https://www.trepp.com/trepptal... - after massive rental run up - most MSA's are seeing some pull back in monthly rental price movement. 

--> here you can download historical rental data: https://www.apartmentlist.com/... 

Anchorage - 2br rental averages - "Apartment List Rent Estimates: monthly estimates of the median rent paid for new leases in a given market."

1/2017 - $1259

1/2018 - $1252

1/2019 - $1273

1/2020 - $1268

1/2021 - $1343

1/2022 - $1562

1/2023 - $1702

What they don't say about this data is - about apartment size - condition - location - amenities (garage?)... but you can pull out the trends. Rent growth didn't exist from 2017-2020. Then it started - and it has been very strong (30% rent growth since March of 2020). I would say that for an average commercial MF building or up down box 4 plex in a C-B area - 2br/1bath rents went from $1150 --> $1350. Could you get someone to agree to more? Always - but that is not likely a sustainable - high occupancy/low turnover strategy. 

How can you use this? Be a student of the rental trends in your market. Find a deal today that gives you potential for upside. 

"They" say the only two guarantees in life are death and taxes. Right now it feels like it's taxes and inflation. As for me and my house - we're loading up on fixed debt, and inflation friendly assets (real estate). 

Guys on the team working with me!  @Tyler Cobb & @Nick Bruckner

Local area volunteer economist - thoughts? Did you catch my pun? @Connor Dunham

In the trenches Property Manager - what are rents today? @Chris S.

[Chris S.]

Hey Jamie,

What are the rents today? Well, that is a very ambiguous question haha. Rents vary pretty drastically all throughout Anchorage. Even block to block you can see some some major difference. Places like Mt. View, fairview you are seeing anywhere from 800 for a 2 bed ( a very run down roach infested 2 bed) to 1250 at the higher end for nice clean places. We even have a couple in the 1400-1450 range, but those are generally townhouse style or have better amenities like garages, etc... Rent has definitely increased though even in these areas and places I was getting 1100 for 2 years ago are now in the 1250-1400 range. 

Rents in the UMED area are always pretty stable, with the averages around 1400-1450 for a 2 bed, but ranging all the way to 2000 range for some very high end ones. 

South Anchorage generally has higher rents as well, and is generally an easier area to rent compared to Fairview, Mt. View, etc.... due to the stigma against these areas. This is not to say that Mt. View and Fairview are necessarily bad areas, you can buy a decent property there and make good cashflow, but you wont get the appreciation you see in other parts of town. 

My recommendations would vary depending on what you are looking for, if you want to self manage/hire a pm, and what your end game goal is. I got started in Mt. View and while it was rough at the start, I know have multiple buildings that cashflow quite nicely with great tenants in them. This let me branch off to start purchasing in Eagle River where I can basically buy a place and forget about it unless there is  a maintenance request. 

If anyone reading this wants me to delve into more details feel free to hit me up. I am not as active here lately as I have been in the past since our company has been expanding and I have been busy but I will do my best to answer any questions anyone has.