Do multi family buildings rise when single families do?

Question

Hi
I have heard that the "housing market" is finally beginning to turn around. Now obviously I know this requires alot more thought than "Ok, all is well now."  However I've also heard that as SFH prices rise, credit gets a LITTLE easier, people tend to swing back toward buying vs. renting. That being said, IN GENERAL, what have some of your more "seasoned" folks observed about the connection between home prices and apartment prices?  For context, I am in central Maine. I own 4 SFH in "ok" but not great areas and then the rest are 2-11 unit apartments in B & C areas (mostly B).

My concern is, "hey, this housing recovery I've been waiting for .... is this only for SFHs?" I can almost see where both SFH & lower income units are a good diversifier for any landlord. The SFH, though typically less cash flow per unit, can be easier to sell for higher price. The lower income units will house those that most likely will NOT jump to buying just becuase the economy gets better. I have a combo of all 3, luckily, but wanted to gain some perspective on this 'cycle' and what I might expect! Thanks all.

Luis Castillo · Answer

Kenneth I believe in buy and hold. FOREVER!!! Yes maybe exchange up during some great buying markets like now. I want to see all my properties free and clear in 15 years. This way it really doesn't matter if real estate is up or down. Keep your properties clean, safe and in great condition and you will usually be full.

Make sure you buy right and the properties cash flow then let time take over. Before you know it you'll be sitting pretty.

Kenneth LaVoie · Answer

Interestingly enough, zero! Well actually 1 tenant. We do have a few employees though! We have an ivy league (Colby) a decent business college (Thomas College), so there's alot of support staff, etc. We have kitchen workers, a football coach, track coach, and several blue collar workers that GRADUATED from both.

Marc Bodinger · Answer

I saw you are near 3 colleges, what percentage of your tenants are students?

Kenneth LaVoie · Answer

Here in Waterville Maine I don't think an apartment building has been built in 50 years! (exaggeration slight). I joke that my 11 unit was built in 1790, (it was) 30 years before Maine separated from Massachussets, and ITS one of my NEWER buildings!

I can see where new buildings coming in, etc. would hurt things. We do have a situation where the Maine Housing Authority is renovating historic buildings for around 250K a unit and then renting them section 8 !!  We area landlords REIC just started a plan to put together some slideshows of our buildings and how we've purchased, renovated, weatherized and gotten buildings up and running and in excellent shape for around 30K a unit or less.

I THINK I got in on the "ground floor" regarding the other concern. If we DO have a flood of foreclosures, perhaps I'll buy some of them to protect myself, but most of mine I bought and made top notch in the 25-30K per unit range or less, and I'm seeing only a handful of buildings around here for sale now, and a couple larger ones listing for double what I paid for most of mine, so that's a good sign. I'm trying to get mine "take over condition."  I'm noticing that the few multi units in the area that DO sell for anywhere near asking price are that way: siding, new windows, good tenants, newer heating systems. etc.  We also have 3 colleges nearby which is nice.

Joel Owens · Answer

I would be less concerned with this and more concerned with new building permits for projects in the local area and also foreclosures or short sale notices where apartment buildings are being bought for less cost than many landlords existing debt service.

In those cases you are open to tenants moving to a newly built nicer place for a little more rent (new build) or moving to another property that is similar to yours where and investor is renting for less (property bought cheap as a foreclosure  or short sale).

I also do not like markets where the main tenant base is one or two industries driven. Example  a 100 unit apartment next to an army base where the base might close or reduce it's operations or a smaller town with a manufacturing plant.

In those cases if those tenants make up most of your base you are in a world of hurt if something happens and you need to fill up the buildings.

Marc Bodinger · Answer

Kenneth LaVoie I hope you get those pina coladas one day!

In your area are there a lot of apartment buildings coming to market in the next year? Down here in NYC there are going to be a lot of units all over the place so it will be interesting to see how the supply meets the demand after initial openings.

Kenneth LaVoie · Answer

i LIKE THOSE thoughts! and again, we have a good mix. Our lower income type tenants / fixed income, aren't going to fly the coup and buy a house. Maybe some of our upper level will, but then as long as we're offering a great produt, we'll just fill em' with new ones! And maybe a BIG REIT will come along and offer me a big premium and buy me out!! Pina Coladas here I come!

Fred Ramos · Answer

In my opinion,  there is always going to be a need  for rental property..  i hear a wave  of the Y  generation flocking  to buy  real estate  within the next 10 to 15 years..  While that might be true,  it's  unlikely  that  the demand for rental housing will die..

But, what  if it did..    Then, you sell the properties you bought for pennies  on the dollar for top dollar..

It's like bull riding..  When you're just about to fall down..  You stop  hanging  on to it  and let it go..

Kenneth LaVoie · Answer

Thank you. We are pretty much done buying. My question centered more around a concern or curiosity that once credit started getting easier (assuming it did) and people started buying houses again, what might that do to different rental markets.

Fred Ramos · Answer

The things  you hear are most likely  news outlets  yapping  their ignorance into the masses..

contrary to  common belief.. the is no  "housing market"  if you want to make money in real estate, get to know  the  local  market..  If  you pay attention to the "housing market" you  are likely to lose..  Just ask the  people who bought  and believed  the  hype  in 2006..

Sometimes markets change  from   subdivision  to subdivision.. Heck in the market  i am at, it changes  by as much as 50%  from on block to the other..

In reality,  there is money to be made in a bad market  just the same  as in  a good market..

Do multi family buildings rise when single families do?

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