Market Trends- Quit Chasing them and Start Making Them

If any of you have been have looking to get in to or expand in the Minneapolis area multi family market you have undoubtedly noticed that is getting insane! Everyone wants to be in Real Estate right now. Investing in real property is quickly becoming trendy. From the growing popularity of sites like Bigger Pockets, the rising stardom of “entrepreneurial rock stars” like Grant Cardone and Gary Vaynerchuk, and people finally coming to the realization that real estate can easily beat the nominal rates of the stock market without creating much more risk. This is all great but the question I have is, “is this trending sustainable or are we pumping up the next bubble?”

To me, there is no doubt that this is becoming a problem. Selfishly, as an investor trying to grow my portfolio, and a real estate agent that works mostly with investors, I hate this trend. People are snatching up properties regardless of whether or not they are going cash flow. For example, I looked at a duplex in a second tier suburb that sold in less than 24 hours. It was listed for $240k with a rent roll of $2000. It’s not a terrible deal but it’s not a great deal.

Warren Buffet responded to a question at his share-holders meeting about real estate this month. He said,

"I don't see a nationwide bubble in residential real estate now, at all. In most of the country, you are not paying bubble prices for residential real estate."

While, I very much agree with that statement, I don’t like where it could be headed.

One reason that is inflating this trend is the increase in flippers. Everyone is flipping these days because it’s really doesn’t seem that hard. My contractor is flipping houses on the side, my girlfriend’s dad is trying to supplement his dental practice with flipping, and even my renters are putting in offers on distressed housing.

The number of investors who are actually buying distressed properties is driving prices through the roof. Obviously, with distressed property prices going up, turn-key prices are going up as well. Why would someone pay the same amount for a house that doesn’t need any work?!

I believe that investors have a great opportunity to get creative and make things happen.

• 1.Multi Family properties in Minneapolis are selling for between $135,000 and $395,000 in similar areas; the variant being the condition of the property. Go flip a duplex!
• 2.The city sells lots for half the price it would sell on the market if they like what you plan to do with it. Get a development plan, present it to the city, and develop!
• 3.When home ownership was high, young professionals were buying condos. Now more and more young people are renting. Buy a condo and rent it out! Your down payment money will go further with condos than it will with single family. Condos have a lower sale price because of association fees.

While I am frustrated with the current market, I know there is still opportunity. Don’t compete with an over saturated pool of buyers. Find a way to bring value to Real Estate and make it happen.