Originally posted by @Adam Bartomeo:
Years ago I learned that when everyone is headed in a direction that you need to pay close attention to what is going on to avoid pitfalls. When my chiropractor started telling me that he was going to buy two rentals and he knew absolutely zero about it. I knew he was a sheep and things were going to go south.
Today I here a lot of newbies talking about buying multi family properties. And, call it what you will - spidey senses, 6th sense, a Mayan warning - I smell sheep.
Prices are rising, cap rates are falling, investors are chasing 4% returns, and money keeps pouring in. In my opinion this type of frenzie is unsustainable.
Are these folks just sheep or am I just being over cautious?
Adam,
I am experiencing the same thing. Our market has very few Multis listed and those that are are over priced. Banks are "fixing" up houses and selling them to retail buyers. Fellow workers are talking about buying investment properties. SF prices are stretching for the sky.
I agree with everyone who says there are still deals out there we just have to work harder at uncovering them.
I am looking at finding homes I can add "value" too such as expanding the livable square footage or adding more units to a existing mutlifamily.
To help feed your view that we are nearing a peak and confirmation that we are in a seller's market I would like to share a conversation I had with a relative who sells property in Boston.
He was saying that there was a lot of money coming in from outside the US and these investors are eager to get into the Boston Market. They will buy anything with a CAP rate of 5 to 5.5. Then he tells me most of what they have for sale is held by long term owners 25 to 40 yrs with rents on average of $1000/ unit each with about 300sq ft. of course these rents do not support a 5 CAP. They TELL the buyers that with renovations they can get 1900-2500 per month for rent which gives them the 5 to 5.5 CAP rate. As of right now the new owners are holding firm on their rent prices and will keep it vacant my relative believes that they can afford to do this long term. I disagree and mention it because Boston has hundreds of new units coming to market over the next several months and years.
When I hear the market described as above I assume we are nearing a top but of course no one can predict the exact moment it will turn.
One more thing I found fascinating in the conversation I had with him. The people he rents too. Most of the renters are 4 to 5 years out of school with incomes of 50k to 90k who have large student debt 50k to 100k. to qualify for the unit they are required to have a consignor and their parents step right up to the plate. Maybe another crack in the ice!
