Posts Tagged ‘Investing’

Home flipping reached 10-year high: Can you say froth?

Written by Landlord Property Management Magazine on . Posted in Blog

house flipping
Rising home prices are bringing more house flippers out of the woodwork, and that may be a sign of an overheating housing market. The number of active home flippers last year was the highest in nearly a decade, and it is only growing.

Nearly 180,000 family homes and condos were flipped in 2015, according to RealtyTrac. A flip is defined as a home that is bought and sold again within the same 12 months. Flips made up 5.5 percent of all sales last year, and that is the first increase in the flip share after four years of shrinking. Flipping increased in 75 percent of U.S. markets, and the profits are growing as well.

“As confidence in the housing recovery spreads, more real estate investors and would-be real estate investors are hopping on the home flipping bandwagon,” said Daren Blomquist, senior vice president at RealtyTrac. “Not only is the share of home flips on the rise again, but we also see the flipping trend trickling down to smaller investors who are completing fewer flips per year.”

Jim Pinson works with investors to flip houses on the south side of Chicago and does two or three flips of his own each year in the Oak Lawn area. Home prices in Chicago have not soared as much as in other parts of the nation, but there are still a lot of distressed homes available for sale, and plenty of investor demand.

“Oh my God, there are multiple offers on almost every decent margin profit house that pops on the market,” said Pinson.

The concern now is that prices are rising too fast, not because buyers can afford to pay more but because of extremely short supply of homes for sale, especially on the lower end of the market. Home prices in January were 6.9 percent higher than the January 2015, according to CoreLogic, a higher annual gain than in December. Home flipping can push prices artificially higher, especially in markets with the tightest inventory.

“When home flipping numbers go up, it is usually an indication that the housing market is in trouble,” said Matthew Gardner, chief economist at Windermere Real Estate in Seattle, who was quoted in the RealtyTrac report.

That was the case during the housing boom in the mid-2000s, but at that time flippers were putting next to no money into their investments, instead using cheap credit. That credit no longer exists. They have to put significant money into their flips, even when using investor loans.

“More inexperienced home flippers with a smaller financial cushion could be a sign of an over-speculative market, but the data indicate that flippers in 2015 continued to operate within relatively conservative margins,” said Blomquist. “Homes flipped in 2015 were on average purchased at a 26 percent discount below estimated market value and resold by the flipper at a 5 percent premium above estimated market value.”

Still, affordability for that end-user, the owner occupant looking to buy perhaps a first home, is weakening. First-time home buyers are still a much lower share of home buyers today than they are historically. The risk of another home price bubble could push them even further away.

As home prices rise, even in Chicago, investors have to put more money down and put money into renovating the homes, which are often in severe disrepair. Investors have to be careful to make sure they’re buying the right house in the right place, otherwise they won’t find buyers ready to move in.

“Demand is block by block, and you’ll have people running out and making offers, but it depends on what block you’re in,” added Pinson.

Just after the housing crash, large institutional investors moved in and bought thousands of distressed properties and turned the vast majority of them into rental homes. They are now buying fewer homes, leaving the field open for smaller investors who would rather flip than hold the homes. The total number of investors who completed at least one flip in 2015 was at the highest level since 2007, and the number of flips per investor was at the lowest level since 2008, according to RealtyTrac.

Flippers are watching home prices rise, and in turn seeing returns rise. Homes flipped in 2015 yielded an average gross profit of $55,000 nationwide, the highest for flips nationally since 2005, according to RealtyTrac. The return on investment was close to 46 percent, up from 44 percent in 2014 and up from 35 percent in 2005. 2005 was when flipping was rampant, thanks to super easy credit. Back then, over 8 percent of all sales were flips.

Today flippers are seeing the best returns in Pittsburgh, New Orleans, Philadelphia, Cincinnati and New Haven, Connecticut. The biggest dollar returns are in California and New York, but investors there must put bigger dollars down for those flips.

Source: cnbc.com

– See more at: http://www.american-apartment-owners-association.org/property-management/latest-news/home-flipping-reached-10-year-high-can-say-froth/#sthash.xVe1M5ty.dpuf

How to Retire Early Investing In Apartment Buildings

Written by Landlord Property Management Magazine on . Posted in Blog

How to Retire EarlyWe all work hard at our J.O.B., don’t we? We work hard each day and hope to retire when we’re 65, that’s the American dream, right?

Many of us are looking for something better, maybe a scenario where we can retire earlier or perhaps enter a state of semi-retirement. The answer: investing in apartment buildings.

Imagine working really hard to find a good building at a fair price, putting the financing together, and hiring a property manager to run the whole thing. Was that a lot of work? Of course. But don’t you work hard anyway? Here’s the difference….

Apartment Ownership – What’s It Really Like?

Imagine the day you close on the building and your property manager takes over. Ask most apartment building owners, and they will say they spend anywhere between 2 and 5 hours per week on their building if it’s managed by a professional management company.

What have you done? You went from a job that took 40-50 hours of your time each week to one that takes a fraction of that. And you replaced part or all of the income of your job with that from the apartment building.

You’re working less while maintaining your income.

What would this mean to you? Maybe you could spend more time with your family. Maybe you want to travel more. Pursue a hobby. Give back. Or maybe do more deals.

How is something like this possible with apartment buildings? The answer is in how apartment buildings are valued.

How Do you Make Money On Apartment Investments?

The value of an apartment building is driven by its net operating income, the amount of income left after all expenses are paid. The more money the building spits out after all expenses, the more it’s worth.

In many parts of the country, a building is worth 10 times its net operating income. This “10 times multiplier” is referred to as the “capitalization” or “cap rate” for short. Don’t worry about this for now – it’s not important to the point I’m trying to make. Let’s just use a cap rate of 10 for our discussion.

Let’s say a building has a net operating income of $100,000, which would make it worth $1M. If you could somehow make the building generate $10,000 more each year, maybe by increasing rents or decreasing expenses, you would have generated $100,000 in value (a cap rate of 10 times the additional income of $10,000 is an additional $100,000 in value).

Let’s look at a more specific example, so that you can start visualizing how this “math” could work for you in real life.

Assume you bought a 10-unit building for $540,000, and you had to put 30% down. The building was bought at a “10-cap” based on our formula we’ve used so far. Which means its net operating income (or NOI) is $54,000 per year, times our cap rate of 10 is $540,000. The income per unit is $1,000, and the expenses are 55% of the income. The building is in great shape and has been managed by the owner himself.

So far there is nothing special about this deal.

However, suppose you found out that the average market rent in the area is actually a $200 higher per month. Suppose further that you meet a property manager who manages two similar buildings in the area, and he tells you that his expenses are only 45% of income.

Let’s say it takes us 3 years to get the building to where it should be, i.e. with each unit bringing in $1,200 per month and lowering our expenses to 45% of income. Here’s how this would impact our financials:

By making small improvements each year, we have added $25,000 to our Net Operating Income. What is our value now?

Our new NOI is $79,000, so our value now is about $790,000 ! That is an increase of $250,000 in three years! Isn’t that incredible?

But that’s not all.

You also had between $2,600 and $4,700 in monthly income from this building over those three years.

That’s still not all. You (em, I mean your tenants), paid down $21,500 of your mortgage balance during that time, too.

Here’s what you get if you add everything together:

Your down payment was $160,000, and your total profit if you sold this building in 3 years is $284,000. This means you nearly doubled your investment!

In the meantime you enjoyed an average of $3,500 per month in cash flow.

Maybe you need more than that each month to quit your job. No problem. Buy a bigger building. Or get a second or third one. Three of these buildings will give you $10,000 per month in income and almost a $1M of profit in 3-5 years.

Retirement Possible In 5 Years After Investing In Aparments?

Would it be a lot of work? Absolutely. Do you work pretty hard right now? Probably.

Imagine working just as hard for the next 5 years and being able to retire. Imagine. 5 years.

And then you can do whatever you want. Keep working. Keep finding new deals (why stop?). Travel. Family. Give back. Whatever.

You don’t have all the answers, and you probably feel overwhelmed. That’s to be expected. The point I’m trying to make is, make sure that whatever you’re working hard at gets you to where you want to go.

I always say, “where there’s a will, there’s a way. And where there isn’t a will, there is NO way”. So ask yourself first, how badly do you want it? If you want it badly enough, you will choose to commit to the journey.

Use REIClub.com as a resource to get started – there are tons of articles, blog posts, and videos! I’ll try to do my part to write articles (and maybe publish a few videos) on the subject of investing in apartment buildings with a particular focus on raising money from private individuals (called “syndication”).

For me, and many others, apartment buildings are the single best way to retire early. It might be a good wall to consider climbing. Why not get started today!

Michael Blank’s passion is being an entrepreneur and helping others become (better) entrepreneurs. His focus in real estate investing is buying apartment buildings by raising money from private individuals.

Michael has been investing in residential and multifamily real estate since 2005 and began syndicating deals in 2010. He is the author of the Syndicated Deal Analyzer and the free eBook “The Secret to Raising Money to Buy Your First Apartment Building”.

www.TheMichaelBlank.com

Essex seeks to buy BRE in $4.48 billion apartment deal that points to economy’s strength

Written by Landlord Property Management Magazine on . Posted in Blog

By George Avalos | Oakland Tribune

NONTECHBIZ.REM

In the Bay Area, Essex Property Trust owns complexes such as San Jose’s Esplanade, seen in this 2005 file photo (RICK E. MARTIN/SAN JOSE MERCURY NEWS)

In what would be a $4.48 billion deal that is a reminder of the strength of the Bay Area economy, Essex Property Trust said Monday it has made a formal offer to buy a rival apartment realty investment firm, BRE Properties.

Palo Alto-based Essex Property and San Francisco-based BRE would coalesce into an apartment property giant with its apartments concentrated in the gateway markets of the West Coast, primarily the Bay Area, at a time when rental rates are rising strongly in the nine-county region amid a job surge.

“Essex Property Trust has made a nonbinding proposal to acquire BRE Properties in a negotiated strategic business combination,” Essex said Monday. BRE said it was continuing an ongoing process to explore strategic alternatives, and confirmed it had received a “nonbinding proposal” for a sale to Essex. On Monday, shares of Essex rose 0.2 percent to finish at $154.26, while BRE fell 2.3 percent to finish at $57.99.

According to a public filing in November, Essex owned more than 34,000 apartments and had about 46 percent of those in Southern California markets, including Los Angeles, Riverside and San Diego.

At the end of September, BRE owned or had stakes in more than 21,000 apartments, and about 28 percent of the company’s operating income was derived from apartments in the Bay Area.

The deal would give Essex a much bigger footprint in the Bay Area than it now has. Industry experts said this is a clear indication of investor desire for investment property in this region. The area’s economy underpins all of this.

“There is a lot of job growth, you have a lot of hiring in tech, biotech, software and social media,” said Mark Feldman, a senior vice president with Colliers International, a commercial realty firm. “Then you have the apartment market. The Bay Area is supply constrained, there is a high cost of housing, apartment rents are rising.”

BRE's The Landing at Jack London Square in Oakland. (BRE Properties photo)

BRE’s The Landing at Jack London Square in Oakland. (BRE Properties photo)

The relative newness of the BRE apartment portfolio could be an attraction for Essex, said Ryan Wagner, a vice president with Colliers.

“Essex would be able to own a lot of BRE properties for a lot less risk and less money than it would cost to build brand-new units in those markets,” Wagner said. “Essex has been aggressive in buying apartments and they still hunger for more to buy.”

The pace of rental rate increases has slowed but remains sturdy. In 2010 and 2011, rates for apartments were rising by about 10 percent to 12 percent a year in the Bay Area. The rate of increase is expected to be 3.5 percent to 5 percent in 2013, Feldman estimated.

Average rents are now around $3,000 for a one- or two-bedroom unit in San Francisco, according to Colliers, while they are around $2,700 for one- or two-bedroom units in San Jose.

“Essex and BRE are going to be in the markets where jobs are being created,” Feldman said. “The Bay Area is one of the economic epicenters in the United States.”

Contact George Avalos at 408-859-5167. Follow him at Twitter.com/georgeavalos.

Income Property Management Expo

Written by Landlord Property Management Magazine on . Posted in Blog

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Apartment News Publications Inc. is teaming up with the Income Property Management Expo to provide Apartment Owners/Managers & Commercial Property Management Companies with tools for efficient, cost effective management, operation and maintenance of their communities & facilities!

Join us October 30, 2013 for the Bay Area Income Property Management Expo at the San Mateo Event Center!
Click Here to Pre-Register Online

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Bay Area California Attendee Information:

  • follow-us-on-twitter2Apartment Owners
  • Property Managers
  • HOA
  • Commercial Property Management Companies
  • Service & Maintenance Staff
  • Industry Partners & Vendors

View Expo Floor Plan: Click Here

Seminar Line Up:

10:00 am:  The Eviction Process – Learn more about Northern CA Rent Control & Eviction Laws

11:00 am:  Your Business is Mobile Are You? Learn how mobile is impacting your vacancy rate

12:00 pm:  The Essentials of NFPA Code – 6 Primary NFPA Tests & Inspections required for your property

2:00 pm:  Construction Defect Claims – Take action upon notice of construction defects

3:00 pm:  Fair Housing & How it Effects You

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Visit Us Online!

To learn more about the Income Property Management Expo, or to reserve a booth for the Exhibitor Floor, visit IncomePropertyExpo.com!

Industry News: Apartment Market Expansion Continues as Growth Rate Moderates

Written by Landlord Property Management Magazine on . Posted in Blog

“Even after nearly three years of recovery, apartment markets around the country remain strong as more report tightening conditions than not…”

WASHINGTON, D.C.—Apartment markets improved across all areas for the seventh quarter in a row, but the pace of improvement moderated according to the National Multi Housing Council’s (NMHC) Quarterly Survey of Apartment Market Conditions. The survey’s indexes measuring Market Tightness (56), Sales Volume (51), Equity Financing (56) and Debt Financing (65) all measured at 50 or higher, indicating growth from the previous quarter.

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