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Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
I read a great article recently on the National Real Estate Investor site that talked about how bright the outlook is for apartment buildings…
As a buy and hold investor, apartment building owner and apartment investing educator, it warms my heart to read stuff like that!
The article reported that:
“The U.S. apartment sector is healthy and will remain that way for the foreseeable future… From a fundamentals standpoint, the U.S. apartment sector is still the best and the brightest of all property types.”
And it went on to say that:
“From an owner’s perspective, this is a very solid place to be. The current conditions allow owners to not only increase rental rates, but also improve the profile of their tenant base because there’s not a lot of choice for renters.”
I’ll bet you’ve been wondering why the apartment owners group at your local REIA - you know, that group of guys that always sits together and keeps to themselves - has been smiling and laughing so much lately.
Now you know and knowing is half the battle…
And the news looks good into the future primarily because vacancies are expected to be very low.
A consulting firm has said this:
"…forecasts vacancies for year-end 2014 to be 4.2 percent and expects them to drop further through 2016, bottoming at 3.8 percent before edging up to a still-low 4 percent in 2017. And with vacancies dropping below the 4 percent mark and remaining there through 2017, effective rents for apartments are projected to increase in the range of 3 percent per year over the next four years. Apartment effective rents are now nearly 10 percent above their pre-recession peak."
So it’s all good news for the apartment building sector for the next several years!
I honestly can’t think of a better scenario than what we’re seeing right now in apartment buildings. I mean, really, really low vacancies coupled with improving unemployment numbers coupled with lots and lots of people still having to or needing to rent.
It’s pretty much the perfect storm for apartment building ownership. And this is a storm that’s going to last!
So if that’s the good news, then what’s the bad?
Well, after you read all of that good news, the bad is probably pretty obvious.
The bad news is that apartment building prices have absolutely gone through the roof…
Cap rates are tanking pretty much everywhere due to the low vacancy rates. And that’s exacerbated by the fact that since everyone is full, nobody wants to sell.
In my market, that translates into a full-contact cage-match bidding war for anything and everything that comes to market in the 20 to 60 unit range.
And those bidding wars are nearly always won by someone either from the left coast or from China that massively overpays.
The future is still bright for apartments.
On the one hand, apartment buildings are the place to be for the foreseeable future.
And on the other, there’s no way on God’s green earth that you’re going to win a bidding war against a rabid left coast or Chicom buyer.
But all is not lost!
Remember those ninja tricks that you have used in the past (or that you’re currently using) to find single-family house deals?
Well why not use them to find apartment deals?
Now I’m not suggesting that carpet bombing your local market with bandit signs is the best way to find motivated apartment sellers. But let me ask you this - when in your life have you EVER seen a bandit sign that was targeted at apartment building sellers?
Go ahead and think about that for a sec. I’ll wait.
The answer is… never, correct?
So if that ninja tactic isn’t being or hasn’t been used in your local market to find apartment sellers, how many other ninja tactics haven’t either?
You catching my drift? It’s something worth thinking about, isn’t it.
Because like the article said - now is the time to own apartment buildings. And there are owners in your market who are waiting for you to find them and buy their buildings.
So don’t disappoint them!
Holla at us
Do you have a ninja trick for finding apartment building deals? I wanna hear from you in the comments section below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.