Americans moved less last year, then past 6 decades.

Why?

It certainly wasn't due to a shortfall of inventory choices.

It certainly wasn't due to interest rates being too high.

I think it was a combination of:

1. Fear that prices would continue lower, and
   
2. Banks changing lending practices limiting buyers ability to borrow.
   

This kept buyers from buying, and those buyers that were buying a resale, affected those sellers from moving. As the market prices continued downward, causing sellers to lose equity, the choice became simple for many sellers. DON'T SELL. The difference between this year's percentage of Americans moving and previous decades is: Sellers that didn't have to sell, didn't sell. Whether they tried or not. Those that did have to sell, sold for discount and/or a loss.

The speculation is that many of the Baby Boomer population, that are empty nesters now, should be downsizing.  But because they are losing equtity, they are the ones that are deciding to hold tight and not move. Since this demographic makes a large piece of the population pie in America, this theory may be the right on point. But, I think it is just a small part of the puzzle. Because everyone will move or sell for the right price. Therefore, drilling down deeper, the true reason is buying power. Buyer's don't have power, because fewer banks are lending them money, and they are afraid prices will fall, so they sit on their hands until confidence comes back.

The normal level of people moving for the last decade has been around 13%. Which is still lower than previous decades. I feel that is due to the incredible low interest rates since Sept 11. People were comfortable in their loans, and less antsy in their homes.

But in 1951 and 1984 the level reached approximately 21%. Both followed stagnation and depressed eras. Could we see another shift of moving similar to the previous 30 year cycles? Especially, with pent up demand, low interest rates and prices that have rolled back by nearly half in many of the nation's most popular cities? Start reserving your UHauls, because I think the people are prepared to pack.

Link to MSNBC article 

Why Multi Family or Single Family?

There are several obvious reasons an investor might choose a multifamily investment over a single family investment when purchasing Residential Investment Property.

Most investors want cash flow. The price to rent ratio on multi unit buildings are much better in comparison to the single occupant property. Basically, higher gross income is achieved for a lower cost of product.

Another reason is vacancy risk. The property with more units has less risk of being 100% vacant, than if the single tenant vacates. In that scenario, the vacancy is always 100%.

If those were the only 2 things that mattered, why would anyone want to purchase a single dwelling for a rental property?

The fact of the matter is, there are plenty of other factors to consider with comparing the 2 opportunities.

Before I spell out the details, I want to give you my conclusion first. Overall, each investment has its unique features and benefits, and I suggest not choosing one over the other. Rather, a perfect portfolio of real estate would include both.

Location. The end-all, be-all of real estate. If the majority of people don't like where it is, then you will always be renting or reselling to the minority. Have fun. Both SFR and MFR are located in good and bad locations alike, however, the MFR that is located in the better locations, are more rare, likely more expensive, and defeat the purpose of cash flow, if the price to rent ratio is similar to a Single Family.

Cost. The overall cost of a MFR is higher than SFR in almost every category. Price. Down Payment. Interest Rate. Turn-over & Maintenance. All things need to be considered, when figuring your apples-to-apples return on your investment.

Tenant Quality. Typically the average multifamily unit rental rates run at or below the average rent for the market. And a single family home rents usually much higher than the average rent for the area. Therefore, your tenant is typically above the average income and more stable. And you can expect higher turnover and effectively more maintenance and repairs in the Multi Units.

Exit Strategy. Whether or not the investment earns a net income throughout your ownership, both will need to be sold for a gain, which amplifies the percentage of your return on the capital you have invested. But each investment is sold to a different party. The multifamily resale market is dominated by the investor. You will sell your product to another investor like yourself, who is interested in one thing. Making Money. So, if you ran your investment into the ground, it will reap what you've sown. However, a single family home, is resold to the emotional owner occupant. Now your investment can have vision for a family. The new buyer does not care what its previous rental income was. Only can they fit their couch under the window, and/or walk their kids to school. Your window of opportunity to sell is much broader in the single family resale arena. In most real estate cycles, the investors run 20% of the number of sales. Leaving the vast majority of buyers for the single family dwelling.

To recap what I said earlier: I do not favor one over the other. CASH FLOW is important in every investment. And in almost every case, the MFR does cash flow significantly higher than the SFR. But I think both are extremely important to hold in one's portfolio. To be heavily weighted in just one category is actually a mistake.

Put a home on Layaway?

No matter how much the government tries to help, banks are still having difficulty making loans to the average homeowner.
Eventually renters want to become buyers. And in this economy, the loan qualification task is becoming harder and harder for most renters.
The more you save, the more the bank just raised the down payment requirement. The harder you work on fixing your credit, the higher the score is needed to qualify.

A Lease Option or (Layaway) is a way to still fix a price with a seller... rent the property... and still build equity. Eventually you will need a loan. But in a couple years, lending qualifications will be more lenient. And the money you have spent on deposits and rent won't all be wasted as fees. They will now be credited toward something. Your Home!

The Economy Hit The Reset Button

Are we in the middle of just another market cycle?
Or is this a full blown reset of the current economy and the way we know it?

If the best advice is to invest in the valleys and troughs of a normal business cycle, wouldn’t you rather buy commodoties at the bottom of the biggest trough in this generation’s history?

Steve Roesch
Market Advisor
http://northpointgroup.vflyer.com/
steve@northpointgroup.com