Portland's apartment market.

It may not be a fun market to be a renter. It also may not be a profitable market to be developing apartments. But if you are a landlord in this market experiencing cash flow, then you are enjoying less vacancies, less turnovers and rent increases.

Good, bad in Portland apartment market http://www.bizjournals.com/portland/morning_call/2011/03/apartment-market-is-...

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.

Should you utter the words Phoenix with Investment yet?

I believe it is time.
Couple of key indicators are pointing the needle back to Phoenix.
It's been a long time since the red hot investor needle was pointing to the desert.

So, what is it that has changed?

1. Builders have virtually stopped building. Limiting the increase in supply.
2. Inventory is shrinking. Sales are up 60% Nov-Dec 08 and 135% 07-08
3. Population is still increasing faster than national rates. 2.5% projection vs 1% US
4. Still plenty of jobs to hold in the population. Only 6.3% unemployment. US 7.2%
5. Affordability of homes. Median prices come down, renters gravitate toward buying.
6. Investor levels are rising. No one wants to be the first and be wrong.
But if you wait too long, you are the last and hold all the regret.

Not only have builders stopped building, many have gone out of business. Those that are still in the game, have lost the large credit lines that allowed them to stretch their reach from 100 homes per year, to 1000 homes per year. This will keep the new housing inventory to a level of normalcy. Also, the population projections appear to be lower than the previous decade. Builders get overzealous with building permits when population expectations are above 3% growth rate.

Housing monthly inventory index is shrinking. Part of it has to do with the builders not building. But that seems to be offset by the massive foreclosures that are piling up. What is changing is the buyers are buying again. Prices have reached affordable levels that have made home buying attractive again. The question of rent vs buy now is being answered with BUY!

The actual number of houses on the market is fluctuating at 45,000 to 48,000. Which is not a low number. How the monthly index is determined, is by the amount of buyers entering the market each month. Stats are showing sales keep increasing. In Phoenix the monthly index has been slowly dropping and now is at a 10 month supply. In many markets around the country, the montly supply index has simply been increasing all year and the national average is now over 11 months supply.

Prices have been pounded in Phoenix, and there will be more foreclosures, which will keep these prices low. Investors have taken notice. The rate of investors in the market this month is 15%. A number Phoenix hasn't seen since 2005. Investors were part of the problem for the Phoenix decline, but mostly speculative investors. Combined with over-building, and a sub prime lending spree. This time investors are looking at an attractive 1% price to rent ratio. Cash flow is the difference. Let's face it. Rent doesn't change that drastically in 3 years. But prices in Phoenix have been a roller coaster. They have now rolled back to roughly half of their peak.

Properties like this example are available:
Avondale, West Valley Suburb.
Master Plan Community
Homes all built post 2000
Variety of home prices ranging from $120k-$400k
2005 levels, homes were minimum $200's
One bank owned REO cuts the $99,000 mark.
3 bedrooms, 2 baths, tile floors, covered patio.
Rent estimates $900-$1000

1% Price to Rent Ratio = Cash Flow

Since, today's investors are less speculative, and more cashflowcentric, then this is a healthy addition to the reason Phoenix could be on the road to recovery sooner than later.

Some of the markets that were first to bust, are going to be the first to recover.
Phoenix will be one of those markets, the signs are already pointing in the right direction.

The solution to your real estate problem.

Here's a chronology that we are all too familiar with:

1. You bought real estate and it went up in value
2. You found a renter that covered your expenses
3. Time goes by, things are smooth, but your rate went up
4. You begin the pain of negative cash flow, but you live with it
5. You want to refi and you discover you CAN'T because you lost value!
6. Your tenant just informs you that they are moving out
7. You want to sell and cut your losses

Daily I run into this problem with random clients, my past clients, or even myself.

I don't blame people that want to sell. It's in our human nature to flight to safety.
If you put in a down payment, you want to get some of it back before it's too late, right?
Holding on to an investment that everyone says will just keep going down in value, with no exit strategy is just insane. Everyone wants their strategy to be, "buy low and sell high." But if you bought in the last 5 years, and want to sell 2008 or 2009...You are doing exactly the opposite.

So, if you take a look back at an investment and realize you bought high. SELL HIGHER! Don't sell low.

Didn't I say I had a solution?

The solution lies in holding on to the asset, gaining more income, but at the same time, putting the actual plan of selling into action.

The Lease Option.

What is it?
A renter that pays a premium rent with the intent to purchase your home.

Why does this work?

1. Lease-Option Tenant pays more rent. This lessens your cash flow problem. In some Lease Option agreements, the rent is increased by a much higher level, and that rent is given back to the tenant in the form of price reduction, or down payment, or closing costs. Whichever is the norm in that market.
2. Avoids Vacancy. Whenever you sell, it should be vacant. Buyer's do not enjoy looking at homes that are tenant occupied. And in today's market, it will take a lot longer to find a buyer than a renter. But a Lease Option Tenant will live in the unit until they buy it. No sell vacancy period.
3. Sells the property at future value, not today's loss. Tenant will sign up to buy the property at the value you want today, but not until tomorrow.
4. Reduce Realtor Fees. This is almost a guarantee in every market. You can do this yourself, if you have the time to find a renter. You just make an amendment to your rental agreement. Most Property Management companies can do this as well. They will charge extra, but it's heck of a lot cheaper than 2 Realtor commissions.

The pickle that most people are in, where this solution may not work for, are the ones where the loan has gotten out of control. Rate is adjusting 2pts every time, or the loan has a balance due, or the Neg Am is at recast (if you don't know what this is... good :-))

If you fall into this category, a loan modification can solve that problem for some people.

If you are facing $400 negative output every month on your investment property, all you have to do is Lease Option for $200 more than your current rent, and Loan Modification for $200 off your current payment.

Now you are breaking even again. I am not going to tell you that it is easy. But losing $50,000 is not easy to swallow, either.

Leased for 2 years, Positive Cash Flow

5101 Powell, Blue Springs, MO

$165,900
2 year renter until Nov 2010
$1300 per month
$183 Positive per month
12 Miles to Downtown
1 mile to Bass Pro, Independence Mall, Costco, Lowes
1 Block to Blue Springs Lake
Schools, 8,9 and 10 out of 10 http://www.greatshools.net/

WHY BLUE SPRINGS?
12% population growth, (2x the national average)
Population 53000 people
Household Income $74,000 year
Median price home $174,000 (Affordable)
19% job growth projected next 10 years (Sperling Best Places)

Why Kansas City?

1. 2.5 million people
2. Income is 20% higher, and cost of living 20% lower than both national averages
3. Diverse economy. Federal (IRS, Reserve, Leavonworth) Tech, (Garmin, DST, Cerner), Telecom (Sprint, Verizon), Manufacturing (Hallmark, GM FORD HARLEY), Finance (HR BLOCK, American New Century), Logistics (YRC, BNSF and KC Southern Intermodals)
4. 17 Fortune 1000
5. 48% renter occ, and of those 75% renters live in units 25 years or older. (demand for new housing)
6. 75% of builders build less than 100 homes per year. (no mega developing, or major national builder presence)
7. Positive net migration of 1.2% per year past 10 years.
8. Job growth expected to reach 3% per year in 3 years
9. 4 billion invested in downtown econ, and total of 7 billion including the metro area
10. Great quality of life amenities and high end retail not seen an many other Midwest cities from Dallas to Chicago.
11. 6^th smartest city by Kiplingers. And 2^nd highest college grads in Midwest behind Chicago.

New Construction, Bank Owned and Financed at low down

Total Down at closing = $2,000
$175,000 Price. Appraised $195,000.
Originally priced well above $200,000
Builder could not sell in time before the bank took them back. Now the bank wants to finance for you, Owner or Investor, for $2000 down.

Located on a quiet street in Atlanta Metro, Georgia.
These are big 2000+ square feet, 5 bedroom, 3 bath houses.
Complete move in ready, blinds, fridge, landscaping.
If you want to rent it out, or rent it, the market rent is $1200.
2 Homes just like this are rented for $1200 in the neighborhood.
The Mortgage payment will be $948 for the next 3 years.

If you live in Atlanta, you know about the wonderful reasons to live there.
Which is why over 1 million people have moved there in the last 7 years.
The most growth for any city in the US during the same time.

Foreclosures without the headache

$128,000 priced
You Pay = $98,000 = Discount


Down = $2,000 = Low Down
Rented = $1,000 = Cash Flow
1 Yr Lease = Removes Vacancy Factor
Remodeled = No Additional Capital Needed

Finance 75% of original price and only put $2000 down.
The remainder is your discount on the house. 24% discount!!!

Rented $1000 per month until Jan 31, 2010.
Positive Cash Flow by $83-$163 per month after all expenses and management fees

Since its rented for the first year, which means no vacancy, then $163 x 12 is $1956
That’s the down payment back right there, returned in 1 year

6831 Collier
4 bedrooms
Remodeled
Close in Atlanta, 15 min. to downtown
1 mile to Walmart-Publix-RiteAid-Hollywood Video-Riverdale Plaza
Already Rented.

Atlanta Top 10
1. Georgia gains the 4^th most population in 2008. US Census.
2. Atlanta adds 1 million people in the last 7 years. Highest Growth in the US.
3. Atlanta is home to the world’s busiest airport,
4. 22 of the Fortune 1000 HQ. 5^th highest concentration of the Fortune 500
5. One of the most preferred cities to open or expand corporations by CEOs
6. Huge Rental Demand. Nearly 50% of residents are renters.
7. HQ for many mega-corporations like: CNN, Coca-Cola, UPS, Home Depot, Delta, Turner, COX and more.
8. Lots of Government jobs including, GA State Capital, Military Bases, Federal Reserve Bank, and the CDC (center for disease control)
9. Home to 5.1 Million people
10. Attractions for all, such as: NFL Falcons and Major League Baseball Braves, SIX Flags Amusement Park, Nascar at
Atlanta Speedway, and the Nations Largest Aquarium

Click to Enlarge the Cash Flow Analysis.

Low Risk Foreclosures for $7,000

Let's talk foreclosures...

What's on your foreclosure wish list?

1. Deep Discounts
2. I don't want to buy bulk
3. Built in Quality Tenants with Cash Flow
4. No Surprise Liens
5. No Repairs Needed
6. And I want the ability to use financing for leverage

The majority of foreclosures usually come with a discount. But you're lucky to get one other item off the wish list. And, the deepest discounts are usually found if you buy in bulk.

Everybody wants to get a deal.
But if you have to go Deep into your pocket, to get a Deep discount, it's not much of a Deal.

Let me show you how you can acheive your foreclosure wish list and still have a Great Deal.

Example:
Foreclosed Duplex
Wholesaler Acquires in Bulk for Deep Discount
Title Cleaned, Property Rehabbed, Professionally Placed Tenants.

$130,000 appraisal

Numbers of the Deal:

$104,000 Price and Only $7,000 Down
$1150 Rent Per month, Total for both sides
$165 ++Cash Flow per mo. after all necessary expenses and foreseen maintenance

$7,000 is the total cash investment for Down Payment, repairs, lease up expenses, start up vacancy, etc
$97,000 is the loan with 30 year fix loan at 6% rate (rates change daily, not guaranteed)

Where are these Deals located?

We have similar programs like this in several markets across the US.

This duplex is located in the Atlanta Metro. Specifically, Covington GA, just 30 minutes East of downtown Atlanta.

Atlanta Accolades

One of the highest ranked cities for jobs and population growth in the country
over the last decade.
Huge Rental Demand. Nearly 50% of residents are
renters.
Home to the World's Busiest Airport and HQ for many
mega-corporations like: CNN, Coca-Cola, UPS, Home Depot, Delta, and more. About
27 of Fortune 1000 are HQ here.
Lots of Government jobs including, GA State
Capital, Military Bases, Federal Reserve Bank, and the CDC (center for disease
control)
Home to 5.1 Million people, and attractions for all, such as: NFL
Falcons and Major League Baseball Braves, SIX Flags Amusement Park, Nascar at
Atlanta Speedway, and the Nations Largest Aquarium.

Call me for more Markets and Deals, or Follow the Blog

Jacksonville, Florida. Great Investments.

Jacksonville appears to have suffered less real estate pricing volatility than most Florida markets. The pricing correction has appeared to slow down in its decline, and many submarkets have actually seen small month over month increases. (study by DataQuick 12/08)

Would I say buy? Yes, But, Buy at a discount!

Reasons Jacksonville is different than other markets:

1. Diverse Economy= Government, Military, Distribution, SeaPort, Financial, Manufacturing, Retail Headquarters, Medical and Telecom


2. 7 of the Forbes 1000 are Headquartered in city of Jacksonville. 2nd most in Florida behind Miami


3. 3rd most population growth in Florida from 2006-2007. Above Tampa, Orlando, and Fort Myers.


4. #8 Best Place for Real Estate Bargains. Forbes Magazine 2008


5. #3 Best City in US for Jobs. Forbes Magazine 2007


6. 9.5% Population Growth 2000-2007

Here are some statistical demographics on the area:

1. 12th Largest city in the US. 805,000. 1.5 million in the MSA


2. Median Home Price $175,000


3. Median Household Income $50,000


4. JaxPort (international foreign trade zone) supports 43,000 jobs


5. US Navy supports 35,000


6. Home of Fidelity Nationa Financial Headquarters


7. Home to PGA Tour Headquarters


8. Home to NFL Franchise -- Jaguars


9. Hosted 2005 NFL Superbowl

Many cities of similar size are not considered for an NFL Franchise, let alone considered sufficient to support a Superbowl.

Jacksonville has an economy strong enough to support and attract amenities that some major markets cannot.

Its location on the coast increases the quality of life component, with less fear of the hurricane factor. Jacksonville waters are a cooler temperature than the rest of Florida, and it is located North of the Gulf Stream. No hurricane has come close since approximately 1964, therefore the insurance rates are lower, making this a better cash flow investment than other cities in Fl.

Where to buy in Jacksonville:

• West of the city. East is pricier because it's coastal. The median income is a tad low for the median home prices. To buy conservative, you want to invest where it is most affordable for the majority of home buyers.


• Near the 295 Loop. Most of the jobs are downtown and at the Ports. JaxPort has 3 major locations and the Naval Bases have two. Commute to all 3 job sectors is best near this major arterial freeway.

Property Profile:

Remodeled Foreclosures, allow you to purchase at discount, without the headache of repairs, extra liens on title, and large capital investments. Companies, NorthPoint, can help find the safest investment, complete with improvements and with tenants already in place.

Be ahead of the curve.

Steve@NorthPointGroup.com
503-213-3550
rushsteve1 @ skype
http://www.linkedin.com/in/steveroesch