Thursday, December 27, 2007
Because we talk so often to sellers and investors of multi-family real estate, we at Deaton tend to struggle with the plethora of national reports about the fall of the real estate market that consistently fail to distinguish the primary home market from the investment sector. Real estate, over time, remains one of the best investments a person can make. When values fall, savvy investors realize it's on sale.
One of our local newspapers recently published an article that speaks to the resiliency of the Triangle real estate market in relation to the more widespread trends. It's worth the read.
Relative to this, NuWire published a nice post about the makeup of mortgage rates.
Friday, December 14, 2007
Thursday, December 6, 2007
As we draw near the end of another year, it’s time to take a look at the state of the apartment market in the Triangle. Earlier this year it was all good news for multi-family owners. Our newsletter this spring explained that rents were up and vacancy rates were at a seven-year low. On a whole the apartment market is still very healthy but this time the market report includes a good-news, bad-news scenario.
According to the Karnes Research Report and the Triangle Apartment Association, there was an increase in vacancy during the six month period ending September 2007. The overall vacancy rate for the Triangle moved from 7.8% in March to 8.2% in September. This increase can be attributed to the tremendous supply-side pressures the market experienced as over 2,500 new units were added over the same six month period. The biggest hit was felt in Wake County, where the vacancy rate jumped from 6.8% to 8.1%.
The good news is rents are still moving up. The average net rent was up 1.7% from one year ago. The highest increase in rents was actually seen in Wake County, where rents soared upwards by 3.5% from September 2006 to September 2007. So while occupancy rates have taken a little dip, the market is still proving the ability to withstand rent growth.
The forecast for the coming months is a little dim. With almost 9,400 units either under construction or proposed and the onset of the historically weaker, winter leasing period, the next few months will surely test the market. Karnes Research is predicting vacancy to increase between .5% and 1.5% during the next six months.
However, lets not forget that our market still has tremendous job growth and with lenders and creditors tightening the purse strings, there should continue to be a steady influx of qualified renters in the market. Even if we do see a small increase in vacancies, the market will still be at a better than average level when compared to the last five years.
Wednesday, November 14, 2007
The days of buying investment properties with little or no money down are over, at least temporarily. The good news here is that the market is stabilizing itself. Investors with cash are making their way to the front of the line. In the long run this is healthy for the market. It will prevent price inflation based on excess demand (the supply of buyers and "easy money" has contracted). Furthermore, it forces investors to be smarter with leveraging decisions, take less risk and focus on the fundamentals of the market.
For those currently hunting properties, be prepared to alter your leverage strategy for the time being. And, check with your lender for the absolute latest information on loan terms and qualification requirements. The loan market remains volatile and things can change quickly. What you were told last week may not apply today.
Wednesday, October 24, 2007
Apartment management company UDR has reported 1 million visitors to its Web site through September of 2007, demonstrating that the move to the online apartment search is complete. In fact, UDR is aiming to make the process about more than simply looking for apartments. With their "always open" service code, current tenants can pay rent, request maintenance and find rent incentives.
What I find pretty intriguing is that the company to which they outsource (they may own them, I didn't delve that far) online rent payment, www.erentpayer.com, could be something the small apartment owner could use, especially in the student market, where they even by beer online.
Do you use PayPal? That could be a real easy way to accept rent payments electronically. Remember, the easier you can collect your rent the more apt you are to get it. If your tenants don't have it, they don't have it---online payment options won't make that any easier. Still, even the more loyal tenants forget when rent is due. Why not do all you can to help them out? By using Outlook, you could trigger an e-mail to distribute to all your tenants a rent reminder notice, complete with a link to your PayPal account.
I'm sure some of this is harder than simply writing about it, but remember that investing in rental property is all about collecting rent. A 10 cap isn't a 10 cap if you can't collect the rent.
Tuesday, October 9, 2007
Wednesday, October 3, 2007
Tuesday, October 2, 2007
I think saying it will make the area "mixed-use" is a stretch but the tenants should fill in quickly given the location.
A Texas apartment community is saying no to tatooed applicants.
Fair Housing says its okay and the owner isn't budging. Nevertheless, it could spark a good debate about pre-judging tenants. We've spoken to a landlord who says his best tenant was one that served hard time. Before a minor technicality in court landed the tenant in lock-up for a few months, the payments arrived on time for a number of years. Not only that, if something was broken, it would get fixed. Even during the tenant's time away, the rent was paid. After a few license plates and time off for good behavior, the tenant moved right back in.
Great new Multi-family industry Web site
This site is in only in Beta but appears to be doing everything right. Have a look at this video, which is a great, but very unfortunate, example of what property managers often go through.
Have you met Mr. Landlord?
This guy has been around a while and lot of people visit his site. In case you don't, you should. I include him here because he visited the Triangle Apartment Association recently and the man can really hold on to an audience. Not to mention a tenant. Or, resident.
Friday, September 28, 2007
A couple weeks ago Raleigh hosted an investor bus tour of CA and OR investors seeking property in the Triangle. They were organized by a real estate mentoring/consultant/conference organizer out of San Diego. This was the group's second or third visit to the area and this time, we were asked to be their agent on the ground.
Our job was to research and organize the properties to be seen on the tour and provide market insight along the way. It was our initial understanding that it would be a mix of multi-family and single-family rentals. As it turned out, we mainly viewed vacant foreclosures in more often than not, questionable neighborhoods. By questionable I mean, you were always asking, "From what direction will the bullets come?" Okay, I'm kidding. A little.
To backtrack a bit, our expectations were that we'd be spending an entire weekend (did I mention it was on a weekend?) with financially established and motivated real estate investors. Then, when the organizer told us they were looking for 10 caps, we had to re-adjust our expectations. And in that, comes our lesson: There are no 10 caps here. Well, no 10 caps that won't be 20 caps on the headache return scale, that is.
You see, once you factor in management headaches, repairs, rent loss and low appreciation, you simply won't see a 10% return. Which brings us to cap rates.
Long considered the de-facto way to measure an investment property's return, the truth is cap rates only offer a one year "snapshot" of actual financial performance. Actually, a cap rate really only offers a "day-one" snapshot, assuming the property will operate exactly how it is the day you decide to buy it. And often does that happen?
We found that the people on the tour were essentially creating "false cap rates" by starting with that 10% and working backwards to find a price point at which the property would return 10%/year. Guess what happened? The prices configured -- some actually became offers -- landed somewhere in the 45-70% below list price range. Ouch.
Now, is someone wrong to take a lowball shot at a property? Not at all. Especially given the locations and types of properties in question. Most of the properties looked at could function well in the long-term if held on to, even at list price. Even at 10% down, after a year the property would be cash-flowing and in some cases, possibly appreciating. Once a steady rental history is established and management issues worked out, many of the properties we looked at could work. But the strategy being employed was more or less, flipping. Although, as opposed to major renovations, the investors aimed at quick, affordable cosmetic fixes. New carpet, paint, shutters, landscaping. Again, spit and polish can work, but the market has to be right. And right now, it's not. In fact, it might not be at that place again.
A local investor with whom we work often tells us that real estate investing is not about timing, it's about time. As in, how long you hold on to a property. The real estate market is always up and down but in the long run, it's still always going up.
So I guess my point is to understand how your investing strategy dictates the type of property you buy. Don't try to fit a square peg in a round hole, especially when it comes to real estate investing.
Friday, August 10, 2007
We almost sold a property to buyer who said, literally, "We we're told in a class that if the numbers work and it looks okay, to just buy it." The buyer lived in another state. I didn't get the chance, but I was going to advise them to get their money back for the class.
Honestly, there are some instances when you don't need to see a property in order to buy it. For example, if, to the best of your ability, you can justify the income/expense information and it was prepared by a respected, professional management firm, then you’re off to a good start. If you've seen additional pictures and an inspection comes back with no major concerns, then sure, you'll most likely be okay to buy sight unseen. However, take a risk with a property that has some maintenance issues in a questionable sub-market, and you'll most likely come out on the other side not looking so good.
Sounds simple, doesn't it? You'd be surprised.
One of the first questions we ask out-of-state buyers is: "When does your flight get in?" If they respond with something like "Well, I'm not sure I'll be making it to town," their ranking on our Quality Buyer Barometer automatically drops a couple points.
It's not simply about seeing the property. It's also about making a serious commitment to owning property. As agents (and as sellers), the level of seriousness a potential buyer demonstrates matters tremendously. Sellers don't like to deal with people just "playing real estate investor" with their property. If they're serious about selling, they want to work with people serious about buying. Think about that.
One last point: Every out-of-state buyer we've worked with in the last six months that has come here to visit the area and see property, has invested. Those who simply call a lot and don't visit haven't spent a dime on property. What's that tell you?
There comes a time, if you’re serious about investing in real estate, when you just need to pull the trigger. Look folks, few properties are perfect. In fact, no property is perfect. Being a landlord means spending money on property. Eventually, if you make enough mistakes, one day you’ll wake up rich.
footnote: The property in the picture above was sold to an out of town buyer who came here twice. Once to see the area and narrow down some neighborhoods and the second time to close on this quadraplex.
Tuesday, August 7, 2007
So yeah, I'm shoving properties down your throat, but more importantly, take note of the fact that multi-family property follows the population. We sold a duplex in Wake Forest last month that had two offers from our Investor's Network in a matter of hours after sending it out. One came in about ten minutes.
The take away from this is that areas get hot, but in the Triangle, they're going to stay that way for quite a while. It's not like people are just going to stop moving here. Take a look around investors, opportunity is moving in every day.
Tuesday, July 24, 2007
As with many new real estate investors, I have read just about every book on real estate investing (as well as attended a few not so cheap "bootcamps".) With all of this preparation I was anxious to do my first deal. Unfortunately, the market in
As a backup, I chose to explore the Triangle area. I chose the Triangle initially for two reasons: 1. I went to Duke so I knew a little bit about the area and, more importantly, 2. the Triangle fits my definition of an emerging market.
When identifying emerging markets the most important factor I look for is job growth. With job growth comes population growth and ultimately greater housing demand. In addition to the demand side of the equation, I try to estimate the housing supply in the market. I look at factors such as vacancy rates, concessions and whether rents are rising, stable or falling. From my research the Triangle appears to have very strong job growth as well as rising rents making it a very attractive market to invest in..
While it is important to understand the macroeconomic factors affecting a market, it is equally, if not more, important to understand the nuances of the sub-markets. In my opinion, the only way to gain this knowledge is by visiting the market and working with folks like Deaton who know the market so well.
Having identified a target market, I now faced the challenge of not only doing my first deal, but now doing my first deal remotely. To overcome this barrier, I knew I had to build a team in the Triangle area. I decided the logical place to start was by identifying commercial real estate brokers. Initially, everyone I came across seemed to deal in large scale commercial properties that were well beyond my investment capacity. Enter Deaton.
I came across Deaton in an advertisement in the Triangle Business Journal. Deaton was the perfect fit for what I was looking for. Not only did they help me build a team of mortgage brokers, property managers, insurance agents, attorneys, etc., but they also shared all of their market knowledge and served as a process guide as I completed my first deal. Throughout the entire process I found Deaton to be extremely helpful, responsive, honest and hard working. I would strongly recommend them to anyone considering investing in the Triangle area.
In summary, in my opinion the Triangle is a great place to invest given the strong job growth and rising rents. If the Triangle fits your investment criteria then I would recommend:
1. Tour the market with Deaton to understand the sub-market nuances. 2. Build a team to support your deal locally. 3. Run the numbers to make sure the financials meet your investment objectives. 4. Find a deal and pull the trigger.
In our ongoing efforts with investors from other parts of the country (actually, I'm going to cease classifying buyers by locale, an investor is an investor) we often find ourselves having to explain the geographic nuances of the market. This is a hard thing to do. Unless they book a flight.
Unless they book a flight.
In fact, we have found that those investors who physically know the market, who have driven around seeing properties, are the ones who act the most intelligently when it comes time for that first purchase. Take Brad Dufour of Boston, MA, for example. We asked Brad for a few words on why he chose the Triangle for his first multi-family investment property after he purchased a quad we had listed on Spice Ridge Lane in west Raleigh. We were surprised (and grateful) by his response, which follows this post.
If you're a first time investor, read what Mr. Dufour writes above, and emulate it.
Monday, July 23, 2007
Okay, so it’s been about a month since we last posted. But hey, the old stuff has good information for review.
Anyway, you’ve heard us mention on the radio, on the phone if you call and in this blog, that job growth is good for multi-family investment property. Well, nothing has changed since the last time we said it, except that more jobs have been created.
Network Appliance, a big fish in storage out in RTP, just purchased 72 acres for facilities that will eventually provide more than 600 jobs. Additionally, an article that came out today discusses the rising office rents in the Triangle, a very good sign that more companies are re-locating here and that local tenants are expanding.
We’re feeling the impact. But not as much as we hoped. In fact, the market is a bit odd right now. It’s certainly a good time to be a landlord but local buyers seem to be taking longer to realize it. As a result, the out of state buyers, mainly consisting of the CA, NY and FL contingent, are making their move. A majority of our phone calls are from investors looking to park money from dispositions in these states in Triangle rental property. The number of national “best places to live/do business/exercise/eat barbeque/walk on a sidewalk, etc.” lists seem to be some of the best drivers of this trend, as well as Web sites that market our properties to a larger, more national audience.
Speaking of which…
Deaton was interviewed last week by NuWire Investor, a new financial advice and resources Web site and online magazine. It’s a cool site. They pulled away from the traditional stock tickers, updates and numbers-based site and push news and information about real estate, wineries, emerging markets and globalization, for example. Anyway, we were interviewed for a piece that will probably run in October about the strength of the Triangle real estate investment market. The interview may also be available for download.
Thursday, June 28, 2007
So again, when your confident in your position to invest, go ahead and invest. Before someone else does.
You know that guy, everyone knows someone like that, someone who just can’t pull the trigger on anything. He thinks about it, over analyzes it, but can’t get out of his own way long enough to do it. He suffers from Paralysis of Analysis. We struggle watching that person knowing that no matter how much we help he’ll never do anything. Maybe this is what Phil Knight, CEO of Nike was thinking when he brought us the great “Just do It” campaign. He knew that guy too, and wanted to give him a little encouragement … if not a swift kick.
Investment is action. You are taking action today making the most informed decision you can, in an effort to get a greater return tomorrow. We see this every single day, people making smart decisions and taking action on those decisions. What do they know that everyone else doesn’t? Nothing. They chose to take action. If you are currently an owner of a property you have already chosen to act once. Was it scary? Or was it one of the better decisions you’ve made? Do you wish you could buy more? Did you buy more? If it was someone’s first property then maybe they realized that they would learn far more by owning a property than they ever would from a book with a pretty cover. Put down the latte, get out of the book shop, and get out into the market.
Investment is about the time value of money. Real estate today is, comparatively, cheaper than it ever will be in the future because the present day dollar is stronger than the future dollar. Have you ever driven by a home, or a property, and thought “If only I had bought that home then when it was worth $, its worth $$$ now and that’s so much.” Guess what, that home that was worth $, and now is worth $$$, is probably going to be worth $$$$$ down the road. It’s still cheaper now, than it will be then.
There are few other niches in which you can use your “Sweat equity” to build long term wealth, and additional income streams. Let’s put this in real sweat equity terms. You purchase a duplex for $200,000. You put down 10%, or $20,000, and finance it for 30 years. Let’s say that you run it revenue neutral for the life of the property, you never make anything but your mortgage payment is covered and all repairs to the property are covered by the rent you receive. Assuming zero appreciation on that home, in 30 years you will have a property worth $200,000 paid for with $20,000, and a little sweat equity. I’ll take it. Now lets assume your $200,000 duplex is paid for and the $2,500 a month coming in from rents is all yours to play with. When your financial planner asks you the famous question “When you retire, from where will your next check come?” Give him the address of your duplex.
Now, how many duplex incomes do you need to retire and how soon could you get there?
Working in real estate on a daily basis, and seeing all that I do, the best piece of advice I can possibly give is: Act.
Monday, June 25, 2007
Saturday, June 23, 2007
We have said it before and we will say it again, "rents are going up." While the forecast has been positive for investors in the Triangle area over the past year, the numbers suggest the rental market has actually begun to emerge from its slump. This isn't some claim that everyone is getting rich quick; after all, investing in apartments will always be a long-term game. However, in your average neighborhoods, rents that were in the mid $600's just a few months ago are now turning over for tenants willing to pay $700/month.
This income increase can be attributed to the declining vacancy rates that have fallen below 8%. In fact, a local owner-operator we work closely with sent over 100 rent increase letters out to his tenants last month once he realized he had less than 1% vacancy in over 800 units. Not only are vacancies going down and rents going up but this movement is coming with a higher caliber tenant wanting (or needing) to rent.
With mortgage rates gradually climbing and even spiking over the last few weeks, people who were qualified to buy homes just six months ago are now being forced to rent just a little bit longer. This means higher income families are renting and the overall supply of renters in the area is increasing. We all know the law of supply and demand in a free marketplace and right now it is playing into the hands of investors. Who said you never use what you learned in school.
Don't believe us? Well, you might take some direction from Crosland, one the areas largest developers who planned to break ground on a downtown condo project in the coming months. However, just last week they announced they were refunding over 80 deposits and shifting the project to high-end apartments. So, if you have been thinking about investing in multi-family, you might want to think hard about jumping in now.
Wednesday, June 6, 2007
At a recent apartment market economic conference presented by the Triangle Apartment Association, a financial professional with Wharton, Gladden & Co. LLC. said that many investment professionals now consider real estate one of the four main investment assets that every healthy investment portfolio should include. The others are stocks, bonds and commodities.
At Deaton, we've always discussed the commoditization of real estate. In other words, how can we get people to consider real estate as a "must have" in a portfolio? Do we start with the financial professionals who advise personal investment strategies? Or, with so many people overseeing their own financial futures these days, focus on the individual investor? We certainly don't believe you should place all your money in real estate. After all, if there is one common denominator among all investment strategies, it's the concept of diversity. High risk. Low risk. Domestic stocks. Foreign stocks. IRAs. On and on.
When valuing real estate as an investment, remember to compare it to other investments. For example, if you have $10k burning a hole in your pocket and you're thinking about a CD, for example, that will return 5%/year. Then, someone from a local multi-family property brokerage (ahem!) reminds you that 10k can be leveraged into an available rental property. So, you "run the numbers" (we don't like that term all that much) and see that on the surface, the property will also return 5%. After factoring in management, collecting rents, etc., you decide the CD is a better option.
I would encourage you to look again.
Let's talk about real return for a moment: Are you considering the debt reduction on the property as return? You should. How about annual depreciation? Or better yet, the rental income? And, best of all, you also get to factor in the property's appreciation over a number of years.
Remember too, that there are several ways to analyze a real estate investment, and not everyone's method will return the same level of performance. Find one that works for you and stick with it. Remember that real estate valuation is not a math problem.
Now back to your CD: How is it keeping up with inflation? Oh, and those pesky taxes will cost you as well. Any fees involved in buying it? For how long will it work for you?
So, any other thoughts on how to best invest $10,000?
In summation, even though we are in no way certified financial planners, we always encourage clients to use real estate as one component of a diverse, long-term investment strategy. What are you doing about your future?
Thursday, May 17, 2007
Wednesday, May 16, 2007
Ah, the Blogger’s downfall: infrequent posting. At least I can say it was because I was too busy working and not too busy blogging to work. But I digress.
The Karnes Report is out. This is considered the de-facto source for real estate data in the Triangle, published quarterly by a local research firm. Guess what their name is? Anyway, things look solid for our region’s multi-family investment market. Here are some figures to note:
- The Raleigh-Cary and Durham MSA added 14,645 jobs per year over the seven-year period ending March 2007.
- A total of 4,429 units were under construction in the Triangle as of March 2007 and 539 units were completed over the last six months. Cary/Morrisville/Apex (CMA) reported the most activity.
- At 7.8%, the Triangle’s vacancy rate decreased from the 8.3% reported in September 2006.
- The current vacancy rate (see above) is the lowest reported since March of 1999, when it was 7.3%.
- Average weighted rents increased 1.0% over the past 12 months. The average two-bedroom apartment in the Triangle (the most common unit type), experienced a 1.6% increase in base rents.
As I stated in an earlier post, we’re starting to see rents increase. Is this a good thing? Certainly. Can it be bad? Sort of. The problem on the front end of trends like this is that some investors are eager to jump into a property, crank up rents $100/month and wait for the phone to ring. Well, they’ll be waiting a while.
It’s important to let the market do its job. If landlords wait for rents to have a real legitimacy behind their increase, it’s going to create a more balanced market. And remember, this takes time. It took about five years for the Triangle-area to lead itself off the rent plateau and the last thing we need is over-eager apartment buyers jumping blindly into the abyss of rent-increase hysteria. We’ve seen it. It’s not pretty.
I guess my point is that when buying your next apartment property, keep abreast of these over-arching market trends but don’t react to them right away. Let the market drive your decisions because in the long run, that discipline will help you better predict market fluctuations and ultimately, be a more prepared and better educated investor.
Tuesday, May 8, 2007
If you've lived in the Triangle for a while, the growth here is hardly news. I mean, isn't that what brought you here? To bolster the article's thesis, an impromptu survey at a recent Wake County Apartment Association meeting indicated that the fair majority of apartment property owners in attendance had raised rents in the last 90 days. And these aren't the Class A, multiple-amenity institutional guys either---these are the independent owner/operators.
The article states that last year, investors paid a total of $1.1 million for area apartment properties---a Triangle record. Sort of. The actual number is $1.1 billion. Sure, it's a pretty meaningless typo. But the weight that figure carries---$1.1 billion---is pretty meaningful. With more than 10,000 total units planned and currently underway, institutional dollars will certainly continue to keep an eye on the region. So who knows, that record could be in jeopardy come 2008.
Thursday, May 3, 2007
Deaton Investment Real Estate has always made an effort to serve the individual multi-family property investor in as many ways as possible. From our newsletter (which is still snail-mailed, by the way) to our new listing postcards to the Investor's Network, our aim to is provide several doors into the world of selling and investing in apartment properties.
Obviously, we're in this to help our business. Truthfully though, it helps our customers, too. We're proud of the fact that what we offer, ultimately, is a way for people to make more money through real estate. We're brokers, middlemen if you will, that serve a unique niche in the multi-family sector. If you've worked with us, you know we're not a typical real estate company. We don't over-sell and we don't personalize license plates--it is what it is at Deaton. We hope this blog is just another way for you to learn that about us and to learn about investing in multi-family property.
Expect posts on topics ranging from market trends, answers to questions we get on the phone each day, market news, pointers, tips, advice and general company announcements. While many of these may be posted by me (Craig Rowe, marketing guy) understand that all of the information is team-generated and authentic--we won't get overly promotional on you.
Then without further adieu, we welcome you, the experienced or aspiring individual multi-family investor, to the world of Deaton Investment Real Estate.