Need some inspiration?

Need some fresh ideas for operating and marketing your properties? Want to recapture some of the passion for your career? You may want to consider registering for Toni Blake's upcoming presentation on January 20, 2009, with dinner sponsored by the Triangle Apartment Association. Toni Blake is an international speaker, author and comedienne. Having invested more than 28 years of her life in multifamily housing, she tours over 50 cities each year inspiring thousands of industry professionals. This promises to be an exciting, entertaining and rejuvenating event.

"Good Year" will be a relative term in 2009

The December issue of Multi-Housing News features a ranking of metro areas with the best apartment market conditions as we limp into 2009. At number six on the list is Raleigh, behind Washington, D.C., Denver, Minneapolis, Fort Worth and San Francisco. The statistics, provided by M/PF Yieldstar, are not predicting a banner year in the Triangle, but they suggest that Raleigh is an area that will weather the economic storm better than most. "Flat is pretty darn good this year-that can put a metro area in the top tier of all U.S. markets," according to Greg Willet of the Yieldstar research firm. Despite job losses and a growing shadow market, vacancies in the Triangle are expected to increase by less than one percent.

Raleigh's Growth Plan

The City of Raleigh recently released it's latest comprehensive growth and development plan through the year 2030. You can view a copy of the plan at the City Website. Or for those with no patience, (like me) you can go straight to the executive summary. Additionally, the City will be hosting several briefings and informational sessions for the public to ask questions and comment on the plan. It's not often you have the opportunity to impact your City's development first hand, seize the opportunity.

Class, today we learn a new word, "Re-Default"

Those in the mortgage business are becoming familiar with this word. In a report released today by the Office of The Comptroller of the Currency, more than half of the mortgages that were modified at the beginning of 2008 fell back into default within six months. That's right, more than half of the people who had their mortgages adjusted to make them more 'affordable' are now in re-default, meaning they are more than 30 days behind on payments.

“After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent,” the Comptroller said in remarks at the Office of Thrift Supervision’s National Housing Forum today. These borrowers might have had their interest rates lowered, principal balances reduced, or a number of other measures taken to lower their payments, but these efforts seem to have delayed the inevitable. Read the full release and see for yourself.

Back to the drawing board?

More market information...

Our good lender friend, Rich Paravella with Equity Services, sent us a general update about things in his world and granted us permission to share it with the rest of the world. Take it away Rich...

"Here's a brief update of what's going on. I've attached 2 articles, but will sum it up here for you:

Interest rates have come down recently - but mainly for borrowers with strong credit, good equity, and documentable income. Credit standards have tightened, which has made it more expensive - often prohibitively so - for many individuals to get a loan. Generally, individuals need a credit score of 620 to qualify for a loan, but they have to pay a fee equivalent to about
2.75 percent of the loan amount, which can translate into a rate of about 1
percentage point higher than the best rate available. For borrowers on
the fringe - low credit score, erratic documentation, high debt loads, et cetera - it may be possible, but that financing may be cost prohibitive in those cases.

Also, there is speculation about the gov't in effect, subsidizing interest rates at 4.5%. This is NOT official, rather just a talking point at present. If something like this occurs, it would likely be for Owner Occupied Purchases only - Not refi's.


http://www.nytimes.com/2008/12/04/business/04refi.html?ref=yourmoney

http://online.wsj.com/article/SB122833771718976731.html

November market report

Well, things aren't much different than last month. The lights are still on and people are still investing in apartments. Just not as many.

Oddly enough, we set a record for quickest close in November. An Investor Network member who recognized a property close to others he currently owns, closed 2510 New Hope Church, a duplex, in less than a week from its initial announcement to the network.

In any market, it's not at all typical to get a property purchased in that sort of time frame, especially if going through the traditional channels. Not only are down payment requirements changing dramatically, but the entire loan process is under severe scrutiny, challenging closing dates, documentation, financial history and above all, patience. Nevertheless, there are reasons we are at this point and today's activity is a natural result. The market is recycling itself. And like an aircraft carrier, it takes a long time to turn around.

Everyone wants to know where the bottom is. We like to say the bottom is well, at the bottom. It doesn't matter where really and if this economy has demonstrated anything, it's that there is no concrete number, predictable activity or economic buoy that will signal the turning point. All that we should focus on now is weathering the storm by making careful decisions based on the squalls that lie ahead. There should be plenty more to tackle come 2009.

Deaton sales this month

2336 Lyon Street (outside listing) - Inside the Beltline Single-Family rental
List: $334,900 / Sold: $313,000
Total rent: vacant

2511 Stadium - Durham Duplex
List: $128,000 / Sold: $118,335
Total rent: $675

4405 Brockton - Mini-City area quadraplex
List: $285,000 / Sold: $285,000
Total rent: $1,600

203 S. Walker - Brick quad in Downtown Cary
List: $285,000 / Sold: $250,000
Total rent: $2,805

2510 New Hope Church - Well-maintained Duplex near Brentwood
List: $154,000 / Sold: $145,000
Total rent: $525

Regional Multi-family Sales this month

410 N. Guthrie Street - Durham Duplex
List: $17,500 / Sold: $16,000
Reported total rent: not reported*

327 Ridgecrest Road - Cary Triplex
List: $155,000 / Sold: $179,431
Reported total rent: $555

139 Rollins Acres Lane - Lillington Duplex
List: $39,900 / Sold: $36,000
Reported total rent: vacant

630 Middle Street - Durham Quadraplex
List: $124,400 / Sold: $110,000
Reported total rent: $1,800

100 W. T. - Selma Quadraplex
List: $219,900 / Sold: $205,000
Reported total rent: not reported

626 Middle Street - Durham Duplex
List: $14,900 / Sold: $14,000
Reported total rent: not reported

1916 Tischer Road - Raleigh Quadraplex
List: $238,000 / Sold: $228,000
Reported total rent: not reported

103 S. Maple Street - Durham Duplex
List: $19,900 / Sold: $17,000
Reported total rent: not reported

2211 S. Roxboro Street - Durham Duplex
List: $87,500 / Sold: $85,000
Reported total rent: not reported

500 Cascade Avenue - Eight units in Rocky Mount - forclosure
List: $179,000 / Sold: $150,000
Reported total rent: not reported

1702 Gunter Street - Durham Duplex
List: $34,900 / Sold: $25,000
Reported total rent: not reported

2000 Southgate Street - Durham Duplex
List: $49,900 / Sold: $37,500
Reported total rent: not reported

* Deaton does not confirm rents. They are reported by the listing agent

Simplifying the Application Process

TransUnion has launched a new online tool for renters and landlords to make the application and screening process more efficient, less intimidating and more thorough. The tool, cleverly named "SmartMove" allows applicants to apply online without the need to provide their social security number. The system essentially creates an online database of tenants that can grant access to landlords that want to review their credit and criminal history. Sounds like a tool that makes things easier for everyone. For more information visit MySmartMove.com.

More denial?

According to the Commercial Investment Real Estate magazine... "It'll be heaven in 2011" was one predictions made at September's Multi-Housing World Conference. Demographic shifts will boost the rental market in a couple of years, experts predicted. On the investment side, now is the time to buy, although steer clear of suburban luxury housing and condo development. Student housing and workforce housing are hot areas, particularly in urban areas, said Rob Brock, president and CEO of Pierce-Eislen. B and C properties in A markets are another good buy, said Keith Rosenthal, president of Phoenix Realty Group, who suggested purchasing at a discount to replace the cost of over-leveraging. But lenders are looking into investors' net worth and questioning the veracity of obtaining projected rents. "You've got to have a real substantiated story for value-adds," says David Carlson, managing partner at Redwood Capital Partners.

The above copy was originally published in the Nov.Dec 2008 of Commercial Investment Real Estate, written by managing editor Sara Drummond.

Sheriff Fighting Evictions

Banks foreclosing on properties in the Cook County area of Illinois are running into opposition when trying to evict renters that may be occupying these properties. The Sheriff of Cook County is refusing to evict renters living in bank owned properties. The Sheriff states that it is unfair to kick people on the streets just because the property owner/landlord didn't pay their mortage. For more on this story - Eviction Protection
The Sheriff is still performing evictions for non-payment of rent.

Nine Lives Lease Clause

To heck with eviction, we'll use cats. Dead ones.

We often try to offer suggestions for landlords on how to deal with difficult tenants. But a landlord in NYC is taking things to a whole new level. Not knowing the whole story here makes it worthless for me to say these tenants were being difficult, so the best assumption was that the landlord wanted the rent controlled tenants gone so he can jack the prices. It's common in NYC.

I don't think he made his life any easier. Smellier, sure, but not easier.

Great foreclosure deals

The Wall Street Journal has highlighted some real bargains in the foreclosure sector. If you have the cash, now is the time.

Tax Strategies are your friend

If you did not attend the most recent Wake County Apartment Association meeting then you missed an ideal opportunity to learn about some key tax strategies from Kevin Bassett of Bassett & Associates.

Now you have another chance.

Kevin, who offers many tax seminars, will be offering his Pre-Emptive Tax Strategies Workshop next week:

Thursday and Friday, September 25 - 26, 2008 ~ 8:30am - 5pm
Saturday, September 27, 2008 ~ 9am - 12pm

Embassy Suites Hotel
201 North Harrison Avenue Cary, NC

You can find more information on his Web site. We can't recommend enough the importance of understanding the tax benefits and strategies in regard to investment real estate. And Kevin Bassett is one of the best sources for it in the Southeast. Talk about money well spent.

Fannie, Freddie and Sallie

Sallie doesn't have anything to do with this but I remember with severe disdain when my first student loan bill showed up in the mail with a Sallie Mae logo emblazoned on the return address. I was living on proceeds from recyclable beer can deposits and all forms of sustenance sold in a box by General Mills and lo and behold, some entity with a weird name like my mom's wants $250/month for the next ten years.

Can you say, "forbearance?"

Here I am twelve or so years later, out from under Sallie's thumb but unfortunately, being stomped upon by her older, obviously more disgruntled siblings. So, what do they have to do with what I do now? This, I guess.

Making a healthy market

Economic naysayers around the Triangle rest a lot of their argument on the notion that the Triangle is often the last area to feel an economic meltdown and the first to climb out of it. Well, maybe they're right. To an extent, anyway.

It seems that money continues to flow into the market for new jobs and economic development, which is the core driver of multi-family property. The small multi-family market is holding steady, from a rent and occupancy numbers perspective. Class A, institutional-grade developments are also doing pretty well, despite the prospect of over-building.

But let's not get nuts. People are hurting. Lending has fallen off a cliff (probably the one they built with the mountain of documentation they now require), creating headaches for even qualified buyers. Right now, the best match for a sale is a motivated seller and a cash-heavy buyer. And that's not a real compatible pair.

Hold tight, folks.

But we can't get anyone to blink at our North Raleigh duplexes

RING! RING!

"Deaton Investment Real Estate, this is Craig."

"Hey Craig, Everyday Investor here. I have some questions about the duplex at 1060 Fifth Avenue."

"Okay, how can I help you."

"How do you get the numbers to work?"

"It's a buy and hold."

-CLICK-

Quick! Positive news, read it before it gets buried!

Okay, so maybe I'm being a bit cynical with that title. Things are pretty rough out there. This is good to hear, nonetheless.

Economy grows in 2nd Quarter.

Like I said...

I had an agent call me today with questions about a listing that has a couple of PROP strikes. Her question was: "What is a PROP strike?"

Once again, the City has done nothing to communicate to real estate agents about the PROP, nor it's importance as a disclosure issue. And, this agent worked with a very reputable firm that has long been associated with Raleigh.

On a related note, there is now precedent set for PROP strikes being dismissed after a sale. Boy, that was a tough issue to prove senseless. At least we have that going for us.

Drive-by!!

I received some feedback from another real estate agent via the MLS on a duplex we have for sale in East Raleigh. It wasn't positive, and had more to do with the neighborhood than the property itself, which is decent. However, the agent could have avoided the experience by doing the first, most essential step when considering an investment property: drive by the property before taking time to schedule an actual showing.

Even after 27 years of listing and selling investment property, Mr. Deaton still drives by a property before he considers listing it or investing. However, we have a very hard time communicating this to other agents. Granted, it's not a typical practice in the residential world of cul-de-sacs and restrictive covenants so I can understand if an agent's first inclination is not to get in the car and swing by. Nevertheless, we ask the following question of every agent (and of our own buyers) who calls with some initial questions: "Have you or your buyer driven by the property yet?"

In the particular case in question, the agent and his buyer could have avoided the "verbal assault" and intimidation of a neighbor who aimlessly prattles from his porch step, quite loudly, at what appears to be all hours of the day. On the two occasions I've witnessed the sermon, it was more fire and brimstone than love thy neighbor.

The property teeters on the edge of the city's redevelopment efforts and demonstrates very good long-term potential. In front of it, are attractive, newly-built, city-sold homes on the eastern edge of Oakwood. Just behind this duplex, quite literally, from what I was told by two very credible area property owners and the duplex's tenant, one of the most dangerous streets in the city.

Had the agent or his buyer simply driven by the property the day before, these facts would have become readily apparent. Sort of like a horse kicking you in the chest, these facets of the neighborhood would be hard to not notice. However, and unfortunately, the agent wasted his time and his buyer's. Even more unfortunately, we see it all the time and often find ourselves having to convince some agents why it's important to do so.

Driving by a property also communicates to us the seriousness of a buyer. Are you willing to do some homework before stepping inside? We often couple this precursor to showings by asking buyers if they have met with a lender in regard to their financial wherewithal. In today's market, that is more important than ever.

In the end, a little dedication up front really saves everyone time and creates good real estate investing habits.

(btw - that car up there? Buick GSX. Lesser known, but one of the most high-performance muscle cars ever-built. My father owned several and one just like that in the Saturn Yellow. That's a car.)

Feedback on the PROP

I decided the time was right to get something out about the PROP to the local newspaper. While they have covered the issue, I don't feel the impact of the PROP has really been examined. Furthermore, it's origin seems surreptitiously derived, at least in the eyes of the general public. For those who cared to poke around, those who engineered the PROP into existence were no more covert than a dump truck driving through a nitroglycerin factory. "We want student rentals out of our neighborhood!" was their battle cry. But I don't think anyone expected the city to supply such a comprehensive war strategy. Even though I argue their efficacy, they did what their neighbors wanted. To heck with the apartment owners.

Have a read.

Prison Medical Center Gets Go Ahead

To the surprise of many local residents, the Raleigh City Council voted to move forward with the development of a new hospital and mental facility ofr inmates. Details about this decision can be found here: http://www.newsobserver.com/news/wake/raleigh/story/1150857.html It sounds like another "public" hearing that was not well-publicized.

Shocked? Or Just Surprised?

If I am reading the headlines correctly, then we might as well crawl into a cave and hibernate for a couple of years until this “crisis” goes away.

Seriously? Let’s think about this for a minute. Who really thought our economy could continue outpacing itself when America was spending more than it made?

People claim that deals aren’t getting done and businesses aren’t expanding because it’s just too hard to borrow money. Let’s have some perspective. Is it really hard to borrow money now? Well that depends on your definition of ‘hard’. It might be harder than it was two years ago, but is it harder than it was in the early 80’s when rates were well above 10%? Did we really think that banks could continue loaning money to people based on how much money they ‘said’ they made? You mean people don’t tell the truth all the time? Are we really that naïve?

I read an article yesterday that insinuated a 5% - 10% down payment was “a lot”. Really? Have we gotten that spoiled?

I am not pretending that I predicted this downturn coming, although some economists probably did. Sure the increasing number of foreclosures and the need for the government to get Freddie and Fannie out of detention is surprising. But are you really shocked that the market is trying to correct itself? Sooner or later you have to actually pay a debt off with real money. You can’t keep “making” money by borrowing more.

We were going to be faced with this reality at some point. I would make the argument we are handling it pretty well. Despite the negative forces at hand, our economy as a whole and especially in N.C. is continuing to grow. We are adding jobs, building schools, expanding hospitals and more. You can accuse me of being an optimist, but its all fact. Actually I like to use the word realist.

Are all home runs created equal?

If you are a baseball fan at all, you know the story of Josh Hamilton. After his amazing display at Monday night’s All-Star Homerun Derby even non-sports fans are now familiar with his journey. I remember playing against Josh in high school and thinking that he was the most incredible athlete I had ever played against. Little did I know, nine years later I would watch him hit 500+ foot homeruns into the upper deck of Yankee Stadium.

So what does this have to do with real estate? Well, I am sure you could draw up a convoluted correlation, but in reality it has little relevance to whatever deal you are working on right now. I think sometimes we just need to step back, look at the big picture of life and realize that miracles can happen.

For those who aren’t familiar with the details of Josh’s comeback, a quick google search will tell you everything. However, I don’t think anyone has said it better than Peter Gammons… “We are reminded that baseball can help us remember what we stand for, not against, what we believe, not what we fear, and that while we learn from the past, what we all want is to open the door to the future.” Gammons blog at ESPN.com

This isn't Russia. Is this Russia?

You now need to register with the city to own rental property in Raleigh. And you need to pay.

The registration fee is $30 for the first unit and $10/year for every unit you own. Here is an article from the N&O about it.

And another. And another.

The problems with this are ten-fold. It's hard to know where to start, really. Not only has the city created yet another bureaucracy, they have done so at the behest of just a couple of spoiled, vindictive inside-the-beltline neighborhoods pursuing the eradication of rental properties regardless of the fact that they live next to a major university.

While it seems clear to most people with more common sense than a rutabaga that if you move in next to a college you may end up with some rental property nearby. Nevertheless, people in that position are certainly due their peace and quiet. However, and I'll try to say this as clearly as possible: a landlord can't stop a tenant from partying. If the law isn't being broken and rent is being paid on time, eviction really isn't an option. The city believes, however, that by evicting the tenant responsible for the PROP violation, the problem will eventually be solved. As if those tenants will simply move to another neighborhood and never bother anyone again.

The most problematic component of the PROP is the fact that violations remain with the property, even after the bad tenant is gone, whether through eviction or lease termination. How does that help? Again, I'm not sure people really understand rental property. Landlords do not ask for their property to be wrecked, partied in or transformed into a landfill. Tenants sign leases with specific clauses to those very issues. When a tenant does so, they are in violation of their lease. But, a landlord can't physically be at their property every day. It's literally impossible. Weekly checks? Sure, that's reasonable enough. But all it takes is one mattress, one time; on the day the landlord is out of town, to warrant a PROP violation.

Now that the city has funding and a staff, look for a much more aggressive approach toward curbing the ownership of rental property in Raleigh. This vision they have conjured of a shiny happy city where no property is left un-spit-shined like a pair of Meeker's boots licked clean by his councilmen is nothing more than that, a complete and utter delusion of grandeur.

The PROP will not curb blight in the city. It will not stop bad landlords from owning property. What it will do is spike the number of evictions in the city, push poor tenants from property to property, raise rents and strongly bolster the already formidable wall built between city government and the citizens of Raleigh who happen to own rental property.

I would welcome insight on this topic. I will be glad to respond.

Apartments continue to crank in Downtown Raleigh

Jack Hagel of the News & Observer posted in his Real Deals column today about some planned multi-family in the newly developed Seaboard Station neighborhood in Downtown. This is a well-planned district of the city and should be a great place to rent once more multi-family gets established. His column goes on to discuss the market's apartment activity, which seems to be defying the current economic mentality of the general populace.

Also, have you heard about the potential for four more towers in Downtown? Two of them could look down on the soon-to-be-open RBC Plaza. Plans are being submitted and some properties needing to be squashed are already under contract. It will be shame to see Cooper's go, though. Sure, they plan on sticking around in the new building but authentic BBQ in a glossy mixed-use skyscraper? Hardly the same thing.

Now is the time...

This video posted on CNN.com's video page is a good overview of why a slow market may be an ideal time for people to consider investing in real estate. This isn't a "how-to" by any means but it's a decent overview.

1031s - know them. Love them.

Last night I attended the Wake County Apartment Association meeting and heard a presentation from Ms. Susan Hayden of Investment Property Exchange Services, Inc., a qualified intermediary for deferred exchanges.

While many people generally understand what a 1031 exchange can do for you, I can't stress enough the importance of really understanding the comprehensive benefits this tax code provides. There a lot of misconceptions out there as well, such as believing that you can wait a few days after the closing to initiate an exchange or that you can only exchange commercial property for commercial property or land for land.

I urge you to check out the company's Web site to learn more.

Congratulations, graduates!

Apparently, a few people passed my class.

I'll spare the pseudo-course description, as clearly my humor is lost on some. Maybe my comments about timing were not so far off. Read this N&O story.

Someone gets it

Multifamilybiz.com has a good article about mid-size apartment investors being able to capitalize on the reduction in competition in the apartment investment market.

We're finding it harder and harder to get this point across to the majority of potential investors. Again, sellers are holding firm to prices because their rents are up and their units are filled. As a result, buyers are surprised to see the lack of "blood in the water" given the underlying current of doubt in the economy. There is no question we're in a down cycle. Adding chum to the pool though, is the complete lack of dependable data as to when this cycle might switch directions.

Have any thoughts?

How to stop Growth 101

Course Description
This course is being taught by Your Mayor, Charles Meeker, who will lead a panel of your instructors (consisting of his close friends on the City Council) through aimless discussions about how new growth in Raleigh is detrimental to its longevity as one of the nation's premier mid-major metros. Because building new buildings, apartments, homes and commercial centers increases the tax base and encourages more of our well-educated work-force to stay put and provide regional employers with qualified staff and brain-power, the area needs to do all it can to curb this abhorrent trend toward regional success and outstanding livability.

This course will also teach you to waste countless tax payer dollars on fruitless, personal pet projects, such as banning garbage disposals and eliminating affordable housing in the city's urban districts.

Credit hours
Course offers zero credit hours because quite frankly, it's worthless.
Pre-reqs:
The student is expected to have read the following course articles by the beginning of the semester:

Raleigh taxes to increase.

Impact fees on the way up.

Council majority favors higher impact fees

Raleigh panel calls for phasing in fee hikes. (Or, Mayor says "Heck with panel, do it all at once.)

Council wants to see bill voted down (Or, Inspectors should be allowed free reign over every rental property at all hours without any cause. Except the ones owned by City Council members.)

New online source for advertising apartments. Sort of.

RentFuel.com has surfaced recently(?) as a new way to list available units. It looks like they're off to an okay start and taking a national approach. Still, I get the impression by surfing around the site that its development may have slowed at some point. The FAQ section is empty and for a service aiming to be as robust as possible, I couldn't locate any demographic information, maps or additional accouterments. For example, I searched duplexes and quads in Raleigh and landed on this: "Currently there are no duplexes-and-fourplexes-for-rent in Raleigh, NC. Be the first to add a listing. Click here to add a listing"

Really? No one has any vacant units? Maybe we need to let this site brew a bit longer.

Multi-family sees new life in credit crunch

I don't mean it can be found in a bunch of media outlets; I mean one article says one thing and the other says the opposite. You don't have to go far too find media quoting experts that say the housing market will actually hurt apartment owners. The latter articl says the decline in credible buyers will push rents in most major metros.

I guess what lends credibility to this version is that some Washington D.C. figureheads are weighing in. Portland, OR was the subject city in this case. People like it because it's weird. At least that's what the t-shirts say.

Anyway, here's another one.

The News & Observer piece, you'll find, really says nothing. In one column, Hagel says previous periods of over supply were thwarted by developer discipline. Now it says developers are cautious, toeing the line, if you will. To me, that implies that builders are nervous. Truthfully, the over-supply subject has been bucking for a while now and the N&O couldn't wait any longer to get it out of the corral, regardless of whether or not it was time to ride.

Great news for Eastern North Carolina

The Global Transpark has finally hit the map. And so has Kinston.

1,037 jobs to be created as part of relocating airplane parts company. I bet they'll need a place to live.

More on foreclosures from WSJ Online and Trulia

The Wall Street Journal digital edition sat down with the CEO of Trulia for an overview on foreclosure buying.

Anyone finding blood in the market yet?

Investment opportunities abound?

Huh.

Turns out our state's small towns are good for things other than Mayberry references. Site Selection magazine, a top economic development publication that has long been the favorite of corporate relocation and asset managers in large commercial real estate firms, recently listed the country's top "micropolitan" markets. In other words, small towns or regions that have serious financial growth potential. North Carolina has 11 of them, more than any other state.

These areas, Thomasville-Lexington being #1, may have some great multi-family investment potential. If they continue to attract jobs and end up on lists like this, I would start keeping an eye on them.

More on the the foreclosure front

Bankrate.com has a very comprehensive piece about investing in foreclosures in today's environment. Nothing real ground breaking here but a very good overview and some nuggets of wisdom well worth your time.

Anyone working the foreclosure market? We're seeing some pop-up in the multi-family sector.

Downtown Durham apartment market is smoking

If you haven't been to the American Tobacco center in Durham, you're missing out on one of the top re-development projects in the southeast in the last decade. It really is remarkable to think about what they've done to the place.

Well, now its getting apartments, too.

If I were in the apartment market needing a place to love, I'd head here first. In fact, I'd take something in this development long before some of the, what I believe to be, overly pretentious mixed-use communities in the Triangle. At least there is some authenticity in this project.

Anyway, this is cool news for the local apartment community, and for Downtown Durham.

The market is weird

Just read this article in today's N&O.

So, office demand is high. Normally, this means that companies are growing and can still afford to relocate. Odd. I thought the bottom was falling out. This can mean two things, really.

1. The "downturn" is simply not as bad as many think.
2. The "downturn" hasn't really hit yet.

Let's hope #1 is true. I surely don't know.

Incidentally, SPACE magazine, published by The Triangle Business Journal, also stated that the first quarter of 2008, normally the slowest of any year, showed signs of a healthy market with plenty of positive absorption. Still, job growth is pretty slow.

Oh, and in other news, gas prices are high.

Flipping is so 2005

There was a good post on the NuWire's InvestorCentric Blog about the slowdown (thankfully) in house flipping as a real estate investment.

As my comment stated on that blog, I do believe flipping is a legitimate method by which to invest in property. However, it is far from as easy as its unrealistic ascension in the marketplace makes it out to be. Anyone who tells you they're a full-time flipper was probably also a dot.com day-trader back in 2000.

Maybe that's a harsh comparison.

Flipping should be treated as one component of your real estate investment strategy. And only a "bonus" component at that. By that I mean, if one comes your away suddenly, jump on it. I wouldn't spend all my time looking for them.

An investor we know quite well, who owns well over one hundred rental houses and manages them full-time, says he can find maybe one flip every couple of months while working (his words) "24-7" hunting down potential purchases. To boot, he already has an established network of contractors and understands what costs what throughout the process.

In the end, I guess my point is yes, flipping can be a great way to make good money in real estate. Long-term wealth though? I doubt it.

Taking eviction to a whole new level

This reminds me of those episodes of Tom & Jerry where they would create a hole in the floor and slide the carpet over it. Don't know what I mean? Read this.

And, um, no, we don't advocate this type of management approach.

Apartment Internet Marketing

Okay, so you're probably not there right now if reading this. But, if you own apartments, or plan to, this may be worthwhile come next year.

The AIM (Apartment Internet Marketing) Conference.

Spend some time on the site, it's worth getting to know.

You want to crown them?! Then crown their a#@!

The DBSI Group of Companies, which comprises several companies dedicated to locating, acquiring, providing, and managing outstanding real estate throughout the nation, had an interesting piece about cash flow vs. appreciation in its most recent newsletter.

Read it here.

If you're not at all familiar with DBSI, spend some time on their site after you read the article. I tend to learn something new about real estate investing each time I'm there

Inspections, inspections

Aaannnnnd we're back!

Okay, so its been a month. I know, how do we engage anyone if we're never here? I guess we just keep trying. Anyway, I came across this article about a state bill being considered that would impact the role property inspectors have in terms of random selection of potential code violators in Raleigh and Durham. It sounds like a good thing for property owners.

Have a read.

Proponents of this bill seem to understand that landlords are often impacted by violations they had no idea were in play. Many property owners feel that rules are applied haphazardly and in many cases, are applied to some and not to others. (The PROP, for example.) If the codes were enforced in a uniform manner, property owners would at least have some reasonable ground on which to stand. And, the relationship between the two parties (city inspectors and landlords) would improve.

That being said, the property inspector's role is vital to the vibrancy of a community. The disconnect comes when city officials, who often demonstrate very little understanding of the role rental property plays in the city, add regulations without consenting the very owners of that community. (Garbage disposal ban, anyone?)

Every city needs affordable housing. (Keep in mind: there is no connection between needing affordable housing and an inability to obey the law.) And it is the goal of all landlords to own property in respectable areas. Who seriously believes that landlords like to chase down tenants for rent? Many landlords would be more than happy to make a property more attractive and an appealing part of any city street and have tenants who respected their apartments. Because eventually, that would lead to increased property values and more rent.

The old adage, "the tenants will treat the property like it treats them" is quite a ways from reality. There are bad property owners, of course. However, even the most ever-present landlords see new windows get busted out, appliances stolen, cars abandoned, carpet ruined and police called. It is simply a harsh reality of owning rental property, regardless of location.

Essentially, there is a delicate balance between the quality of a property and its contribution to a
neighborhood. Houses don't commit crimes. Their occupants do. However, a blind eye is turned toward the real source of blight in an effort to ignore that not-so-harsh truth. Nicer property will not make a neighborhood's residents suddenly respect it. Ask anyone who tries to change a neighborhood. I can speak first hand for a couple of our customers who have rehabbed on rough streets, leased the units, and are still fighting thefts, non-payment, yard trash and PROP violations.

The mindset that a slanted porch is a driver of community blight simply doesn't jive. If several adjacent properties are abandoned and attracting crack dens and prostitution, then surely something needs to be done. This bill allows for an inspection department to play a key role in community upkeep while bettering the relationship between frustrated apartment owners and city inspection departments. I hope it passes.

Don't blink

Just like a kid on the free throw strip with the game on the line in the ACC tourney final (assume he’s wearing anything but an NC State jersey), when you find a motivated seller, you need to be able to nail your shot. Consider the following…

In a recent transaction, a seller had reached a level of motivation to sell a property at a very marketable number. They weren’t giving the property away by any stretch, mind you, but they decided, basically, they wanted to sell it. In reaction to this, another agent brought into the picture buyers whom we thought, in the end, were simply going to complicate the transaction. They asked for pointless contingencies, altered terms after a verbal agreement, were unwilling to put anything in writing and basically, demonstrated they were flakes. Their number however, was in an acceptable range for the seller. The offer was being considered.

In ongoing efforts to sell the property, we decided to follow-up with some Investor Network members. We thought that one of our own buyers—an experienced, savvy investor—could move on this property and ultimately provide the seller with a solid, dependable buyer who wouldn’t shake things up prior to closing.

We found one.

Buyer #1’s offer finally became a clean one. No contingencies and a good close date. To no one’s surprise however, they actually decreased their number to just outside the seller’s range. It was communicated to our buyer, #2, that if he could do a clean deal—100% completely free of contingencies—at a slightly better number, the property was his. Two catches: We needed the offer in writing in less than 24 hours and he hasn’t seen the property. (However, his local property manager, who handles these units already, gave him a vote of confidence in their condition and performance.) He agreed to do that if the seller met in the middle on price. The seller agreed. Verbally, we had a deal.

We wrote a contract according to terms and e-mailed it to the buyer. I communicated with the agent of buyer #1 that the seller was considering another offer and would respond to all parties by 12:00 p.m. the next business day.

Now given the less than dependable nature demonstrated by the first few rounds of negotiations with buyer #1, even if they countered with a number slightly higher than buyer #2s, the seller would be better off sticking with #2 because of his track record. The ability to close confidently is a critical component of being a sound investor.

The next morning, buyer #1 presented an as-is contract in writing that raised their offer to the seller’s desired sell point. Buyer #2 also returned an offer in writing at the number agreed upon the day before.

However, deep into the contract, under paragraph 20, Other Provisions and Conditions, he had hand-written a soft but clearly stated contingency for an inspection period. The offer, on terms, wasn’t what we agreed upon.

Buyer#2 blinked.

I communicated to the seller that despite the contingency, I still have a great deal more confidence in buyer #2. Nevertheless, the seller had his number on a contract that could be fully executed in minutes as opposed to one that may never get signed given the inspection period.

After some last minute negotiations with Buyer #2, the seller accepted buyer #1’s offer.

Do I blame buyer #2 for wanting an inspection? Absolutely not. He was offering on a property without seeing it. Still, the property is structurally sound and managed by a firm with which he already employs that is well-known for only managing very good properties. An inspection, as is done with all investment properties we sell, can be done outside of contract.

In the end, I feel bad that a buyer I like and have confidence in lost out on what will be a very solid property.

When a good property comes along and it’s combined with a motivated seller, you need to be ready to step to the line like a senior on his home court. And not blink.

Is multi-family investing right for you?

We get the question a lot, “Is multifamily real estate for me?” Even more we hear, “I want to start investing in real estate what should I do?” There are no right answers to these questions, simply more questions that only you can answer. The truth is no one can tell another person what fits them best or provide a perfect plan for success. The most successful owners of multi-family properties made up their minds they were going to start investing and just did it. You have to look yourself in the mirror and answer a few questions for yourself.

1. Am I financially ready to start investing? This is a question with several levels. First, do I have enough money saved for a down payment? Do I know what down payment requirements are? Do I have enough reserves saved if I make a mistake or something goes wrong? If you can’t survive a “worst case scenario” plan without starving, you are not ready.

2. Am I ready to work? TV shows, books and seminars have glamorized what is truly hard work. You will not get-rich-quick buying multifamily properties and it will not be easy. You need to be prepared to manage the property, make repairs, deal with tenants and more. Property owner is just another title for “problem solver.” Maybe you are going to hire a manager. Well guess what, that costs more money and that doesn’t mean they are going to be perfect. Even a management company needs direction and oversight.

3. Am I determined I will succeed? Investing in real estate will require a leap of faith in your own abilities. Those who are determined to succeed, confident in the decisions they make and willing to find their own way will have a much higher rate of success than others. Don’t be scared to make a mistake. If you don’t make a mistake you are not trying. Real estate is very forgiving if you are a long-term investor. Time can heal almost anything as long as you keep pushing forward.

If you answer all these questions honestly you will know if real estate investing is a good fit for you and your lifestyle. Assuming you decide to move forward it just comes down to perseverance. Start researching your market to understand rents, prices, financing options, growth patterns, employment trends, etc. Drive by properties and neighborhoods to figure out what you like and don’t like. Then have the guts to develop a plan and execute.

Garner? Really?

Yes, Garner.

Wait, what's the question? Is this Jeopardy?

The question is: what Triangle market do you see as perhaps the most under-valued? We know Inside the Beltline, North Raleigh and Cary are strong rental markets. The value there is very evident. Garner though, doesn't get thought about too much. But it should.

Garner has grown up like a lot of the smaller Beltline border towns. It has established, affordable single-family neighborhoods surrounding an older but very functional downtown and of course, waves of big box retail and regional centers growing into the space in between. Thus, older apartment properties now have Wal-Marts, Wachovias, office buildings and Starbucks closer than ever before. As infill projects continue to permeate around the older homes and apartments, their values will continue to climb.

As Cary and Wake Forest erect fences to the West and North of Raleigh, Garner seems to be laying pavement and waving welcome banners. Rents are still very affordable for a large swath of the renter market in properties that offer many of the amenities of those found in North Raleigh: national retail chains, places to work, restaurants and schools.

So yeah, Garner is not a bad place in which to own rental property. Appreciation clearly won't be what you might find in Cary or within I-440. But the chance for cash-flow is that much better.

1031 Stuff

Just thought I would post a good breakdown of 1031 stuff to think about. This came from NuWire Investor.

Read this too, about TICs and 1031s.

When buying, rents are not guaranteed

I had a deal collapse on me at the closing table recently. While in the end, the reason for its postponement turned out to be a non-issue, the initial hassle could have been prevented had the investor better understood the nature of rent collection.

The issue, underneath it all, was the buyers’ concern that they would not collect all the rent after the closing. This is a very natural fear. And by all means, I could have done a better job of helping the buyer understand that when buying rental property, the seller simply can't guarantee that rent will be paid in full at the time of closing. It's simply impossible.

The buyers were nervous that the tenant would mail the rent check to the seller and not to them. Since we were closing on the first of the month, this was a likely scenario. We remedy this situation, which happens often, by instructing the seller to alert the tenants via a notice that they will receive instruction on where to mail or drop-off rent. We also instruct the buyer to stop by the property with a notice of the same mature, thus covering all bases. This was not agreeable.

We then offered to the buyer the chance to meet the manager at the property after closing to collect rent personally, be introduced to the tenants and let them know where to send rent from that point forward. That didn't work either. So, as is common when things can't be agreed upon about a property, the closing was delayed.

The property closed a couple days later once it was established that the rent was collected in full for the month and the proper amounts could be pro-rated on the closing statement.

It's very important for early investors to understand that buying rental property is a risk, just like any other form of investment. Rent is often late and even the best tenants can disappear in the middle of the night, even the night before a closing. It happens.

This is why it is essential to approach owning rental property like a business. If a customer doesn't pay, you have an option. Stay firm on your rent collection policies, watch for signs of a shaky tenant and remember that after you buy a property, it's yours. A landlord is free to set new rent collection dates and policies. Do what makes you comfortable and that which will ensure a smooth ownership transition.

Most importantly, though, understand the risks of investing in real estate.

A Real Investment Education Course

In a society that has been saturated with get-rich-quick ideas and an exorbitant amount of real estate seminars, books, CD’s and “experts” it is easy to buy into the hype.

So I thought I would share some truth.

For nearly 40 years the CCIM Institute has been educating commercial real estate professionals. Attributing to the caliber of the CCIM curriculum, only 6% of the real estate practitioners nationwide have achieved this designation. The series of courses offered helps develop and refine all the skills a real estate investor or broker need to thrive within the industry. While most will never have the time or energy to finish all the requirements it is important to know that the classes are open to anyone who wants to truly learn the real estate game.

I just completed the two-day introductory course where I learned more TRUTH in about 15 hours than most books, seminars or “experts” have ever dreamed of. The practical, mathematical, analytical and logical processes taught made the class the best real estate educational investment anyone can make. Participants from the new investor to seasoned brokers can learn the basics of using a financial calculator and the theories of Time Value of Money.

One of the most powerful tools taught was the correct way of calculating Internal Rate of Return (IRR) for an investment. This method captures the return over a period of time (which is how real estate is held). In contrast, the Capitalization Rate (Cap. Rate) we often hear about, only gives a snapshot of an investment at any given point in time.

I highly encourage anyone with a desire to improve their real estate knowledge to look into the CCIM curriculum.

Happy New Year: UNITS Magazine names the Triangle in its 2008 Top Ten

UNITS, a magazine published by the National Apartment Association, named Raleigh/Durham (The Triangle) one of the Top 10 Markets to Watch for 2008.

Citing the Research Triangle Park (RTP), the presence of three major universities (NC State, UNC-Chapel Hill and Duke) and state government operations, the report includes the Triangle with cities like San Francisco, San Jose and Dallas/Fort Worth.

Property & Portfolio Research projects the market will continue to be among the best performers in multi-family investment because of the expected rental-housing growth over the next several years. Specifically, the region’s surrounding communities are seeing the majority of the activity. The report sees a 2.5% growth in population for 2008.

Now, as we argued in previous posts, the Triangle tends to stay somewhat insulated from the major hits real estate markets take in other parts of the country. The logic for this is really quite simple: A strong university base functions as fuel for job creation. Couple that with the long established corporate giants planted in (RTP) and you’ll find a rather durable, downturn-tolerable market.