Investing in Multifamily & Commercial

Huge opportunities are everywhere if you know how to find them.  The tough economic times aren’t just affecting owners of single family homes anymore.  More and more often I’m coming across other investors who have over extended themselves with commitments on larger projects such as apartment buildings and commercial properties such as office, retail, warehouse, and land developments.

For years I watched the sale price of multifamily rental buildings go through the roof.  These huge increases were primarily due to the prices being paid by condo converters who could pay more than what the building was worth because they were making huge profits selling individual units off as condos.

Now, with the abundance of new condos on the market & the slowdown in the real estate re-sale market

I’m finally seeing prices of whole buildings get back to a range where they make
financial sense as a rental property to be held as a medium to long term investment.

The drop in sale prices combined with strict lending policies & over exuberance on the part of some owners has caused some investors to get in way over their heads creating an abundance of great buying opportunities for the savvy investor with deeper pockets.

In 2006 & 2007 I was starting to get pretty serious about buying larger buildings vs single family homes but the crazy spike in prices and the lack of positive cash flow caused me to hesitate but I feel

NOW is the perfect buying time!

Buying opportunities can’t get any better than right now with the current mix of low prices & good rents matched with extremely low interest rates and the high levels of seller motivation I’m finding in the market place.

Most asset classes have dropped significantly in the last two years but multi-family seems to have been affected the least and would be my first choice for a major investment especially under the current economic conditions.  This is not to say I wouldn’t consider looking at other forms of commercial property right now as I am.  I’m just doing a lot more due diligence on the property, the asset class, the existing tenant and lease renewal opportunities.  I’m considering office, warehouse, and retail etc. but with a little more caution because I think there is room for current owners to feel a little more pain & get a little more motivated to sell.

Yes prices in the multi-family asset class have dropped from their crazy high but only the high based on the prices condo converters were willing to pay…… not what “buy & hold” investors were paying with the idea of keeping the building for the long term.  If you investigate a little deeper you’ll find that the “buy & hold” guys weren’t paying the ridiculous prices that the condo converters were paying.  Well some were but they are getting their asses handed to them now as are the condo converters who are still sitting on inventory.  Just the type of situation I’m looking for… a larger purchase with a highly motivated owner.  When sellers lose a little optimism prices come down creating the perfect buying opportunity.

Right now I feel apartment buildings are the best choice as a medium term investment (4-8 years) for the following reasons:

• When the general population is insecure about their employment future they will resort to renting vs purchasing a home creating a higher demand and a lower vacancy potential.

• When employment potential improves so do wages, consumer optimism, and rental increases while the investor is protected by being locked in a low interest rate mortgage.

• Apartment units as rental housing are the most affordable compared to single family dwellings (townhouses & houses).

• Interest rates are at their lowest in 30 years.

• The possible use of CMHC insurance for borrowing purposes equates to a higher ratio mortgage/less down payment something which is not possible with commercial property.

• Apartment buildings have already proved themselves to be more resilient in the current market & economic conditions (Residential vacancy rates & rents haven’t dropped by much compared to all other forms of commercial real estate).

• The ease at which value can be added by improving management, cash flow, and cosmetic upgrades.

As an investor my major interest has been in the single family market but after the individual purchase of 110 single family homes and my success with foreclosures I am currently more interested in purchasing larger investment properties.

Even though I started with only a cash advance on two credit cards, a cell phone and a bicycle I feel my greatest investment accomplishments are still ahead of me.  My interest & experience in locating undervalued properties will serve us well and the cross over to larger buildings will be an easy one due to my high-rise construction experience.

Like Nike says “Just Do It”