…. “Only six markets advanced their position on the [Dividend Capital Apartment Market] cycle chart.” Once again with the notable exception of Seattle who has left in the basement of the cycle despite overwhelming evidence that it has moved well up in the cycle by his own definition. See my post from last quarter detailing the definitions and why Seattle’s apartment building investment cycle location according to Dr. Mueller is incorrect here. For other cities have a look and let me know if your markets are accurately placed:
Biggerpockets began publishing their top 35 List of Real Estate Blogs in 2006 and the list has generated over 100,000 views. Only ten of the original honorees still remain on the list, a statement to the hard work involved in building and maintaining a good blog and surviving tough times in the market.
At Ashworth Partners we’ll keep doing what we can to make sure the valuable time you spend here is well invested. We don’t have all the answers though so if you have a suggestion or comment about how to improve the blog we appreciate your feedback.
Dividend Capital’s Q3 Market Cycle Monitor Report is out and naturally I looked at the apartment building investment cycle chart first. Specifically these days I’m looking to see where the author, Glenn R. Mueller Ph.D. has placed the Seattle market in the cycle.
Tom Barrack of Colony Capital on what’s really happening in US real estate from an investor’s perspective. The clearest, most cogent look at the state of commercial, multifamily and single family markets today and where the opportunities are. The first five and a half minutes is about Europe and the bottom line there is don’t but after that it is all gold. If Tom wanted to be one of those real estate ‘gurus’ he could package this video with a big notebook and some advertising and sell it for $10,000- and it would be better than any of the other stuff out there. And you get it for free. I’ve watched three times and get an extra little nugget each time.
Are you reviewing the property tax assessments on your apartment building investments every year? In Seattle apartment research providers Dupre+Scott found that “this year almost 20% of the sales were assessed for more than they sold for. They were over-assessed by an average of 22%”.
In their video narrated by the xtranormal sounding ‘Kate Gardens’ she says: “With apartment prices climbing so much in the past year, we didn’t think many properties would be assessed for more than they sell for”. But their research shows that’s not entirely the case.
“… between 2000 and 2008 the average apartment was assessed for only 70 to 80% of what it sold for. Then things changed. In 2009 and 2010, the average property sold for less than its assessed value. And even though assessed values make more sense today, compared to prices, they are still higher than they used to be”.
What comes after primary, secondary, tertiary apartment building investment markets? I got to thinking about this after I read that MPF Research classifies a tertiary market as one with up to 100,000 units…. so I looked it up on the intertubes:
The sequence continues with quaternary, quinary, senary, septenary, octonary, nonary, denary. Words also exist for `twelfth order’ (duodenary) and `twentieth order’ (vigenary) according to www.answerbag.com
I recently met with my financial advisor to “rebalance” my … retirement portfolio. Based on my “age and stage of life” his allocation model showed a 50% bond allocation. I laughed and asked him if the company allocation model assumed interest rates would rise over the next 10 years? His answer was “yes- of course.” I showed him the graph below which shows lower than average TOTAL returns in a rising interest rate environment and he checked his long-term data and found that bond holders between 1953 and 1980 had actually lost money. We all know that as interest rates rise, bond values decline and thus the total return can be small or negative. Not to mention that a 10-year treasury at 1.5% is below expected inflation and thus a NEGATIVE REAL RETURN. He agreed that a bond allocation did not make much sense, but since my investor profile was conservative what was the alternative?
In a piece called Positioning for a Housing Recovery PIMCO says that the risks to housing have been overstated and while prices may continue to fall there are opportunities in the mispricing of that risk. They believe that the risk of the 11 million underwater home loans all becoming delinquent and going into foreclosure is much lower than most think. They also point out that the record low interest rates have created housing demand from large institutions (Like PIMCO, and individual investors too) searching for positive returns.
One of the opportunities they list is in apartment building investment, either through equity (owning) or debt (loaning). However they pass over multifamily in favor of REOs-to-rentals and distressed housing debt. It’s ironic that they would favor buying large numbers of single family homes to rent because the logistical nightmare of the scattered homes is what drives most real estate investors to apartments and other commercial real estate. The convenience of having 10, 20, even 200 units or more at one location on a single property on top of the economies of scale available make owning multifamily a much better investment.
While they do acknowledge the challenge of REOs-to-Rentals:
However, investors must be mindful of the operational complexity and illiquidity of a single-family rental portfolio. Managing a nationally diversified portfolio of rental properties presents unique challenges of surveillance and scaling, and procedures for maintenance and leasing must be designed to help protect earnings.
… Somehow that doesn’t lead them to picking multifamily investment. Are you a real estate investor who started out in single family properties and moved on to apartment buildings? We would love to hear your story-