Why it’s good news that more Americans are renting rather than buying homes. Via Slate. Good for #Multifamily
Filed under: Multifamily Investments, The Economy and Current Affairs
Exec Sum:
The American economy is making a significant shift from buying to renting, and that may ultimately be good news. According to a USA Today analysis of Census data released this weekend, since 2006, the number of households that rent has grown by about 700,000 a year, while the number of households that own has fallen by about 200,000 a year.
[R]enting is better than owning for many Americans. Indeed, dozens of recent studies have shown that, excepting the go-go bubble years, houses tend not to make very good investments at all: A prospective homebuyer would have made more money taking her down payment, parking it in inflation-adjusted Treasury bonds, and renting.
But it is conclusive: Not everyone should own a home. The recession has helped erode the stigma against renting, with about 70 percent of Americans now admitting that it has advantages over buying a house. If people are making unsentimental decisions about whether homeownership is really worth it for them, that is at least one small benefit of the housing bubble bursting.
See the whole article with links to reports and surveys here: The Rent Isn’t Too Damn High
Multifamily rental construction definitely the brightest sector in housing market.
Filed under: Commercial Real Estate, Multifamily Design & Development, Multifamily Investments, The Economy and Current Affairs
See the Housing Wire piece here:
FHA Streamlines Approvals on Multifamily loans less than $25M/250 units.
Filed under: Commercial Real Estate, Multifamily Investments
“It’s a huge help,” says Jonathan Camps, managing director of production for Washington, D.C.-based Love Funding.
In the past, any loan of at least $15 million, or any deal of more than 150 units, had to go through the FHA’s National Loan Committee. That threshold has been dialed up to $25 million, or 250 units.
What’s more, any existing FHA-insured loan looking to refinance through the Sec. 223(f) program no longer needs to go through either the regional or the national loan committee.
Good news indeed! See the whole article here: FHA Streamlines Multifamily Loan Approvals
Is a Gold Standard the Answer to Our Monetary Crack-Up?
My brother Tom shared an article from the Cato Institute entitled: “Why Gold-Defined Money Is the Answer to Our Monetary Crack-Up”. 
I agree with the writer in theory but as Yogi Berra said: In theory, there is no difference between theory and practice. In practice, there is. A couple points:
With a fixed currency like a gold standard innovation and value creation that grows the economy will be constrained and what growth does occur will cause prices to fall, hurting the producers of goods and limiting real returns to their investors. There has to be some mechanism to grow money supply at the approximate rate of real growth in the economy.
The real problems we’re facing around the world are from excess leverage and at the end of every debt binge the unwinding happens in three ways. Debt creation can be reduced and austerity can be imposed to make room for Read more
Converting Cap Rates to Earnings Multiples
Filed under: Multifamily Investments, Value Investor's Guide to Apartment Buildings
Converting Cap Rates to Earnings Multiples
After a recent speaking engagement I was asked about how and why I use the earnings multiple concept when evaluating apartment investments. It was a great question and so I’m sharing my answer here in this blog post.
As a value investor two of the fundamental questions I always ask is what am I buying and how much do I have to pay for it. With an apartment investment (or really any investment) I am buying current income and the potential for appreciation so the second question comes down to “How many years of earnings do I have to pay for these returns?” The question can be answered by converting the cap rate to an earnings multiple. The Cap Rate is the return in current income on an apartment investment you could expect if you paid all cash. To convert a Cap Rate into a Earnings Multiple use the formula: Read more
Why are Cap Rate explanations so complicated?
Filed under: Multifamily Investments, Value Investor's Guide to Apartment Buildings
If you listen to any conversation about commercial real estate (CRE) within a minute the subject of cap rates will come up. Those who are just beginning to explore CRE are often thrown off by what one is and how it is calculated. A cap rate is really a simple thing that is often made overly complicated by the way it is explained. Let’s walk through what a cap rate is and then we’ll look at how they are used so that the next time the conversation turns to CRE you’ll be right there in sixty seconds when they get to cap rates.
A Capitalization Rate or Cap Rate for short is simply what you would earn on a property if you Read more
Apartment Buildings are the classic Value Investment
Filed under: Multifamily Investments, Value Investor's Guide to Apartment Buildings
With today’s stock and bond markets overrun by insiders and the volume of options, futures and other derivatives dwarfing actual investment in good companies while driving wild swings in their prices what is a traditional value investor to do? What about the accounting trickery that happens when CEOs raid their own companies for the short term results their huge bonuses are based on? Should you shrug your shoulders and be patient, very patient hoping eventually value will be recognized? What kind of income will you live on while you are being so patient? With interest rates so low and the Fed trapped into keeping them that way how can you earn decent current income without taking unreasonable or unknowable risks?
There is an alternative for conservative value investors: Apartment buildings.
- What if you could find good value stocks in a market where the price was dictated by the financial results, not market ‘sentiment’, momentum traders, short sellers, high frequency trading programs or what a butterfly did in Shanghai?
- What if you could find good value stocks in a market where the cycles were observable and understandable?
- What if your favorite value stocks paid annual cash dividends of 7, 8, 9% or higher while at the same time increasing their equity like clockwork?
- What if you could walk into the boardroom of your favorite value stock and dictate that they improve their performance? What if you could fire boardmembers who didn’t perform?
- What if you could buy a second stock with funds from your first stock without having to sell it or pay taxes on the capital gain?
- Plus Inflation Protection: What if the dividend went up when inflation did? Read more
The Apartment Building Investment Triple Opportunity Is Right Now
Filed under: Multifamily Investments, Value Investor's Guide to Apartment Buildings
For value investors, Demand, Supply and the Cost of Acquisition are the three factors affecting the apartment building investment decision and all are saying the time to buy is now. There is a tidal wave of new renters coming into the market and there has been little apartment construction to meet this growing demand. Outside of the gateway cities the prices of existing apartment buildings remain below the cost of building new. Fixed rate financing is available for apartment buildings at rates lower than we will see again for years if not decades.
“The multifamily sector is probably the only commercial real estate sector that has very positive fundamentals behind it,” said Jeffrey Baker, managing director at Savills LLC, a real estate investment bank that raises capital for multifamily owners and developers. “You’ve got a demographic that is producing more households that want to rent an apartment. You’ve got virtually no new supply that’s been added over the last several years.”1 Read more
What to do about the economy.
In a comment to my FB post about the video on QE2 Sean DeButts asked what my solution would be for the economy. It’s an important question that deserves a detailed response.
Jobs are the number one thing we need to get the economy moving and jobs require capital and the willingness to put that money to work. Now …there is plenty of money around, billions and billions sitting on the balance sheets of banks and companies but it is not being put to work. Why not? Let’s look at companies first.
Companies will only invest if they think they can get a return on that investment and are confident that the rules won’t change before they can earn that return. Right now everyone knows that the deficits the US is running will lead to collapse if something doesn’t change but until what those changes will be is decided companies (and individuals) are worried that they might be singled out to pay for those deficits. That’s why I believe the National Commission on Fiscal Responsibility and Reform’s deficit reduction plan must be put into law by Congress and signed by the President. See: http://bit.ly/h1tILt for the Charley Rose interview with the co-chairs of the Commission. Read more
It’s painful, it’s ugly, it’s what a real estate bottom feels like.
Filed under: Multifamily Investments, The Economy and Current Affairs, Value Investor's Guide to Apartment Buildings
Does the market feel like you are in the opening sequence from Terminator II? Are you fighting amidst the wreckage of the previous boom? Surrounded by foreclosures, scarce money, economic gloom and doom? Real estate going into nuclear winter? That’s what market bottoms feel like and as investors we need to get comfortable with that feeling because this is our time to make solid, reasoned investments that produce good results on improving fundamentals. Conditions like this create the opportunities for savvy investors who were patient through the bubble and have waited for the speculative, greater fool market to come to its inevitable end.
Many great real estate investors got their start in rough times like Sam Zell of Equity Residential for instance. He started out buying properties from distressed owners in the late sixties. Tom Barrack of Colony Capital waded through the carnage of the S&L meltdown to buy properties at a discount. Barry Sternlicht of Starwood Capital also started in the wake of the S&L crisis buying multifamily properties. What will your story be? It’s time get to work and seize the opportunities. Put on your hardhat though because it’s about to start raining real estate, and while not every distressed property is worth pursuing if you stick to your niche and learn your market good deals will surface. Read more
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