Over the last five years many landlords were in a purchasing frenzy trying to quickly build their apartment property empires fueled by easy to obtain debt, high rents, and low interest rates.
You may recall that recently in the residential real estate market we were faced with small amounts of home inventory and low interest rates. This created a huge sellers’ market where sellers were not only receiving multiple offers on their homes, but they were able to sell their homes within hours of putting them up for sale with many sale prices ending up much more than asking price.
This same set of circumstances, though not widely known, occurred in the multi-family real estate market at the same time as well. Tight multi-family inventory for sale, low interest rates fueled a few years of record prices being paid for the many multi-family properties.
These sets of circumstances would have all been good for the multi-family investor except starting a little over a year ago not only did interest rates increase at a dramatic rate, but landlords also saw rents fall. The problem? Landlords did not see this coming. Many landlords purchased these apartment communities at record prices counting on continued low interest rates and low loan payments and continued increase in rents.
The compound effect of interest rates doubling over the last year and rents falling as much as 15% in some markets means that many landlords are facing loan payments now twice the amount that they had just a little over a year ago and in addition less income from their properties from falling rents.
The result? Landlords will lose billions. Many landlords will now have to look at handing the keys to their properties over to their lenders because they will not be able to make their loan payments. Because of high interest rates and lower rents many landlords cannot refinance their properties either because their values have also fallen. Many landlords will now be forced to sell at a discounted price, thereby taking an investment loss or they will have to hand the keys to their properties over to their lenders and go through the foreclosure process. I predict that over the next three years we will see billions of dollars in multi-family properties going through foreclosure, more than has been seen since the Savings and Loan days of the 1980’s.
So what should investors like you do? How does this help you?
Start lining yourself up with sources that can provide you access to the coming discounted multi-family purchase opportunities because they are coming. There will be opportunities for smart investors to buy and own multi-family properties for pennies on the dollar. Also, in many cases these will be well maintained and managed properties that just could not make their loan payments or refinance. Of course, some properties will be fixer upper candidates, however, there will be many coming available that are well located and not in need of extensive rehabilitation. Those are the kind of properties you want access to.
Where Do You Start?
Most cities have local landlord associations, multi-family investor meet up groups or local multi-family investment groups that have been created for networking. Look into getting involved in these groups and attending some of their meetings. Mostly, get on their mailing list for possible purchase opportunities. Also, many investors use their computers to get on my mailing list as well where I inform investors of possible discounted purchase opportunities on which I am working. My contact information is below. When you send an email or correspond make sure you mention “List for Discount Purchase Opportunities” and we will include you. There is never any obligation.
So, the multi-family storm is coming but it is not the typical poorly located and poorly run properties that will be the victims. Many properties that are managed and located well will be on the block too soon. Make it your goal to make sure as many of these opportunities cross your desk as possible.