As you read this blog you know that in the past year I have not bought or worked on a project property. In a declining Real Estate market it’s harder to make a deal as prices are going down. You would have to buy at a discount then convince the seller that you need to discount that much more to compensate for the declining market. It’s difficult to make that leap.
In the world of don’t wanter properties the the vast majority have financed thier way out of the problems they faced. Drive by appraisals with a twenty per cent equity position pretty much ensured any one could get a fair market value for doing nothing. Now that the lending bubble has burst people are going to have to come to grips with the fact a property has to have a certain look or quality in order to sell.
We’re looking today more for commercial properties than residential. The run up in prices of commercial has only started in the last few years. I think investors were trading up into commercial or that builders were looking for multi use situations so people started converting or exchanging Real Estate dollars into larger apartments or commercial retail. The trend is still going on but that was a short lived dream more than an actual value added purchase. I think what stymies more people is what to do with the apartments or commercial space in order to cash flow it while waiting for the over all market to turn.
A true fixer or rehabber can spiff a place up to increase rents, but I have been talking with people who are a little more creative in what they do. Making multiple office spaces with a shared reception is one, or just making smaller more efficient office space is more to the point. Some people are short term renting for executive housing, or hitting high end user tenants. What I like best is converting commercial spaces into smaller retail spaces that compliment each other.
A computer store with an office supply, with a cell phone outlet, with a coffee shop, or copy center, printing, or equipment leasing. What is happening more is smaller La Tiendas with meat, produce, cigarettes, dollar store, cakes, bakery, cafe, DVD rental, or clothing. The list goes on, but small business is getting smaller. The more traffic you can bring the better. Location is important, but access is critical. Parking, with the ability to pull in and out easily is what drives rents.
It may not be for you but apartment buildings should be a big item in the next few years. Many places have become run down while land lords collect more rent as people now have an exodus from home ownership to renter. This last year some land lords have raised rents 25% with people paying it just to have some place decent to live. As pricing for houses goes down more people will be making choices. Renting will become more competitive. More home owners will rent out an investment property and pay the short between income and mortgage. There is always hope the market is coming back. The nicer places will be chosen and some of those overly optimistic Net Operating Incomes will go way down.
My hope is that some of the newer land lords, and some of the older ones, who have a property manager eating up all the profits will just want to get rid of it. A side note about Property Management companies is that there are very few good ones. Most Property Management companies who started with the housing boom who are now hitting a stride with rising rents. That will collapse. Hands on attention will become more of a focus. The best part about multi unit rental properties is that they can be done over the course of time. A little here a little there. In a couple of years you can go through all the units while maintaining a cash flow.
The bottom line will be that as more and more people come to grips with the fact Real Estate requires work and attention they will leave the market place for safer investment strategies. If you truly want to build a portfolio now will be the best time to do that. We’ll talk about taking over properties with financing in place a little later.
