By: Nicholas A. Dunlap, CPM
As you look around, there are signs of economic improvement. Jobs are slowly being added, retail sales numbers are up, construction starts are, well there are construction starts again and people seem to have more spendable income than they did last year if not last month. By no means is this a sign that we have fully turned the corner, but it does suggest that we are somewhere between 1st and 2nd gear on our way to an economic recovery. Thus, there is still uncertainty and instability in the markets. There is the rumor of billions of dollars in upside down commercial debt and there is also the worry that there is just too much residential product clogging the market. And yet, in spit of improving circumstances, people are still in a panic and are unsure of what to do with their money.
For contrarian investors such as ourselves, crisis breeds opportunity. Mortgage rates are now routinely between 3.55% and 4.1% on multifamily loans and even lower for 2 to 4 units. With the depressed market values and increasing rents, this means that we are routinely seeing duplexes, triplexes and fourplexes trading at 5.5% cap rates. Now, by 1990’s standards, this is nothing to be excited about. But for the 2K generation, this means positive leverage, positive yield and the four benefits at an affordable price. 5 years ago, people were paying $500 to $600K for deals and making no money off of them. Now, these deals are trading in the $200k to $400k range and people are making anywhere from $200 to $600 bucks a month. Not bad when you consider the tax shelter, inflation hedge and equity buildup benefits as well.
Pick your area, pick your property type and follow the market. The next year and a half to two years will provide great opportunity to build your portfolio.