How to Start the New Year Off Right in Multifamily Investment
December 28, 2018
Owner | Designated Broker, GPCI Multifamily & Land Development
Now that the New Year has begun, you’re probably wondering what kind of year 2019 will turn out to be. Well, here is what the multifamily industry professionals are saying: “Strong rent growth, favorable yield, and robust inbound migration should keep the buyers coming to Phoenix.” That sounds good, right?
Another well-known economist says, “We are in the 8th inning and the probability of recession is low. This could turn out to be the longest expansion in our history.” Again, sounds good.
However, speaking for myself, having been around during the last downturn, I am feeling much more, shall we say “cautiously optimistic.”
I believe the best way to start 2019 is to look at multifamily investment from three different viewpoints: The seller, the buyer, and the owner. If you are a seller, I would recommend getting in on the market sooner rather than later. It is always better to sell a year too soon rather than one minute too late. This happened in the last downturn and it was not pretty. It is definitely still a seller’s market and there is still a lot of buyer interest in the Phoenix area market.
The best way to get top price for your property is to make sure that it has excellent curbside appeal, strong financials, and is in good shape. Try to get at least one or two rents up to top market rate to show the property’s potential. Consider hiring a property inspector to go through it and note any issues they find. No one knows how long this seller’s market will last, but you will sleep much more soundly having the money in the bank now rather than missing your best-selling opportunity.
If you are a buyer, you need to be more careful on making a purchase decision. In this tight market, due diligence is crucial. If you are buying for cash flow, verify the numbers to make sure they are accurate. Pay extra for the inspection. Bring in extra inspectors like roofing, plumber (camera the drainage pipes), electrician, A/C, etc. If you are looking at a reposition opportunity make sure your rent comps are good and your rehab budget is conducive to the area and attainable. If you are in a 1031 situation, it is always better to buy rather than pay the taxes. In the long run, you will be better off.
Finally, if you are an owner with no plans to sell, confirm you are doing everything possible to maximize your income and keep the property fully rented. There is a great deal of strong competition in our market and even though it is a very strong rental market, if it changes, you want to be certain you can weather it.
Based on your resources, you should strive to make your property the most desirable in the area. Make sure all of your major systems are in top shape and there is no deferred maintenance. Through good times or bad, this will keep your property cash flowing to its maximum potential.
In summary, 2019 should be a positive year in our industry, but there are some cracks in the dam. Higher interest rates, compressed cap rates, higher labor and supply costs, and a major economic shock could cause a downturn. As stated earlier, the term “cautiously optimistic” best describes how we all should be feeling about the Multi-housing Market in 2019.