Making Money in Housing –

Following is a 7 minute video that was aired the 24th of August on CNBC with Hessam Nadji of Marcus & Millichap Advisory Services, and Alex Goldfarb of Sandler O’Neaill & Partners.

The subject of the interview is how to make money in the housing sector right now

Here are some key points.

  • Apartments leading recovery by demand, followed by industrial properties
  • The Commercial Real Estate sector usually trails the economy by 6 months and Multi-Family is usually the first to recover (which is starting to happen) due to there short terms leases.  The meaning is that since the apartment leases are usually a year or less they can be adjusted upward as the market or that segment improves.
  • Starting to see multi-family REITS doing better. Raising there rents on average of 5% over the last 12 months.
  • Home ownership is going down which is good for rentals.
  • Some people are realizing that owning homes is very expensive and only having to write one check for their rent is attractive.

They also talked briefly about the fact that institutional investors are looking at core trophy properties and locations.  They are much more conservative and are betting that once a recovery happens that there will be above average rent growth due to the supply constrained markets they are in and the lack of multi-family construction that has been done.

I know many of you probably wonder why a company (institutional/REIT) would buy buildings at 5 CAP rates and it is a good question. What you need to consider though is they are usually more conservative and they are comparing these investments to T Bills which are giving almost no returns.

Private investors are looking at non core properties B & C. This is what most of us will buy.

Personally I am thinking that it is time to start considering Apartments again (remember I am more of an apartment investor than houses but it is the houses where we are making the returns right now because there are not many attractive apartment deals we are finding).

I don’t believe in just jumping right (back) in. I like to wait until there is some type of pricing trend because right now there is not enough sales in San Diego to be able to accurately price apartment buildings.

It’s also good to watch other people work out the kinks and really study the market/niche you are going into. Knowing the market (your niche) better than your competition is how you create opportunities for yourself. For example if you know rents can be 20% higher than your competition because you know that segment better you have the advantage of making better choices.

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