Even real estate recoveries go in cycles, and the foreclosure “scoop-up” activities of investors are in a cycle as well. The recent activity of large investment firms in buying up single family homes for rental properties has created competition that many smaller investors find too limiting. These smaller investors are either individually or in small groups taking a look at apartment complexes as their new investment targets.
In many cases these investors start with smaller complexes of six to eight units and then work their way up to larger complexes. This process helps them to establish a credit and management history to attract lenders for larger deals. One individual example investor in a NuWire article is a former advertising executive who began his real estate investing with single family homes in Dallas TX in 2009. The market then was perfect for the single family home investor, but now this individual sees apartment complexes as a much better opportunity.
First, these investors begin their search for properties in areas with low vacancy rates. Apartment vacancies have fallen to 4.3% in the first quarter of this year. This is the lowest level since the first quarter of 2001, according to a report released by real estate research firm Reis, Inc. The lower vacancy rates come from the rise in demand created by a combination of factors:
• the housing bust and foreclosures
• economic recovery
• tougher mortgage requirements
• constrained supply of newly constructed apartments
With more people looking for apartments and hedge funds buying up single family homes as rental investments, small investors are finding opportunities in apartments. Higher returns and increased cash flow are the goals in buying five to ten unit complexes. The example investor started with four to eight unit complexes as an individual investor, and has since moved up to larger projects working with multiple private investors. He now owns a stake in 400 units across three states, and is looking to expand into other states.
The requirements for multifamily loans are based on the cost of the property, with loans under $3 million requiring a personal guarantor, but commercial loans with a pool of investors on properties more than $3 million are treated differently. The strength of the property and the cash flow are deciding factors.
Even real estate recoveries go in cycles, and the foreclosure “scoop-up” activities of investors are in a cycle as well. The recent activity of large investment firms in buying up single family homes for rental properties has created competition that many smaller investors find too limiting. These smaller investors are either individually or in small groups taking a look at apartment complexes as their new investment targets.
In many cases these investors start with smaller complexes of six to eight units and then work their way up to larger complexes. This process helps them to establish a credit and management history to attract lenders for larger deals. One individual example investor in a NuWire article is a former advertising executive who began his real estate investing with single family homes in Dallas TX in 2009. The market then was perfect for the single family home investor, but now this individual sees apartment complexes as a much better opportunity.
First, these investors begin their search for properties in areas with low vacancy rates. Apartment vacancies have fallen to 4.3% in the first quarter of this year. This is the lowest level since the first quarter of 2001, according to a report released by real estate research firm Reis, Inc. The lower vacancy rates come from the rise in demand created by a combination of factors:
• the housing bust and foreclosures
• economic recovery
• tougher mortgage requirements
• constrained supply of newly constructed apartments
With more people looking for apartments and hedge funds buying up single family homes as rental investments, small investors are finding opportunities in apartments. Higher returns and increased cash flow are the goals in buying five to ten unit complexes. The example investor started with four to eight unit complexes as an individual investor, and has since moved up to larger projects working with multiple private investors. He now owns a stake in 400 units across three states, and is looking to expand into other states.
The requirements for multifamily loans are based on the cost of the property, with loans under $3 million requiring a personal guarantor, but commercial loans with a pool of investors on properties more than $3 million are treated differently. The strength of the property and the cash flow are deciding factors.