This post is not about how to buy apartments, but when to buy apartments.
Is 2011 the best time to buy apartments in a generation? While commercial real estate is crashing all around, multifamily pricing has remained relevantly stable. Capitalization rates have had some upward pressure but there’s been no great glut of Class A properties washing up on our shores at bargain basement prices. Winter gloves always go on sale at the first sign of spring, right? Apparently this does not apply to apartment buildings.
The best time to buy a straw hat is in the dead of winter
Hindsight is always 20/20. And the good old days are always seen with rose colored glasses. Here are some reasons to consider buying apartments now:
- Pricing constraints (read: no rent growth) has kept sales prices on a per unit basis in a very tight band (market specific)
- Any one positive will begin to increase valuations, such as; lower unemployment, clearing of the foreclosure backlog, the White Sox winning the Pennant
- Construction starts do not turn on a dime. Once multifamily construction picks up there will be several quarters of lag for this new product to impact the marketplace
Stability is the word I use most often when referring to multifamily ownership. Stability in income and predictable cash flows. If looking only at the last two years, that’s a hard statement to make with a straight face. Review any recent ten year term, however, and the statement holds true. The multifamily sector as a whole holds its own very well as compared to other investment alternatives and within the real estate sector.
The best time to buy Easter eggs is the day after Easter
So if there is no fire sale occurring in the multifamily sector, in these, the worst of times, what happens when things turn around??? Dare I say prices will rebound. We’ve had limited rent growth the last two years (an under-statement), very low construction starts and no inflation to prop up prices. Yet pricing has remained remarkably firm.
While a great many people continue to look upward thinking “the best deal ever” is going to drop out of the sky and into their lap, real buyers and real sellers are doing deals. Transactions at fair prices are occurring, often on an all cash basis. My suggestion to buyers is that a historic review will reflect 2011 was a good time to acquire apartments- at fair prices in good markets.