Prices coming down?

[JordanRich]

I was speaking with a older gentleman today and he mentioned like most people are these days to stay away from real estate for a while. He even compared his house falling 30% during the early 90`s and taking 12 years to come back to prior levels.

My point was that yes, times might be challenging but using REIN`s methods to purchase you can find opportunities where others are not looking. That being said it does make me ask the question what could happen to for example Multi residential buildings in Ontario, could they go down by 30% or are they valued differently?

Does anyone have any stats on Multi Res property prices and how they have performed during down periods? i would assume that they would perform better then single family homes but I just don`t know.

 

[Thomas Beyer]

QUOTE (JordanRich @ Oct 23 2008, 05:57 PM) I was speaking with a older gentleman today and he mentioned like most people are these days to stay away from real estate for a while. He even compared his house falling 30% during the early 90`s and taking 12 years to come back to prior levels.

My point was that yes, times might be challenging but using REIN`s methods to purchase you can find opportunities where others are not looking. That being said it does make me ask the question what could happen to for example Multi residential buildings in Ontario, could they go down by 30% or are they valued differently?

Does anyone have any stats on Multi Res property prices and how they have performed during down periods? i would assume that they would perform better then single family homes but I just don`t know.
Edmonton prices are down 30% from its insane peak last year (induced by condo converters, now some facing bankruptcy) .. where the average was over 120,000/door .. now down to a more reasonable 90/door and falling still .. I will buy again when CAP rates are 7-7.5% .. or 70`s/door in Edmonton !

Had they not risen to 120/door in 2007 from 60`s/door in 2006 .. then you would not see this kind of price drop .. so Multi-Family does VERY WELL in downturns as we will have more tenants !

 

[JordanRich]

QUOTE (JordanRich @ Oct 23 2008, 07:57 PM) I was speaking with a older gentleman today and he mentioned like most people are these days to stay away from real estate for a while. He even compared his house falling 30% during the early 90`s and taking 12 years to come back to prior levels.

My point was that yes, times might be challenging but using REIN`s methods to purchase you can find opportunities where others are not looking. That being said it does make me ask the question what could happen to for example Multi residential buildings in Ontario, could they go down by 30% or are they valued differently?

Does anyone have any stats on Multi Res property prices and how they have performed during down periods? i would assume that they would perform better then single family homes but I just don`t know.

Thanks Thomas, so if i understand you correctly one of you keys is to focus on cap rates. In city`s outside Toronto some place are asking close to 90 a door and about a 6.5 cap. When I do the math it doesn`t make any sense and doesn`t cash flow! one of the agents I use keeps saying that us REIN members will always have a hard time purchasing mulit-res because of all the extra cost we use. eg staying power fund, what`s your take on that? also have you ever seen cap rate`s at 9-10?

 

[bigbabba]

Thomas, its nice to see an honest opinion. Usually people who have a vested interest in anything will always be in a defensive zone regardless of circumstance.

 

[Thomas Beyer]

QUOTE (JordanRich @ Oct 24 2008, 07:39 AM) Thanks Thomas, so if i understand you correctly one of you keys is to focus on cap rates. In city`s outside Toronto some place are asking close to 90 a door and about a 6.5 cap. When I do the math it doesn`t make any sense and doesn`t cash flow! one of the agents I use keeps saying that us REIN members will always have a hard time purchasing mulit-res because of all the extra cost we use. eg staying power fund, what`s your take on that? also have you ever seen cap rate`s at 9-10?
CAP rate is one metric .. price per door is a 2nd .. and rent growth is key as well .. as is: condition, location, condo conversion suitability, interest rates, mortgage, VTB, suite size, balconies, rent control laws, status of major items .. many factors drive a price !

90`s/door is OK if the rent is $800 to $1000/month .. is it ?

yes I have seen CAP rates of 9 - 10 .. but usually in very small towns only ..

expect CAP rates to rise slightly in multi-family as money is now more expensive .. and expect them to rise A LOT in commercial, like office, industrial and retail projects as mortgages for those have risen A LOT MORE (no CMHC !!) .. plus they are more impacted by a slow-down than multi-res !

 

[Dan_Eisenhauer]

Yes, cap rates have been in the 10 and 12 range before. As Thomas points out, as interest rates and the difficult in finding money for ICI projects go up, so go Cap Rates. Cap Rates were in this range in the early 80`s

That being said, cash flow will determine the value of an income property more so than ups and downs in the "arbitrary" value of residential properties. Cap Rates will move, but they take longer to come into effect than a quick up or down turn in the stock market, or the slower changes in the residential market. It takes months for investors and sellers to come to recognize the fact the Cap Rates have changed and that values have changed.

In other words, the value of income property fluctuates less than residential real estate, but it does move.

 

[housingrental]

Higher cap rates are sometimes possible in larger centres but not turnkey - looking for near vacant and underrented properties in poor condition that are priced cheap enough that you can add value to them through renovation, renting, or modification (less larger suites turned to more smaller suites, additions, etc..)

In Waterloo for smaller properties legalizing accessory apartments is often a way to get this.

 

[Thomas Beyer]

QUOTE (housingrental @ Oct 24 2008, 10:52 AM) Higher cap rates are sometimes possible in larger centres but not turnkey - looking for near vacant and underrented properties in poor condition that are priced cheap enough that you can add value to them through renovation, renting, or modification (less larger suites turned to more smaller suites, additions, etc..)

In Waterloo for smaller properties legalizing accessory apartments is often a way to get this.

right on !!

This is what we have been doing for years .. and hence CAP rate is often a poor metric to value going-in prices ! A better is: how much upside can I create through sensible improvements ! Hence, price/door is often the key metric relative to rent today and rent tomorrow !

 

[GarthChapman]

QUOTE (housingrental @ Oct 24 2008, 09:52 AM) Higher cap rates are sometimes possible in larger centres but not turnkey - looking for near vacant and underrented properties in poor condition that are priced cheap enough that you can add value to them through renovation, renting, or modification (less larger suites turned to more smaller suites, additions, etc..)

In Waterloo for smaller properties legalizing accessory apartments is often a way to get this.

Great answer Adam. Cap Rates are a measure for the Lender. You the business person should buy based on cashflow and on how much value you can add to the asset. That added value becomes your equity, which can be monetized (turned into cash) by refinancing or selling, at any time you choose. You can do this on any scale, from small to very large.

This is how we bought most of our properties with no money partners and not much of our own cash. But it takes having an eye for how to create the value, a willingness to take the risk, and then hard work to complete the value add process.

 

[Nir]

Hi All,

Great input.

Wanted to bring us back to part of Jordan`s original question - "does anyone have any stats on Multi Res property prices and how they have performed during down periods?"

I agree with the theory presented regarding multi-res price trends. well, I buy`em myself. Still, it would be nice to review Multi Res property historical prices.

Any idea if and where this data exists?

Thanks,
Neil

 

[GarthChapman]

QUOTE (investmart @ Oct 24 2008, 12:58 PM) Hi All,

Great input.

Wanted to bring us back to part of Jordan`s original question - "does anyone have any stats on Multi Res property prices and how they have performed during down periods?"

I agree with the theory presented regarding multi-res price trends. well, I buy`em myself. Still, it would be nice to review Multi Res property historical prices.

Any idea if and where this data exists?

Thanks,
Neil

I think the data will be muddied by the impact that the Condo Conversion business has had on values. It didn`t exist 10 years ago but has had a gigantic impact on values over the last 5 years, so it could be a significant new factor going forward that was not in existance in past down-turns. I suspect Thomas Beyer could help with understanding this if someone finds the numbers and posts them here.

 

[housingrental]

Thanks Garth and Thomas.

Garth - I agree. I`ve gotten a number of places at 32k/bed that were worth apx. 45k/bed at the time once I spent apx 2k bed on them and my time. One of them was even on the market for apx 8 months while everything around it was selling for 50% more because it was so gross and had only 25% spaces filled.

Thomas - I don`t like price per door though - I think a better metric would be something along the lines of net income 1 year later / purchase price + capital expenses 1 year later (potential cap ? ) . Price per door in and of itself is problematic as it can often be discounted due to inherent product features - Ie located beside industrial, high utilities bills - no possibility of seperate meters - improving effiecency too costly, rustic below grade suits (ceiling height, window size), inadequate parking, rentability and tenant profile (ie 2 storey slab on grade vs 5 level 4 storey walkup with 1 level below grade) etc..

 

[Thomas Beyer]

QUOTE (housingrental @ Oct 24 2008, 06:59 PM) ...

Thomas - I don`t like price per door though - I think a better metric would be ...
Indeed .. it is one metric .. and it ghs to be used in context with location, condition, rent level today vs. tomorrow, how much upgrades are required ... etc. ...