In my opinion, investing in Apartments in the US has always been a good strategy for cashflow and even growth. Apartments are almost a hybrid of residential and commercial real estate. In the US, anything over 4 apartments in a building is classified as a commercial investment, but still driven by residential trends and demographics. On the other hand growth or appreciation of apartment buildings can be more linked to the Net Operating Income (NOI) of the building, more like the CAP rate of a commercial property. As much as capital growth in residential, particularly in a large number of US markets is not something you bank on, in apartment buildings, it can be something you have more control over.
For instance, if the rental returns in an area are rising or if you are able to rehab/renovate some units to increase the rental return, then the overall value of the apartment building will also increase, regardless of whether residential property is softening in the market or not. Its kind of having the best of both worlds in one investment. If the market in a region is booming and more and more people are buying homes, then house prices appreciate, and often apartments can “rise with the flow”. On the other hand, if markets are softening, becoming more of a buyers market than a sellers market, people get nervous, start selling and renting for a while. Rents can often increase as the demand for rentals rise, which can then increase the NOI of the building and hence, its value. Win – Win!
Now, there is a number of factors though, you need to take into account when looking at apartment buildings as an investment:
1. Management
Firstly, there is much more management involved. Apartment buildings are not necessarily for the “passive” investors, or those that want to sit, and forget their portfolios and just let them be. With the higher number of tenants involved in one building there is always a lot more management needed, even if you have a property manager in place.
2. Vacancy
You always need to factor in a vacancy rate for your portfolio, apartments particularly. Now one of the major advantages of apartments over houses, is that if you own 1 house and the tenant leaves, you now have a 100% vacancy rate on your portfolio until you are able to tenant the property again. If you have a one 7-apartment building for instance and one tenant leaves, that’s only a 14% vacancy rate. But understand, there is a good chance, particularly if you have a couple of apartment blocks that there will always be a couple of units vacant at any one time.
3. Affordability
Apartments can be much more expensive to purchase upfront, and costs such as property management, maintenance, insurance etc can also be higher as these are often treated as commercial investments if 4+ units. Need to ensure you factor in these costs when determining your returns and cash flow. Which brings me to the last point…
4. Returns
Returns on apartments can often be higher than single family or multi-family homes. Given the higher management and increased costs, the returns though can be better. If a particular area is giving 7-8% ROI in Single Family Residences (SFR’s) you may find apartment buildings can be 12%+, sometimes even higher!
If you are looking at a passive rental portfolio, and not afraid of the increase management and costs/affordability of apartment buildings, they can make an excellent addition to a portfolio. We have clients realising returns of over 17% on some apartment buildings and have seen EBIT’s (earnings before Interest and Tax) of over 25% possible – making sure to factor in increases in costs, maintenance and a vacancy rate.
If this is something you are interested in adding to your portfolio, book a call with us today!
Investing in US Apartments – A Good Strategy?
/in Education US Property, Property Investment Detroit, Think Abroader, US Market /by Lindsay StewartIn my opinion, investing in Apartments in the US has always been a good strategy for cashflow and even growth. Apartments are almost a hybrid of residential and commercial real estate. In the US, anything over 4 apartments in a building is classified as a commercial investment, but still driven by residential trends and demographics. On the other hand growth or appreciation of apartment buildings can be more linked to the Net Operating Income (NOI) of the building, more like the CAP rate of a commercial property. As much as capital growth in residential, particularly in a large number of US markets is not something you bank on, in apartment buildings, it can be something you have more control over.
For instance, if the rental returns in an area are rising or if you are able to rehab/renovate some units to increase the rental return, then the overall value of the apartment building will also increase, regardless of whether residential property is softening in the market or not. Its kind of having the best of both worlds in one investment. If the market in a region is booming and more and more people are buying homes, then house prices appreciate, and often apartments can “rise with the flow”. On the other hand, if markets are softening, becoming more of a buyers market than a sellers market, people get nervous, start selling and renting for a while. Rents can often increase as the demand for rentals rise, which can then increase the NOI of the building and hence, its value. Win – Win!
Now, there is a number of factors though, you need to take into account when looking at apartment buildings as an investment:
1. Management
Firstly, there is much more management involved. Apartment buildings are not necessarily for the “passive” investors, or those that want to sit, and forget their portfolios and just let them be. With the higher number of tenants involved in one building there is always a lot more management needed, even if you have a property manager in place.
2. Vacancy
You always need to factor in a vacancy rate for your portfolio, apartments particularly. Now one of the major advantages of apartments over houses, is that if you own 1 house and the tenant leaves, you now have a 100% vacancy rate on your portfolio until you are able to tenant the property again. If you have a one 7-apartment building for instance and one tenant leaves, that’s only a 14% vacancy rate. But understand, there is a good chance, particularly if you have a couple of apartment blocks that there will always be a couple of units vacant at any one time.
3. Affordability
Apartments can be much more expensive to purchase upfront, and costs such as property management, maintenance, insurance etc can also be higher as these are often treated as commercial investments if 4+ units. Need to ensure you factor in these costs when determining your returns and cash flow. Which brings me to the last point…
4. Returns
Returns on apartments can often be higher than single family or multi-family homes. Given the higher management and increased costs, the returns though can be better. If a particular area is giving 7-8% ROI in Single Family Residences (SFR’s) you may find apartment buildings can be 12%+, sometimes even higher!
If you are looking at a passive rental portfolio, and not afraid of the increase management and costs/affordability of apartment buildings, they can make an excellent addition to a portfolio. We have clients realising returns of over 17% on some apartment buildings and have seen EBIT’s (earnings before Interest and Tax) of over 25% possible – making sure to factor in increases in costs, maintenance and a vacancy rate.
If this is something you are interested in adding to your portfolio, book a call with us today!
Whats in Store for the US Market in 2019?
/in Think Abroader, US Market /by Lindsay StewartLooking back at 2018, we experienced a year of high expectations that largely did not disappoint. Markets continued to stabilise, economic promise grew along with property values, and the revitalisation of cities nationwide provided opportunities and population growth.
It was a good year for investors. But now, we have to ask ourselves: what does 2019 have in store for U.S. real estate? What national trends will shape the markets on the whole, and what do we have to look forward to…or keep an eye on?
This is what you need to know as we look ahead for 2019.
Top Predictions for the U.S. Real Estate Market in 2019
Balance is the word.
As we consider factors like growing inventory and the slowing of appreciation and asking prices, the word that comes to mind is balance. In 2019, we expect to see the return of more traditional housing markets that offer less frenzied, more evenly paced opportunities over the extreme environments we have seen booming in the last decade. These will be the exception. Savvy negotiators may be able to snag a great deal, and some markets are still on that rise – Detroit for example.
If buyers start to slow down, they will rent while waiting for the market conditions to change, thereby strengthening the rental market.
What’s the deal with interest rates?
Interest rates were at their lowest recent point post-recession in 2008. The federal government controls short-term interest rates, while the market dictates long-term rates. When the government changes the rates at which banks are allowed to borrow money, it can take several years to shift the economy on the whole, while the trickle-down affects the average consumer, where it has an almost immediate impact on things like credit cards, student loans, and yes…mortgages.
Interest rates are moving from a decade of being historically low to 5 and 6 percent as we enter 2019. Economists and real estate experts alike are concerned that this could hinder consumer spending power and make the burden of mortgages greater. In regards to housing, it may deter buyers even as housing prices are expected to fall. But most of this is what we would call “Sticker Shock” Its simply that interest rates have been at record lows for so long people lose sight of the fact that 5-6% is still quite cheap (remember the 15-20% of the 80’s and 90’s!)
Good news too though is that if buyers start to slow, the will rent for the mean time while biding time for the market to change, strengthening the rental market for us Aussie investors!
What about the trade war issue?
The global economy has always been a factor in the health of our markets, real estate included. The issue here is that tariffs and trade wars on a broad, global scale, may cause issues in the US domestic economic markets. Economists worry that cold economic relations with allies and a possible trade war with China could cause economic instability by 2020.
However, none of these things are guaranteed or set in stone.
Despite these predictions, good and bad, they are just that: predictions. The best we can do is to plan for the long-term and choose sustainable, smart investments that help you secure your best financial future.
the best and most expensive homes sold in Detroit in 2018.
/in Education US Property, Property Investment Detroit, Uncategorized /by Lindsay StewartLets have a quick look back at some of the best and most expensive homes sold in Detroit in 2018. Even though most of these are not investments, and most likely out of our reach but does show what is available and what areas buyers are paying top dollar in. We can use this information to source good properties in these areas and ride this wave. A couple of the regions will surprise you and a few of the better areas of Detroit are strangely missing (Grosse Point, Boston Edison) that were there last couple of years. Harper Woods is a great area near University District & Bagley where there is still some great deals available; and I was lucky enough to stay only a couple of blocks away from the Indian Village mansion when I was there in November last year!
Click the button below for the full article from “Curbed Detroit” or you will also find it posted on our Facebook site – Enjoy !!
Read the Article Here
Top 7 Traits of A Successful Real Estate Investor
/in Education US Property /by Lindsay StewartThis weeks education piece, I thought we would look more generic and put in an article from recent Forbes Magazine (or is that eZine these days? or iZine says Apple? Anyway I digress)
Over this Christmas, New Year break it can be a good time to reflect and look at setting up for 2019 for your wealth strategies. Firstly as I mention briefly before, we are finally putting the finishing touches on our online Flipping Academy! If you have ever wanted to know how to source, renovate and sell your own “Fix and flip” property then this will be for you! Stay tuned early January for details on how to get onboard!
Secondly, it can be good to look at what makes a good Real Estate Investor. Why do more than 70% of investors never get more than 1 property, never really see the wealth that Real Estate can bring? This article can show what qualities you may have or can work on 🙂
Click the button below for the full article from “Forbes” or you will also find it posted on our Facebook site – Enjoy !!
Read The Article Here
How to Flip Houses Without Much Money
/in Education US Property, Property Investment Detroit /by Lindsay StewartThe Revitalisation of Fitzgerald – Detroit MI
/in Property Investment Detroit /by Lindsay StewartFor today’s article, I want to highlight an area that I love investing in. Fitzgerald area in Detroit is fast becoming one of Detroit’s “go-to” suburbs. The city of Detroit have but together a plan to revitalise the entire area. Read on for more details and click the link below for the full story. Very apt given today’s – Deal of the Week as well! This is also an area we are heavily invested in and helping with the revitalisation.
Background
The vision for the Fitzgerald Revitalization Project is to transform a quarter square mile area by addressing every publicly owned vacant lot and house. Removing blighted structures, beautifying vacant lots and creating homes for new residents will contribute to stabilization, increased property values, and improved quality of life. The City of Detroit has developed a three-part implementation strategy to create a sustainable model for transforming and maintaining all parcels within the Fitzgerald Project Area:
Creation of a neighborhood park and greenway to be maintained by the Parks and Recreation Department
Development of economically self-sustaining, productive landscapes in partnership with one or more Productive Landscape Developers or Development Teams (Productive Landscape Development RFP)
Rehabilitation of all salvageable, publicly-owned structures and implementation of low-maintenance landscape strategies in partnership with a Housing Developer (Housing Rehabilitation RFP).
The Project
The Fitzgerald Project Area identified within the larger Fitzgerald neighborhood was selected for this pilot because of the concentration of publicly-owned vacant lots and homes. This smaller project area also allows for the overall impact to be focused in a walkable, quarter-square mile area.
To start the project, the City of Detroit commissioned an award-winning landscape architecture firm, Spackman Mossop & Michaels (SMM), to work with the residents of the Fitzgerald Project Area to create a Neighbourhood Framework Plan. SMM assessed the range of existing conditions and created a flexible, interstitial landscape plan to activate and improve vacant land parcels in a way that addresses every publicly-owned parcel in the project area. The plan incorporated feedback from residents on current neighbourhood issues as well as amenities and uses they would like to see in their neighbourhood. The plan provides a framework that balances the needs for greater open space, community gathering and recreation, opportunities to develop new productive landscape projects, and the sustainability of long-term maintenance.
Click Her for the Entire Artical
Five Best Cities to Invest in Rental Properties
/in Property Investment Detroit, Uncategorized /by Lindsay StewartWhen looking for rental properties, there are certain areas which offer a higher return on investment than others. Rental properties in areas that show prominent and steady job growth, population growth, and affordable cost of living are generally going to turn a bigger profit than a property in a high poverty area with little to no job growth.
Luckily, the United States seems to be chock-full of cities that match this description.
So where are these cities considered to be a best-buy? The top five cities to invest in stretch across the United States in various states showing that you don’t have to be on one particular cost to create a profitable rental portfolio.
Read more
How to Buy Property in the United States: 4 Tips for Australian Home Shoppers
/in Education US Property /by Lindsay StewartThe property experts at Zillow, the leading real estate marketplace in the United States, share their tips for Australian home shoppers looking north.
Maybe you fell in love with a new city while on holiday in the US. Maybe you’re itching for a new experience. Or maybe, after observing the American dream from afar, you’ve decided to pursue it for yourself.
Whatever the reason, you’ve decided to move to the land of opportunity. But the prospect of navigating a foreign tax system, calculating extra administrative costs or learning about a completely different housing market can feel overwhelming.
For Australians looking to buy a home abroad, here are tips to keep in mind.
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What Sydney’s Median House Price Will Get You in 10 US Cities.
/0 Comments/in Education US Property /by Lindsay StewartMADELEINE WEDESWEILER DOMAIN REPORTER FEB 21, 2017
For first home buyers and investors locked out of the property market the grass may be looking much greener in the United States.
Prices in Australian cities are as high as they’ve ever been with Sydney’s median house price hitting $1,123,991, according to Domain Group data.
Even the median price in New York City is much cheaper than Sydney’s at $US626,600 which in Australian dollars is $829,179.
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