As you know, I sell investment properties through Swope Investment Properties. I sell mostly multi-family properties because my clients' realize that the financial analysis is crucial. For the most part, investors purchasing single family homes don't think about the financial analysis and tend to seek out home sales specialists. Because single family home rentals are now in demand from both renters and investors, the market is heating up. And due to articles like,  6 mistakes-landlords make published in the WSJ, investors are understanding that they probably should identify someone who specializes in income properties and should have a full understanding of the potential rents and expenses and what kind of performance they can expect. So I am now working with many investors on purchasing homes. What I wanted the readers to know is that the market for homes under $150,000 is FAST. Just yesterday a great home listed for $110,000. By the time my buyers responded and approved making an offer, there were already 4 offers in and over list price. So the bidding war was on. For the most part, financial performance is not as good as something like a four plex, but I think these investors are looking at the low cost of entry (smaller down), great interest rates, great potential for appreciation due to the low prices, and for the most part, single family rentals are less trouble with higher quality tenants.

 

The following link takes you to a great post from Hennessey Appraisals where they provide some data showing values hit bottom and are correcting. I like the approach by comparing what a specific property sold for during the height of the market and then what it sold for years later in a declining market. On face value, some may state that this data doesn't support what I've been posting, so let me explain. Swope Investment Properties tracks duplex and four-plex sales in Ada and Canyon Counties. What we've been looking at is: Inventory (# of listings), pending deals, number of solds, calculated absorption levels, and percentage of distress sales (foreclosures and REOs). Hennessey Appraisals acknowledged that most of their second data points were from distress sales. From our data, I can tell you that we have gone from 97% of the solds being distress sales in June of 2010, to 34% in January of 2012. Our absorption rate has gone from a high of 52 months in August of 2008 to just 4 month's last month.

 

I've been stating that values are increasing. In August of 2010 I lost a deal because a four plex appraised for $190,000. In November of 2011, this same 4 plex appraised and sold for $225,000. What was the difference? With the low inventory levels, turn key properties are increasing in value. Older properties in poor condition seem to be a bit slower.

 

Click here to read the report from Hennessey Appraisals.

 

 

Last month I posted some good news about refinancing becoming lot easier and many of my clients, to include myself have successfully refinanced at a much better rate. However, a good number of my clients were not able to due to a poor appraisal, none of which were from Hennessey Appraisals (just in case their reading too). Before all of the changes in the lending world, appraisers that specialized in income properties were used. Today, they go into a pool and I think the lowest bidder is selected. So the issues I am seeing is that distress sales with absolutely no adjustments are being used as comparables. I have represented a number of clients who have purchased distress sales and I would say the average cost to get them in rent ready condition has been about $22,000. Additionally, some are simply using comparables. They find a building with similar floor plans, similar finishes and pretty much compare cost/sq ft. By looking at the photos, anyone would say that the buildings were very comparable. However, if that appraiser would have dug in and calculated Net Operating Income, they would have found that one building had about $200 per month in additional expenses. Based on current cap rates and other metrics that I calculate per sale, that should have caused the other property to be worth about $34,000 more. That kind of discrepancy is unacceptable.

 

Tony A Drost

http://www.frpmrentals.com/
http://www.boiseinvestmentproperties.net//
First Rate Property Management, Inc
Boise, ID