This is Jonathan Aceves with an update on Multifamily Transactions in the 2-8 Unit Space for 2019. Here’s the Spreadsheet: 4th Quarter Market Report.
Overall, the market was steady in small multifamily for the year. The average price per door was $58,256, with an average Gross Rent Multiplierof 7.56. Anecdotally, we have seen overall interest in Downtown multifamily increase significantly.
Downtown, we’re seeing rents increasing, and I think this is helping to drive investors to renovate buildings and put make new product available. The 8-unit complex we sold on Fourth Street I don’t think would have sold two years ago, but rising rents made the property compelling for an investor willing to upgrade the units and reposition the property to students and young professionals.
We reviewed 36 transactions from 2-8 Units, with an average of $58,256 per door, and an average GRM of 7.56. Average price per foot was 64.07. We did find that GRM went down slightly over the year. There was one outlier, and when removed the Average GRM was 7.77.
We’ve shown Days on Market by this box and whisker graph, and it shows that 50% of all transactions closed betwen 50-150 days. There were some transactions that closed over a much longer period, one over 300 days and one at over 700 days. The overall average was 116 Days. I think what this shows is that if priced correctly and adequately marketed a multifamily property should close within 4-5 months.
My experience has been that if priced correctly, a multifamily property in this category should go under contract relatively quickly. We tend to suggest pricing a property with a fair margin to an investor, using market financing assumptions. Here’s a simple spreadsheet you can use to help think through a multifamily deal: Basic Multifamily Underwriting Worksheet.
Thanks for reading! What do you make of the numbers? What’s your opinion of the market?
Are you considering making an investment in a rental property? Here are a few considerations to help you, whether you’re thinking of buying a Duplex, Triplex, Quad, or even something much larger as your first investment.
Get good legal advice
I can’t stress enough how important it is to find an attorney that you trust who has experience dealing with commercial real estate to advise you in legal matters related to your investments. Your attorney will advise you with questions relating to incorporation, review of purchase and sale agreements, they will close your transactions, and advise you if a lawsuit or issue arises with your rental properties.
Hire a broker to help you evaluate your options
For your first transaction, it is a good idea to find a broker you trust to help you find deals and run numbers for you. This is especially important in markets such as Augusta, where duplex deals don’t last very long on the market or trade off-market. Also, it’s important to have someone who can help you navigate the underwriting process.
Hire a professional property manager
It is definitely a good idea to hire a professional property manager to handle your first deal. This also means that likely you will need to add an additional expense to your budget that the seller didn’t have if the property wasn’t professionally managed. It is always a good idea to interview a few managers, and have a good understanding of how their fees work.
Solid marketing and promotion to lease up your units
Professional pictures, a floorplan, even a 3-d tour—these are things that help listings to stand out and move quickly. Ask your property manager about them, and you may even need to help them put the marketing package together. Look at your competition—what are other apartments doing to attract tenants?
If you’re looking to make an investment, what are questions that you have? If you’re a seasoned investor, what are things you wish someone had told you?