Investors acquiring apartment buildings for income purposes should look at future financial projections over a 3, 5 and 10 year basis.  Conversely, investors thinking about selling their apartment building should consider the same time line.

One of the biggest impacts on value over the next few years will be capital markets.  The good news is currently lending rates are moderate helping owners to maintain value.  However, the future question is inflation and its impact on rates. 

In today’s credit market there is both fact and fiction about market liquidity.  Yes, it is true that many lenders are no longer making multi-family loans, but there are plenty that still are. 

The take away is moderate interest rates with decent liquidity may make the potential of selling now better than in the near future.  Especially if your time line to sell is within the next three years.

Recently I helped an investor close on an eight unit apartment building near the California Blue Line stop.  Not many sales these days so I thought perhaps you would like to know the basics:

Price:  $720K
Building:  11,000 square feet
Land:  8,000 square feet
7 Units:  2 bed/1 bath
1 Unit:  1 bed/1 bath
Brick Garage:  4 spaces
Outdoor Parking:  3 spaces

Asset Strong Points
Roof: single layer in good shape
Tuck pointing:  not much help needed
Windows:  95% replaced
Plumbing:  newer horizontal copper
Heat:  tenant heated with top notch GFA systems

The building had a value added through out the years; however, most units needed to be updated including the kitchens and baths.  The new owners did many new improvements other than kitchens but needless to say still a very good deal.  I can’t wait to find another.

I have written this post in response to commentary written by a national broker who sells large apartment buildings.  In reading his post, you will gain some current confidence as to why the apartment building sector may be positioned for recovery.  His basic premise is that home ownership is dwindling causing folks to become renters. 

He also suggests the lack of new supply of apartment buildings will cause a new imbalance between renters and available units.  I won’t argue with him here, but I think there is something much more significant to consider for Chicago apartment building investors.  The number one reason these investors should be optimistic is so many buildings have been converted to condos.  A recent review of the Eastern part of Logan Square revealed that more than thirty percent of these buildings had been converted.

Think about it!  Thirty percent of your competition has been eliminated.  Additionally, the replacement cost of these buildings provides a barrier to entry that will protect your investment from future competition.

Please see Richard Donnellan’s of ARA commentary:  http://www.globest.com/commentary/179495-1.html.

Apartment building owners on Chicago’s North and Northwest sides have not been hit hard by the distressed real estate market.  It is hard to say where prices are today because there is a lack of sellers and more specifically distressed sellers.  Many of the listings are priced at a capitalization rate of 6% which at a minimum indicates a lack of motivated sellers. 

One of the most important things to consider is today’s price compared to tomorrow’s rents.  I recommend that most of my investors have at least a ten year horizon for holding their buildings.  By following this advice, you will very likely see a meaningful increase in your property’s value and cash flow because you are locking in today’s price with your eye on tomorrow’s increasing rents. 

Please remember that when you buy correctly you can start making money from day one, but it will not compare to years nine or ten. 

I am currently collecting and analyzing my research of a two flat for sale off of Logan Boulevard.  The asking price is $304,000 and electronically via the MLS the pictures look good.  I estimate the building is about 1,100 square feet per floor with a normal Chicago lot size of 3,125 square feet.  Plus the listing claims it has a finished basement but this probably won’t be worth a whole lot. 

The significance is that this is the most significant price drop that I have seen in this premier section of Logan Square.  The listing originally started out at $650,000 a while back and then the seller lost the property to foreclosure.  The lender in this case is Fannie Mae and is also the current owner, ie this is a REO or bank owned property.

I am showing my buyer the property this afternoon and plan on creating a follow up post  on the true  condition of the building and more.

As a Logan Square resident and Chicago Real Estate Broker, I am constantly reading various media sources about our local housing market.  It bothers me that the national news reflects so much on our local situation when in fact it doesn’t at all.  People often see the pricing declines in California and think it applies locally.  Further people often read general local studies on pricing and apply it to themselves. 

Chicago has hundreds of separate real estate markets depending neighborhood, location within the neighborhood, property type, size, finish level plus much more.  The point is to get specific pricing information about your property and do not rely on general data studies that look broadly at these markets.

An example of a broad study follows:  http://www.chicagorealestatedaily.com/cgi-bin/news.pl?id=31845.
  

Bad economic news is abound and everywhere and it doesn’t seem to be slowing down anytime soon.  We need this news to stop or at least be mixed with good news for the Chicago real estate market to continue breathing. 

I remember last August when the first tidal wave of bad news hit.  Immediately the phone stopped ringing for our listings and buyers all the sudden were not interested in doing showings.  I feel like right now is much like last August except worse because the news is much more catastrophic.  Couple this news with the upcoming typically slower real estate season of Fall and Winter and you have the best buying season of the last fifteen years in Chicago. 

For those of you who think you are going time the "bottom" of the market by holding off for awhile, think again.  The bad news will soon be over and the spring buying season will be here before you know it.  Now is the time.

I just completed a quick keyword search within the MLS for listings that are labled with these terms.  What I found is no matter the neighborhood, you will find properties and distressed sellers.  I found a brick single family homes in North Center, condos along the lake front and three flats all over the City. 

Essentially REO and bank owned are exactly the same thing while a short sale and pre-foreclosure usually mean the same thing.  There is more risk for buyers with short sales as the negotiation happens first with the seller and then with lender who made the loan.  The important thing is to get educated on both types of sales before negotiating an offer.  The best way to receive this proper education is to use a real estate broker and attorney who have navigated these waters together before.