Back in 2008, we saw hundreds of vacant multifamily units hit the market as newly constructed projects became deliverable. I distinctly remember reading articles on Glendale News Press that had comments from furious residents who opposed the squalor of the construction, the environmental impact and traffic they would create, etc. You see the same exact things today. Not-so-coincidentally, if you trail back to 2003, you’ll see an even smaller amount of units hitting the market and the same amount of disapproval. On a chart, it looks something  like this:

Absorption, Deliveries and Vacancy in Glendale (10 yrs)

So, why should a private investor care about these new developments? 

Historically, construction surges have raised vacancy rates, thus reducing rental rates. This effect lasts two to three years and then begins recovering naturally. However, if you look at the 10 year graph above, you’ll notice that today’s construction boom of apartment buildings in Glendale is much more intense than previous years. That doesn’t even account for the ones that will still begin construction after this year.

More units on the market means more competition for landlords when leasing a vacant apartment.

We’ll be sharing more data and interesting information  on this topic more frequently  from now on. Please subscribe to our blog to receive updates.

The graph above shows the average sales price per unit of residential income properties in Glendale and Burbank over the last ten years. I think this kind of data is kind of hard to ignore, especially when there is so little inventory currently on the market. First, let’s clarify what that graph means. So theoretically, if I own a 4 unit multifamily property in Glendale, in glory days of the real estate bubble in 2006 my building might have been worth somewhere around a million bucks. Today, it’s not unusual to see buildings like that trade for 5%-10% above asking price, in the $1,100,000-$1,300,000 range. Also, I want to point out that over the last ten years, only 62 of these properties have actually traded hands.

Skipping back to the topic of the “asking price”, let’s take a look at another interesting graph:

(By the way, let’s get a round of applause for CoStar and their amazing data research services.)

This one shows us the sales price to asking price differential. Typically, sellers used to get really cheesy low-ball offers on their properties and because most of them had loans maturing or wanted to exchange into a newly built home, they had to take what offers they had. Today, there is such a high demand for these types of investments that we get flooded with buyers calling us for about a week after we list it on the open market. We’re currently in the middle of selling a property at 1163 Western Ave in Glendale. Upon listing the building at fair market value, my e-mail, phone, and website were getting anywhere between 70-100 inquiries a day for the first two weeks from buyers or buyers’ agents.

“Pricing ahead of the market” was a trend in the last bubble. The market was on a constant incline and that meant a seller could list their home today for fair market value and have that property be worth even more a week after. So, naturally, you had sellers who would put fairy tale price tags on properties and would actually get it because financing was so easy to come by. Today though, there is so little inventory and such a high demand for multifamily properties that no matter what you list your building at, you’re bound to have enough interest to be able to start a bidding war.

Where Do We Go From Here?

As many of my mentors used to say, “Nobody has a crystal ball that can tell us what the market will be like a year from now.” However, we do have data and some brain cells left. I’m no economic analyst and have no business making market predictions, but it’s my guess that we’ll continue to see improvement in the multifamily sector in Glendale and Burbank simply because of the major opportunity at hand for property owners to get the high price they’ve been waiting for and strong demand for apartment investments. This will go on until the new residential unit developments in the area begin to compete directly with vacancies of older buildings.

Enough about my thoughts on the subject! Let’s hear what you have to say.

For those who are getting into the business of flipping residential properties, we’re giving away some family secrets that have helped us find success in this tough market. These helpful tips apply to the process of buying, renovating and selling single-family residences.

Of course, because we’re based in the Glendale area and mainly focus on properties in Burbank, Glendale and the Foothills (La Crescenta, La Canada Flintridge, Sunland, Tujunga), some of the things we’ve proven to work here may not apply to other markets abroad, mainly because of cultural, economical and sociological differences. (That’s kind of obvious, but it’s something to keep in mind.)

1. Stick to your guidelines.

It’s very easy to overpay on a property these days, thanks to the massive amount of competition for properties in the Glendale area. When looking to acquire a property for investment, it’s extremely important not to stray from your set of investment guidelines. These guidelines are metrics or prices you determine that are optimal for your investment. For instance, when analyzing a potential purchase, you should already have a good idea of what your costs and expenses will be (down payment, hard money loan, renovation budget, maintenance, utilities, eviction, etc.). You want to be able to have a formula that will help you figure out what your MAXIMUM purchase price should be if you’re going to make money, and always stick to it. If people overbid on a property, that’s their problem. Let them lose money on a deal. You’re looking for sound investments that will make you money, not headaches.

2. Never settle for “good enough” work”.

Unless you’re a contractor yourself, you’re going to meet a lot of craftsmen who like to cut corners. Build a team of guys that you like whose work is their passion. Luckily, in our area, there’s a huge number of skilled painters, tile-setters and contractors who take real pride in their work.

Also, a big mistake people make is getting cheap when it comes to material and fixtures. Wal-Mart toilets and mismatched counter-tops are never going to help you justify your price. Your objective is to completely transform this run down old house into a gorgeous new home for someone’s family. The purpose of making the home absolutely impressive is because if you do this enough times, you begin to build a reputation among the real estate agents in the area for putting out quality inventory that’s fun for them to show and sell. Keyword: SELL.

3. Have an expert interior designer stage your home.

After diligently spending time and money on a quality renovation, it only makes sense to compliment the work with proper staging. Recently, we’ve been using a company called Color Me Sold to bring our investment homes to life. There hasn’t been a single person who walks through our properties and doesn’t leave with a smile on his or her face.

4. Use a Realtor who has strong negotiation skills.

How do you know if a real estate agent has strong negotiation skills? Try to negotiate their fee. No one negotiates harder than a broker whose fee is about to get cut. If they don’t, you probably don’t want them negotiating price on your behalf.

5. Be a good neighbor.

When you purchase a home you’re eventually going to remodel and sell, it’s important to understand that although you’re not living there, you’re still part of the neighborhood and community. From a financial standpoint, you’re helping these people’s property values to go up. You’re eliminating an eyesore of a house on their block. You’re adding real intrinsic and extrinsic value to their neighborhood. If you acknowledge that and get to know the neighbors in the area, you’re soon going to find more and more opportunities to buy. Genuine care about other people goes a long way in this business.

Happy Flipping!

More often than not, every commercial real estate broker must overcome their clients’ objection to sign a listing agreement. It seems to be the tipping point where a hot lead turns into a probable deal in the eyes of brokers. Some people have various sales tactics. They all do it differently. Some people have the natural magnetism that gets people to sign documents without any objections. Others have to beg and plead with their clients to PLEASE just sign the listing agreement.

Some of the top producing brokers out there will tell you that if their client is hesitant to sign an exclusive listing agreement, they aren’t true sellers and their time is being wasted. Others will agree to keep their eyes and ears open for a buyer who might be willing to enter into a contract with a seller who isn’t committed to selling. Whichever way we look at it, the truth is that selling a property without properly marketing it and exposing it to as many qualified buyers as possible goes completely against the American models of fair trade and capitalism.

In October’s issue of REALTOR Magazine, Robert J. Bailey of MLSListings Inc. wrote an article titled Off-MLS is Off-Base, which talks more about the Fair Trade Model and how the real estate industry has evolved to having this expansive MLS thanks to technology. He also shows how “properties marketed off the MLS have nearly doubled over the past year in some parts of California.” That means that either 1) more and more brokers are treating their sellers unethically by not exposing the property to the market so that they can double-end the deal and earn double the commission or 2) sellers are not committing to selling their property until they see reasonable offers from brokers (which at that point, signing a listing agreement and going to market is almost pointless). It’s a sad trend, because not using the incredibly powerful listing and marketing tools available to real estate professionals today is like going back 100 years to sell your property, where your real estate agent would tell a few people in his circle about your offering and try to drum up interest by word of mouth.

To property owners, it seems much easier to tell 100 different brokers they want to see offers rather than sign a listing agreement with one broker. Why? Because if 50/100 of those brokers remember his property, some of them will pitch it to a prospective buyer just to have something to pitch. If – let’s pretend – 20 of those brokers actually pitched the deal, a few of them might actually be able to write an offer, right? Then the only the seller needs to worry about is accepting an offer with a high enough price. The truth is a large majority of the time, brokers don’t waste their time with uncommitted sellers. We’re trained to practice Probability vs. Possibility brokerage, to put effort only in deals which are certainly probable to move forward.

Although, with the amount of people looking to buy off-market property these days, the two worlds may have been reversed already. Every single day I talk to at least a dozen new people who only look for off-market properties. A lot of times, they’ve not only seen everything on the market, but they’ve already scoured through dozens of off-market deals and tried every owner they possibly could. In a perfect world, supply and demand would somehow settle down and balance out. I guess this “chaos” is just a way of keeping things interesting.

To find out more about how listing your commercial real estate for sale instead of relying on off-market magic will benefit you, feel free to call me now at (866) 251-3851 or drop me a line at george@verdugoproperties.com