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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:
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.
For months we’ve been following the issue of water rates being hiked up in Glendale. This is obviously pretty important for people who own multiple buildings in the city because a majority of landlords pay the water bill for their tenants. Brittany Levine of LA Times has been keeping a close eye on this and really giving us a good look at how the rate increases could impact landlords. Her May 28th article has a cool data visualization chart that shows what 20.4% increase over the next four years looks like. Looking through her tweets, you’ll get a sense of how urgent this really is. Thanks for all your hard work Brittany!
I’ll be releasing a series of shorter posts about this topic in the coming days, including some responses from apartment owners here in Glendale.
In the meantime, if you own property in Glendale, I highly recommend checking out the data in the previously mentioned article and taking a look at how your own expenses will change in the coming years.
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:
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.
Looking for off-market commercial real estate deals? Avoid these nightmares.
Being in this business for so long and constantly being called on for “pocket deals” gives you an opportunity to learn about the mistakes people make in commercial real estate. Day after day, I talk to people who are looking for properties that aren’t currently listed on the market but are quietly for sale. My conversations with these people have taught me about the blindness in the marketplace toward these three problems with off-market real estate deals:
1. Who’s paying who?
Raise your hand if you’re a broker who’s gotten a call from someone saying, “I HAVE A BUYER, IF YOU KNOW OF SOMETHING I’LL SPLIT MY COMMISSION WITH YOU!”
Okay put your hands down, all of you. This is the most common mistake inexperienced brokers make. It’s general broker knowledge that if YOU have a buyer who’s looking for deals, chances are that same buyer has talked to at least a dozen other brokers or even property owners directly before they talked to you. You see, this is why most major commercial real estate firms preach to their agents to chase listings and listings only. Once you control inventory, you automatically gain access to buyers.
There are multiple scenarios in which brokerage fees kill deals. One, for instance, would be when an agent has a pocket deal but the seller is not willing to pay commissions in order to net a certain amount of money. On the other side, the buyer is represented by three different brokers who are sharing the deal and the buyer isn’t quite fond of paying commissions as well as meeting the seller’s price. Deal? Nope…no deal.
If you’re a buyer looking for off-market commercial real estate deals, you have two solid options: 1) work with EVERY broker and make it general knowledge that you’ll buy a certain type of deal or 2) work with one broker who is solely committed to finding you deals primarily, no one else. Securing their commission will prove extremely effective and if you can offer a marketing budget to help them get started, you’re sure to source the strongest deals possible. Steer clear of not delivering on your promises to brokers though, because word spreads fast.
2. Nothing off-market is 100% deliverable.
The lack of a listing agreement or contractual obligation to sell makes it very hard to differentiate which sellers are committed to selling and which ones are simply testing the waters. When you engage in a transaction with an off-market seller, know that you’re trying to negotiate and do business with someone who isn’t convinced that they need to do business with you. For what it’s worth, having the right broker can alleviate this concern. Most elite brokers are extensively trained in filtering out the least probable deals, because their livelihood depends on it.
3. You’re one of many. Stand out.
There are actually people out there who believe they’re going to be able to call every single commercial real estate agent in a specific market area and convince them to send them their pocket deals. Reality check: people want to work with people they like. That’s a multilateral fact. If you expect someone to put in hours of work and real effort to find you something to invest in, you better take the time to get to know them, get them to know you and why YOU are the only buyer they should focus on. I can’t stress this enough. Real estate (no matter which sector you’re involved in) always has been and always will be a business dealing with people as well as properties.
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.
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 email@example.com
In an age of intrusive technology and the ability to do business with people without ever seeing them, the real estate industry benefits greatly from keeping it mostly “face to face”. Of course, there are plenty of deals being done from across the country (especially after the REO business became so huge), but for the most part, that sense of wanting to do business with people you know and trust will never go away.
As an agent, I’ve always been adamant about meeting a prospective client in person before even talking about their investment. It gives us an opportunity to gauge each others motivations and style of doing things. For instance, every agent will tell you about at least one client who rubbed them the wrong way when they met in person and as it turned out, their gut instinct was totally correct and that client ended up being a waste of time or a headache. Some people handle these things differently depending on their circumstances, but more often than not, we tend to go with that intuitive decision we make about people when we meet them.
Clients on the other hand, are given the opportunity to have a little “job interview” type session. I would never list my property and trust my real estate investment in the hands of somebody I couldn’t get along with personally. Nor would anybody who’s smart enough to have property to sell. If you can’t sit in front of me and answer my questions in a straight-forward manner, why would I want to do business with you?
Now, with technology catching up to the industry, there’s a lack of balance. People either start their search for their real estate needs online and end up meeting someone off the internet that’s a bit weird, or they use their personal network and find someone via word-of-mouth. Either way, they’re looking for that trust. On the other side of the scale, I think it’s safe to say that most agents aren’t trained correctly. Natural talent aside, knowing how to immediately build rapport and follow the natural flow of decision-making isn’t common in real estate professionals. What ends up happening is a trial and error type of game that costs people time and money and ultimately slows down the volume of real estate transactions.
How can we find the perfect medium between “face to face” and “hi-tech”?
Ask any agent and they’ll tell you at least a few stories about sellers who insisted on pricing their property at an unreasonably high price and actually believed the property would sell. Of course, given the right location and attributes, it’s likely some of them even got their price, but a large majority of these cases end up in full-term listing periods and many failed negotiations.
As if a deal that fell through isn’t enough, now the seller and listing agent both have to deal with their property’s reputation being a bit tarnished. When I see an overpriced property on the market for months – for example – I’m almost unconsciously skipping over it as a possible fit for a client simply because the price throws me off.
Furthermore, it literally reduces the chances of your property getting the exposure it deserves! If I’m an active buyer looking for 10 unit properties in Glendale, and I know that most buildings that size trade in a certain range of price, I’m probably going to search the MLS or LoopNet within my criteria. So, what essentially happens is that overpriced 10 unit building doesn’t show up in my search results, so I never see it.
Trulia’s Michael Corbett published a blog post in January 2012 titled, “Pricing Matters: Using List vs. Sale Price To Stay A Step Ahead“. Michael explains that pricing your property too high (or low) can eventually turn your real estate into a “dead listing” (LOVE that term!).
While most agents (at least locally) would do anything to keep a listing even if it’s overpriced, it’s important to know the right and wrong ways to expose your name and/or property.
Sure, a few people do get lucky, but pricing according to realistic market prices is your clients’ best tool to a fast and profitable sale. The former approach will cause you to miss any opportunity of attracting multiple offers. It will also prolong the time it takes to sell and, eat up value time on the real estate market.
Need to sell your building? Read on.
The common theme in the real estate market today seems to be buyers who are actively looking for more “off market inventory”. Almost every active agent you speak with will tell you that they do in fact talk to numerous people who claim to be buyers but just don’t like what’s on the market. They’d rather see properties that aren’t on the market because they believe they can either get a better deal or find a value-add opportunity where they’d build some additional equity.
What this means to people selling their real estate (and their brokers):
If your property listed on a site like LoopNet.com, RedFin, your local MLS or pretty much any mainstream online real estate listing site, you’re essentially relying on those platforms to attract potential buyers to your property that’s for sale. Your building is presented on a uniform template (the same exact way every other property on that site is presented). People can see all the details about it in a way they’re used to, because they scour these sites so frequently that their brains are programmed to look for certain things. One of those things is your PRICE.
When a property’s price seems fairly low, what happens? Everybody wants to know why. So, you’ll get a bunch of calls and hopefully some offers. You’ll spend quite some time juggling between offers and eventually end up in contract at a much higher price than you listed the property for because of the bidding atmosphere created around your deal. This is the exact opposite of what happens when a property is listed at a price more than the property is worth. You’ll get a few low-ball offers from buyers who aren’t too serious and end up in contract at a much lower price point. Let’s not even mention the complications that come up during escrow like the real estate not appraising for what you think it’s worth and the buyer’s lender pulling out. IT HAPPENS ALL THE TIME.
In the most common scenario, an overpriced listing will sit on the market for months mainly because most people see the price and immediately move on. They gain the impression that the seller is simply stuck to his/her price, which is an immediate turn-off for buyers. That’s where the whole “put my property on a site online and wait until someone pays my price” mentality is extremely flawed. You can accomplish “your price” through sharp negotiation skills and marketing techniques, but it’s never going to happen when your property is branded into people’s heads as “that overpriced one”.
That’s where the off-market real estate community becomes a beneficial tool for sellers. If you’re able to engage a savvy broker who has a vast network of connections and is seen as the source for deals, you’ll be able to sell your property effortlessly.
More on this topic at a later time. For now, I’ve got calls to catch up on! Check out my other “offmarket” related posts in the meantime. Thanks!