It’s time to invest in Apartment Buildings

As most of us know, next crisis will lie among the commercial real estate, which includes: office, retail, industrial, warehouses, and apartments. We have seen many banks began to liquidate their portfolios to keep their businesses afloat as long as they can. With the gloomy economy, continue rising of unemployment rate, unstable consumer confidence, many businesses cannot sustain such hard hit, and choose to shut down, walk away from existing leases, filing for bankruptcy…etc. Therefore, commercial real estate is getting hit with high vacancy rates, and property owners can no longer afford their mortgage payments. In addition, most commercial loan term are 5 to 10 years fixed rate, many borrowers cannot refinance their properties since the lending industry is still tightening credits to a level that is considered over conservative. If you are interested in commercial real estate, apartment buildings can be one of the better commercial real estate to be invested in during this economic time. As the property value continues to decline, rental vacancy rises due to job losses, over leveraged properties, many property owners stopped their mortgage payments and filed for bankruptcy. At the same time, banks are losing patience and decide to sell their non-performing notes and assets to the public for 30-60 cents on a dollar to replenish their reserve and get rid of bad debts. When new buyer purchases these properties at such deep discounts, even with 20% vacancy, not only they are cash flowing and many of these are all-cash purchases. Once the economy returns, many ex-borrowers who had once lost their jobs and therefore foreclosed on their homes return to the job markets. Their credits have been damaged, and they will need to rent until their credit is repaired (unless for some magical reason the lenders are willing to lend again because they realize the “foreclosure” and “short sale” dings on consumer credits are caused by their own greedy lending practices in the first place). Also, there are much less construction during this recession, when the economy starts to turn around, rent rate will increase and vacancy ratio will decrease much faster than office, retail and industrial buildings. Since property value for 5+ units are calculated based on income, these properties will then increase value by many folds! For every $1000 per month increase in net operating income (NOI) at a 6% cap rate, your property value will increase by $200,000! If you are one of the luckier individuals who have 30% down payment for a 5+ units building and found a cash flowing building, you should not hesitate to invest in Apartment Buildings today! For more questions, please email me at HelenHChong@gmail.com or visit http://www.HCRealtor.com

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