PORTLAND, OR - Being a multifamily housing investor is good work, if you can get it. Multifamily properties are profitable in western Oregon and sellers are holding on tight. Lenders are also holding on tight, creating a significant barrier to entry for new investors. "The sellers are in a very strong position. Vacancies are low and operating expenses are low. There's not an incentive to sell," said James Martinson, multifamily housing specialist at Coldwell Banker Commercial in Salem.
The key to breaking into the current market is to have financing lined up and ready to go when a good buying opportunity presents itself. "There are buyers and sellers out in the market. The problem is the lending piece. The bankers haven't been anyone's friend. You need to be able to come in strong on a property," Martinson said. Lenders that might have made a multifamily loan on 30 percent equity a year ago may now require 40 percent. "That might mean the investor has to come up with another $50,000, or in some cases, an extra $500,000," Martinson said.
Lenders are also demanding that prospective borrowers provide actual rental income history from a targeted property rather than an average of the comparable market. There are still plenty of "fixer uppers" available, but first-time multifamily housing investors should proceed cautiously. "Just because a property looks old and tired doesn't mean it's a good candidate to be fixed up. You need to make sure that you're going to be able to get the rent increase you'll need," Martinson said.
Even so, Martinson feels multifamily housing has proven itself over the long run and remains a strong investment for the careful shopper. "First, get into it. Whether you do it alone, or with a group of investors, get into it. Second, have an exit strategy. Are you going to hold onto the property long-term, or are you going to own the property for three to five years, take the gain and invest in a larger property?"
Brian Porter of John L. Scott Real Estate in Portland is seeing more groups of multifamily investors, starting with duplexes. "The demand is very high. Five years ago, duplexes were primarily a vehicle for investors. Today, I'm seeing a lot of family members and good friends getting together and buying duplexes to live in. It's easier to make a four-plex cash flow than it is to make a duplex cash flow. The other side of that coin is, it's easier to make a duplex cash flow than it is to make a single family home cash flow," Porter said. "It's a dynamic that's affecting duplex prices."
You can still find duplexes for $300,000, but you'll have to hustle. "The rental market right now is fantastic. Vacancy rates are very low, and it's very easy to find renters," Porter said. The long-term average appreciation in the Portland real estate market is 4 to 7 percent, but make sure you have both the cash flow and the assets to withstand a prolonged downturn, Porter said. "I don't recommend, ever, that an investor get into a negative cash-flow situation on a property."
Portland is among the national leaders in the differential between the median cost of home ownership and median rental prices, which gives renters a strong cash incentive to stay put. The ability to attract and keep quality renters is the key to making money in multifamily investments. Incentives such as washer and dryer hookups, advanced wireless services and social gatherings that foster a sense of community help keep good renters in place.
Location is another key to keeping good renters and making sound multifamily investments. Gail Neuburg and Stephanie Fuhrman of Tilbury Ferguson & Neuburg Investment Real Estate Inc. in Portland recently issued a backgrounder on the greater area multifamily housing market. The numbers look especially good in the Beaverton-Hillsboro area, which they term the "turbo-charger" of the Silicon Forest's economic engine. "Yes, we're bullish on the Portland apartment market. Renters' exodus to home ownership has come to a screeching halt and there's no new construction," Neuburg said. "But the job market is very healthy, and it's a very desirable place to live, especially for the 25- to 34-year-old demographic."
Renters make up 43 percent of households in Beaverton, compared with 33 percent nationally. They also earn considerably more than average. "We've seen very aggressive rent growth over the last two years and we're going to continue to see it," Neuburg said. Beaverton/Hillsboro rents were up 5.2 percent verses 4.5 percent nationally. Locally generated market surveys are a more reliable indicator than national rating services, she believes. "We look at owners' financials day in and day out, and to me, that's a much more accurate record."
Source: Portland Business Journal