Wasilla Four Plex Sales August 28th, 2008
Jay was working on a CMA for a four plex and came across a surprising statistic. So far this year in the Palmer and Wasilla areas there have been only 5 sales of fourplexes, and 4 of them were foreclosures. These fourplexes sold for a median price of $220,000.
There are currently 13 fourplexes for sale in the same Palmer/Wasilla area. They are being offered at a median price of $325,000. It’s easy to see that there is about 2 years worth of inventory on the market. There is also a large gap between the expectations of the sellers and the buyers. Sellers are still expecting to get a price that is only possible in a hot market.
During the relatively hot market of 2003–2005 people were purchasing four plexes at prices higher than the rents justied. They were counting on appreciation and tax benefits to make up for their loss on the rental income.
Appreciation has stalled for the time being. Fourplex buyers have also stalled. They are still willing to buy but the deal needs to make sense, or is that “cents”. It isn’t normal for an investor to purchase a property knowing that it will lose money for the forseeable future. Unless the current rental income after all expenses currently shows a profit the buyers will stay on the sidelines.
At the same time there is some indication that rents may begin to rise. I talked to someone who advertised a two bedroom apartment on craigslist just yesterday. They received over 20 inquiries in one day.
While real estate sales have declined, our population has not gone down. The people have to live somewhere and many of them are renting. Rental prices will likely increase as a response.
It may be a good time to purchase a multi-family unit…just do it carefully and find one that makes “cents”. If you would like any help looking give me a call. 907 232–7900.
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Marty Van Diest, Tele 907.232.7900 / marty[at]valleymarket[dot]com
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Hi:
Robert Shiller in his updated book “Irrational Exuberance” indicates that except for two periods (after WWII and since 1998) REAL home prices overall have been mostly flat or declining. No longer can we expect “appreciation” when considering a purchase of a multiplex.
Awhile back I was inquiring about a Wasilla 4plex that was listed for approximately $280k. I dug out some previous yearend statements from the company which had managed our Wasilla properties in the past. When I considered figures for vacancies, management/advertising, utilities, maintenance, taxes, interest (or cost of capital invested,) it wasn’t until I got down to a price of $225k that we would break even.
Obviously, you could get “positive cash flow” if you paid a large down (or paid cash for the place,) but, that still isn’t what I would consider making a profit. In addition, most of the multiplexes that are on the market are either brand-new or those built in the 1984 time frame. The latter units are getting to a point where they will soon need extensive (expensive) repair.
Maybe, if (when) rents rise, some rental properties will become feasible. Until then…..
Don