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#33 Multifamily Market Update: 5-20 Unit Buildings · Own More Doors

• 0:00
  SPEAKER_00: What's up everyone?
• 0:01
  SPEAKER_00: Juan Weezar here with the Own More Doors podcast.
• 0:04
  SPEAKER_00: This specific episode was first shared on our YouTube channel, Sage Real Estate.
• 0:08
  SPEAKER_00: Check it out.
• 0:09
  SPEAKER_00: And we're excited to bring it to you here.
• 0:11
  SPEAKER_00: Hey everyone, Juan Weezar here with Sage Real Estate.
• 0:14
  SPEAKER_00: And today is your 2024 end-of-year market update for five units to 20 units in the city of Long Beach.
• 0:20
  SPEAKER_00: So let's dive right into it.
• 0:21
  SPEAKER_00: Okay, so market update.
• 0:24
  SPEAKER_00: What is going on with the market?
• 0:26
  SPEAKER_00: Five units plus 20.
• 0:27
  SPEAKER_00: Now we all know that the five unit market and above is different than the four unit and below when it comes to investments.
• 0:33
  SPEAKER_00: Why is that?
• 0:34
  SPEAKER_00: Well, the four unit and below gets traditional 30-year financing, and the financing doesn't change.
• 0:42
  SPEAKER_00: And one thing that I've told you is you could go buy a fourplex so long as you qualify from an income perspective and buy a fourplex as an investment with 25% down.
• 0:53
  SPEAKER_00: The bank does not care if you lose money on the fourplex.
• 0:58
  SPEAKER_00: Doesn't care.
• 0:58
  SPEAKER_00: They'll still give you the loan, is what I'm saying, so long as you qualify and you have the down payment.
• 1:02
  SPEAKER_00: In the five plus market, they do care.
• 1:05
  SPEAKER_00: And so financing is much different.
• 1:07
  SPEAKER_00: And so those two markets are going to be performing differently.
• 1:11
  SPEAKER_00: And so this is what happened in 2023, what happened in 2024, and I will give you my professional opinion of what I expect to happen in 2025.
• 1:20
  SPEAKER_00: So make sure you stay till the end.
• 1:22
  SPEAKER_00: Sales are up by 40% from 2023 to 2024.
• 1:27
  SPEAKER_00: In 2023, we had 85 sales that fell into the bracket of five to 20 units, okay?
• 1:33
  SPEAKER_00: And in 2024, we had 119 sales.
• 1:36
  SPEAKER_00: So real similar to what I saw in the forplex market is that a lot of people have a lot of money and they want to invest.
• 1:45
  SPEAKER_00: And investors love investing.
• 1:47
  SPEAKER_00: And the one thing they hate is sitting on the sidelines.
• 1:50
  SPEAKER_00: Now, they'll sit on the sidelines if the values are gonna decrease because then they'll get a better deal.
• 1:57
  SPEAKER_00: But what happened was values did decrease, and I'm gonna get into that, but it didn't decrease enough.
• 2:02
  SPEAKER_00: They wanted bigger discounts, but regardless, the writing was on the wall.
• 2:06
  SPEAKER_00: Hey, things are not gonna get that much cheaper for you by now.
• 2:11
  SPEAKER_00: And so then that's why we saw a 40% increase in sales in 2024, which by all accounts is great if you're an owner and you own multifamily five units and above, and I tell you sales increase by 40%, we should applaud that.
• 2:28
  SPEAKER_00: Okay, that's something to celebrate.
• 2:30
  SPEAKER_00: That's good.
• 2:30
  SPEAKER_00: That means that there's market activity, investors still want your product.
• 2:34
  SPEAKER_00: Now let's go into the other part.
• 2:37
  SPEAKER_00: Um cap rate.
• 2:40
  SPEAKER_00: So this is where we saw a decrease.
• 2:42
  SPEAKER_00: So, well, a decrease in value.
• 2:45
  SPEAKER_00: Cap rates went from 4.8 on average in 2023 to 5.6 in 2024.
• 2:54
  SPEAKER_00: For those of you who watch my channel, you know that when cap rate goes up, values drop.
• 2:59
  SPEAKER_00: So for the owners, cap rates going up meant a decrease of their asset, okay, by like 16, 14, 16%.
• 3:09
  SPEAKER_00: Means their asset is worth less now.
• 3:12
  SPEAKER_00: For the investor, the rate of return increased.
• 3:16
  SPEAKER_00: It got better.
• 3:18
  SPEAKER_00: And so for the investor, them waiting was a good thing.
• 3:22
  SPEAKER_00: Now they're they're sitting on a much higher uh yield than before, and they're happy, and they got a cheaper price.
• 3:28
  SPEAKER_00: And so that's a very good thing.
• 3:31
  SPEAKER_00: When it comes to larger units, five units and above, one of the measurements is they call it price per unit or price per door.
• 3:39
  SPEAKER_00: Like you take a 10 unit, it sold for 2 million, you do the math, and you figure out what it sells for.
• 3:45
  SPEAKER_00: Well, you want to compare that.
• 3:46
  SPEAKER_00: You want to compare, well, is that in the range of what everything else is selling for, or is it not in the range?
• 3:53
  SPEAKER_00: Now, we also do the same thing with cap rates and gross rent multipliers, but for now I'll just focus in on price per unit.
• 4:00
  SPEAKER_00: The average price per unit decreased by 9.91%, so about 10%.
• 4:06
  SPEAKER_00: So in 2023, the average price per door was 274,000.
• 4:11
  SPEAKER_00: In 2024, you got 247,000.
• 4:16
  SPEAKER_00: So values dropped, sales increased by 40%.
• 4:21
  SPEAKER_00: Of course, of course.
• 4:23
  SPEAKER_00: If the values got got better in favor of the investor, the investors are gonna are gonna get off the sidelines and go buy more.
• 4:30
  SPEAKER_00: And that's what we saw.
• 4:31
  SPEAKER_00: So is that good for the market?
• 4:33
  SPEAKER_00: Yes.
• 4:34
  SPEAKER_00: It's very good to have transactions because ultimately what really ends up happening is when an investor buys a new property, they're excited about it, and then this domino effect starts happening.
• 4:45
  SPEAKER_00: They start investing in the asset.
• 4:48
  SPEAKER_00: And in Long Beach, we have a lot of really old housing stock, and investors need to be incentivized to fix these properties up.
• 4:57
  SPEAKER_00: And sometimes they're incentivized by making the asset better, by being able to bring rents up to market.
• 5:02
  SPEAKER_00: Now, there are statewide rental restrictions, but that's the motivation.
• 5:07
  SPEAKER_00: Folks, for anyone watching this, investors need the motivation.
• 5:10
  SPEAKER_00: If there's no motivation, our aging housing stock stays the same and we're not providing the best housing we possibly can to our tenants.
• 5:19
  SPEAKER_00: So critically important.
• 5:20
  SPEAKER_00: It's a direct result.
• 5:21
  SPEAKER_00: You can't have one, you can't ask an investor to go dump all this money into this property, make it better in.
• 5:26
  SPEAKER_00: Oh, you can't raise rents.
• 5:28
  SPEAKER_00: Wait, where's the rate of return?
• 5:31
  SPEAKER_00: Where's the rate of return?
• 5:32
  SPEAKER_00: Right?
• 5:33
  SPEAKER_00: Okay, so again, let's not uh let's not make the housing provider, the landlord, let's not make them the enemy.
• 5:39
  SPEAKER_00: They're not.
• 5:40
  SPEAKER_00: They're they're housing providing, and a lot of them are doing a really good job.
• 5:44
  SPEAKER_00: There's some bad apples out there, but a lot of them are doing a really good job.
• 5:47
  SPEAKER_00: Days on market, really important.
• 5:50
  SPEAKER_00: If you're an owner, one, how long is it gonna take to sell my property?
• 5:54
  SPEAKER_00: In 2023, took 148 days.
• 5:58
  SPEAKER_00: In 2024, 133 days.
• 6:01
  SPEAKER_00: So dropped down by 10%, 10.14 to be exact.
• 6:05
  SPEAKER_00: So let's call it 10%.
• 6:07
  SPEAKER_00: Now that kind of makes sense.
• 6:09
  SPEAKER_00: Values dropped, investors came off the sidelines, therefore, properties sat on the market a little less.
• 6:15
  SPEAKER_00: They're still sitting on the market a long time.
• 6:17
  SPEAKER_00: Why are they sitting on the market a long time?
• 6:22
  SPEAKER_00: There's for the properties that are not selling, it's because a couple things.
• 6:28
  SPEAKER_00: One, they're definitely overpriced, and people do not see future value in buying that asset.
• 6:34
  SPEAKER_00: Um, one of the terms that we'll use is value add.
• 6:37
  SPEAKER_00: Value add means I'm getting I could buy this property, and there's a path for me to make this property better.
• 6:45
  SPEAKER_00: But what has been happening, um, brokers and brokers that I work with are doing a better job of pricing properties correctly.
• 6:53
  SPEAKER_00: Now, sometimes the owners get in the way and they they want the value of three years ago.
• 6:59
  SPEAKER_00: The value that was a four cap, a four point five cap, and they don't want to hear that it's five, five and a half, six, depending on what part of Long Beach you're in.
• 7:09
  SPEAKER_00: Okay, they don't want to hear that.
• 7:10
  SPEAKER_00: That's the truth.
• 7:11
  SPEAKER_00: And so properties are being priced better, um, but not good enough where everything's selling.
• 7:18
  SPEAKER_00: I mean, 133 days on the market is high for it's it's overall it's very high.
• 7:25
  SPEAKER_00: But things are selling, things are trading, that's positive.
• 7:29
  SPEAKER_00: But investors, they're not buying everything, they're buying properties that they believe there's perceived value in the future.
• 7:37
  SPEAKER_00: That's the only reason they're buying.
• 7:42
  SPEAKER_00: And so, what do I make of this?
• 7:45
  SPEAKER_00: What do I think is going to happen in 2025?
• 7:47
  SPEAKER_00: So I love the fact that in 2024 there were more activities.
• 7:51
  SPEAKER_00: So we don't have this trend of like, hey, every year there's less and less sales.
• 7:56
  SPEAKER_00: That's not the case.
• 7:58
  SPEAKER_00: We did see prices come down anywhere between 10 to 15 percent.
• 8:03
  SPEAKER_00: That's real.
• 8:04
  SPEAKER_00: We saw cap rates go up, of course.
• 8:07
  SPEAKER_00: And so moving forward, I'm very optimistic.
• 8:12
  SPEAKER_00: The five plus market is going to do well next year.
• 8:16
  SPEAKER_00: I expect that we're gonna have more sales, I expect that there's gonna be more inventory, and investors are gonna be excited of the options that are out there.
• 8:25
  SPEAKER_00: And so if you're someone who owns a property, give me a call.
• 8:31
  SPEAKER_00: Give me a call and let's figure out what is the path to victory with your building.
• 8:37
  SPEAKER_00: And if you're an investor, hey, let's have a conversation.
• 8:40
  SPEAKER_00: Don't forget, um, people like me and other people who do what I do, we're the first ones that get to see these assets as they come in.
• 8:48
  SPEAKER_00: And sometimes the owners are okay with them being sold off market, sometimes they're not.
• 8:53
  SPEAKER_00: Sometimes they definitely want it to be on the market.
• 8:55
  SPEAKER_00: Sometimes they say, listen, here's what I think it's worth.
• 9:01
  SPEAKER_00: Can you confirm that that's worth?
• 9:03
  SPEAKER_00: And do you have a buyer?
• 9:05
  SPEAKER_00: I don't want a lot of looky loose coming through the building.
• 9:07
  SPEAKER_00: And if you have a legitimate buyer, then let's talk business, right?
• 9:11
  SPEAKER_00: And so make sure that you, whether you're an investor or a seller, that you're aligned with someone like me, uh, working with Sage Real Estate or someone like us, someone who focuses in mainly on multifamily.
• 9:24
  SPEAKER_00: So if you have any questions, if you're in disagreement with me, the data doesn't lie, you might disagree that next year we'll be better.
• 9:33
  SPEAKER_00: Um, you may not be as optimistic as I am, but I certainly am.
• 9:37
  SPEAKER_00: So I want to tell you that February 27th, I'm gonna be doing a multifamily investor summit here in Long Beach.
• 9:43
  SPEAKER_00: And so if you're in the area, would love to have you there.
• 9:46
  SPEAKER_00: This is a half day event.
• 9:47
  SPEAKER_00: Lined up the day with great, tremendous speakers.
• 9:50
  SPEAKER_00: So if you're someone who owns rental property, come learn, come network.
• 9:56
  SPEAKER_00: If you're someone who wants to be inspired, someone who is gonna be owning someday, please make sure to get your tickets today.
• 10:03
  SPEAKER_00: Use promo code SAGE for 50% off.
• 10:06
  SPEAKER_00: There is limited seating, and so make sure you're there.
• 10:10
  SPEAKER_00: To that point, I do want to thank my sponsors, Noble Oak Es Pro, CoStar, B2 Insurance, Momenta Capital, and A1 All American Roofing.
• 10:20
  SPEAKER_00: I want to thank our sponsors for sponsoring that event.
• 10:23
  SPEAKER_00: Make sure to buy your tickets today.
• 10:25
  SPEAKER_00: Make sure to like, comment, and subscribe.
• 10:26
  SPEAKER_00: Don't forget to sign up for our annual multi um multifamily investor summit.
• 10:32
  SPEAKER_00: Hope to see you there.
• 10:33
  SPEAKER_00: That's all for now.