If you take a look at the apartment market in our areas, you will see a stalemate between buyers and sellers that is keeping properties on the market for longer than sellers would probably prefer. (I know I’m getting sick of staring at the same properties day after day!)
For 2-4 unit deals:
- Many sellers are asking 12+x GRM
- At those multiples, there is no cashflow
- So, there needs to be a lot of upside in the deal to attract buyers like me, who will fix the building and raise rents to get a good return
- But sellers want GRMs that scare off buy-and-hold investors and prices per sq ft that scare away re-positioners
- However, there is still some action for really good properties at 11-12x GRM, because some investors believe in the areas enough to accept relatively little cashflow now
For 5+ unit deals:
- The days of selling these at 12+ GRM are done
- Why? Because you can’t lock a 30 year fixed loan on 5+ units and interest rates have moved up and will move up more
- At a high GRM, in-place cashflow is bad AND (because of the loan situation) you’re exposed to interest rate risk
- So, there are a bunch of properties sitting around on the market at around 11x, with no one to buy them
Until sellers get the memo and re-price 2-4 units deals in the 11-12x GRM range and 5+ unit deals in the 10-10.5x GRM range, this stalemate will persist.