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Maybe It is Time To Sell Multifamily

Cap rates have gotten too low and there is a black swan risk and interest rate rise risk looming.

By Joel Ross | Updated on July 13, 2014

Some investors are beginning to question if a bubble is building in multifamily. Time and again lately, REIT’s and funds are swooping in at a 5% cap to take good multi properties away from private owner/developers who think that is a rich price to pay. More and more private investors work on their due diligence and preparing a bid at a 7% or even 6% cap proposal only to see a fund swoop in and take the deal off  the table with an all cash offer at a price that seems unrealistic. 

The easiest thing to finance for new development these days is multi and it is the easiest to exit with a quick profit, so a lot of multi is being developed or is in planning. While demand is still good for multi in many markets, and the concept of home ownership is apparently far less than it had been six years ago, there are limits and risks. Over building in some areas is becoming a real possibility and increasing rents may become much harder soon as the economy is still just muddling along and consumer spending is stagnant. Young people and families are not seeing much, if any increase in spendable income, and so rents may not have a lot more room to rise.

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