Why Some Investors Are Seeing Opportunity Today
Long-term residential housing investors are seeing opportunity with the possibility of pricing adjustments.
“Big institutional buyers are suspending buying, which is an interesting move. We are still actively searching, but we are monitoring pricing very closely,” Mike Hills, VP of Investment Brokerage at Atlas, tells GlobeSt.com. “We are monitoring rents and vacancy, because if people can’t pay rent, it will change the price of real estate. In our financial modeling, we are building in higher vacancy rate, higher bad debt rate and better cap rates to make the financial plays. The biggest thing that we are doing is holding in the long term. We are buy-and-hold, fixed-rate investor. That is the way that I recommend people buy.”
This is specifically true of the long-term investment pool that Hills represents. “In the short-term, this is going to have a very drastic impact,” he says. “But, we all knew a downturn was coming. We had been on an upswing for years, and if this is the recession that is coming, then fine. That doesn’t mean that we aren’t buyers; it means we need to be a little more cautious and have cash on hand. There are so many unknowns, so the market requires more caution.”
While the firm is actively searching for new deals with an adjusted business model, it is also asking for an extension on current deals under contract. “We have extended the deadline on all of the deals we are under contract on right now,” says Hills. “We need more time to gather data. We are asking for a two-to-three week extension. No one knows what is happening right now. If we wait a couple of weeks, we can make a more informed decision.”
Atlas has been focused on Phoenix and Denver, and expects that—even in the event of a recession—those will continue to be strong investment markets with runway for growth. “I believe in the long-term of Phoenix,” says Hills. “However, jobs matter. If people aren’t working, it has a ripple effect through the entire market. All of that will have an impact on the valuation of properties in the market. The economic growth that we have seen will likely slow down and maybe pause.”
He also doesn’t expect to look into opportunities in primary West Coast markets. “The coastal towns are so expensive compared to the rent rates,” says Hills. “Because of the landlord laws, the threat of statewide rent control, I don’t want to own real estate there, and that won’t change if prices drop. At this point, I can’t see that being too much of a shift.”