Minnesota Investment Real Estate

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This is our last post in our series about “The Garrison Cycle”.  A theory created in 1985 by Marc Garrison who also started the National Association of Real Estate Investors.

As we enter the Expansion Phase, demand for all property (investment, single family, new construction, and even rental) begins to increase.  Eventually, demand will overtake supply and prices of properties and rent amounts will increase dramatically.  The supply of vacant apartment will decline dramatically and landlords will be receiving dozens of calls for each vacancy ad in the newspaper.  Inflation will start to enter into discussions and on-market time will decrease dramatically with the best homes being sold even before the sign goes in the yard.

Because it is impossible to know how long this feeding frenzy for property will last, sellers should sell early to avoid the downturn into the Equilibrium Phase.  If they bought during the Decline or Absorption phases, the sellers should experience high returns on their investments.  Buyers should stay away from paying the over-inflated prices and look for solid performing properties that can weather the upcoming storm of the next phase.

The previous Expansion Phase started in 2001 and lasted until about 2005.  It was market by double-digit growth of prices in many markets.  In Minnesota, we saw multiple offers at over list price on the 1st day a property went on the market.  Unfortunately, the future is difficult to predict.  If the Absorption Phase actually starts in late 2008, history shows us that we may not see the Expansion Phase until 2018.

Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment real estate. He owns and manages almost 30 investment property units from single to multi-family. Find his blog at www.minnesotainvestmentrealestate.com. His website can be found at www.mnirea.com

We are exploring a concept called, “The Garrison Cycle”, in our continuing series.  This theory was created in 1985 by Marc Garrison who started NAREI.

In the Absorption Phase, all factors including prices, inventory, sellers & buyers motivation, economic climate, mortgage products, and even government regulation have changed from the previous two phases to make investment property attractive again.  The economy has recovered by adding jobs which will increase occupancy levels and driving rent higher. 

At the beginning of this phase, property prices will be at a rock bottom.  The number of properties for sale slowly decreases.  The government and lenders offer incentives to stimulate buying.  This phase is where the incredible profits are made as prices, rents, and occupancy all increase. 

Sellers that survived the Decline Phase are now able to find buyers for their properties, albeit at lower prices.  Most have realized that they can not command the unexplainable prices that they saw at the top of the market (in the Expansion Phase).

Previously the Absorption Phase started in 1991 and continued for 10 years until 2001.  Predicting the start and end of the current Absorption Phase is more difficult, but I believe we have not seen the bottom of the Decline Phase yet.  I hope we may see recovery and the start of the Absorption Phase as early as late 2008.  Unfortunately, you typically can only have 20/20 Hindsight and we may not know if my prediction is correct 3-5 years from now!

Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment real estate. He owns and manages almost 30 investment property units from single to multi-family. Find his blog at www.minnesotainvestmentrealestate.com. His website can be found at www.mnirea.com

In our continuing series, we are exploring a concept called, “The Garrison Cycle”, which was created in 1985 by Marc Garrison who started the National Association of Real Estate Investors, NAREI.

The Decline Phase is characterized by what Garrison calls a “psychological hysteria” where the down market feeds on itself.  Sellers now are unable to sell their properties, because they are unable or unwilling to take losses to get out.  Most buyers have retreated to the sidelines waiting until the market recovers, while some buyers prey on desperate sellers.

Occupancy levels and rents decline while foreclosures and defaults rise.  In response, the mortgage market tightens and the government tries to step in; both will ultimately make the situation worse.      

Looking back, we experienced the Decline Phase starting in 1985, accelerating in 1986 with the Tax Reform Act, and falling into full decline with the stock market crash in 1987.  We did not end the Decline phase until around 1991. 

In my last article, I stated that the Equilibrium Phase occurred recently in 2005-2006.  With the increasing foreclosure rates, the shake out in the mortgage industry, and the government trying to step in, I believe that we are fully now, in 2007, in the Decline Phase.  I hope that history does not repeat itself and we need to wait 4 years (until 2011) to see the end of this phase. 

Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment real estate. He owns and manages almost 30 investment property units from single to multi-family. Find his blog at www.minnesotainvestmentrealestate.com. His website can be found at www.mnirea.com

In a continuing series from last week, I am discussing a concept called, “The Garrison Cycle”, which was created by Marc Garrison who started the National Association of Real Estate Investors, NAREI, in 1985.

In the Equilibrium Phase, the market has topped out and is beginning to cool off.  Job Growth and residential income property appreciation in that specific market have slowed to the national averages.  As the phase continues, the hangover and wild ride of appreciate of the Expansion phase are beginning to catch up with investment property owners. 

Sellers are too late to command the premium prices of just a short time ago.  Buyers begin to look for deep discounts on investment property to offset the lower appreciation the market is currently experiencing (which is low by saving account standards).  Investors leave the market (or refuse to get in) as the appreciation on property flattens out and they instead invest their money in the stock market and other investment vehicles.

I believe we saw this phase in 1980 when we saw interest rates in the double digits.  I also believe that we saw this phase more recently in 2005-2006 as we saw the market cool after the frenzied 2000-2004 run of multiple full-priced offers per house.  Although short, this phase precedes the Decline phase which we will discuss next.

Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment real estate. He owns and manages almost 30 investment property units from single to multi-family. Find his blog at www.minnesotainvestmentrealestate.com. His website can be found at www.mnirea.com

I am going to take a departure from discussions about investment property and landlord issues into a more brainy discussion about Real Estate Market Cycles and It’s Implication for Market Timing.  This post is adapted from a concept called, “The Garrison Cycle”, which was created by Marc Garrison who started the National Association of Real Estate Investors, NAREI, in 1985.

After studying ten real estate markets, for a year, from around the country with different job growth and job losses, Garrison found that every market can be classified into one of four market phases:

Equilibrium phase Decline phase Absorption phase Expansion phase Click here for a larger view of the graphic.

This simple, but powerful concept allows us to explain not only the bust market of the 1980s, but the current market that we are experiencing today.  The other paradigm shift that Garrison’s research explained is that even though national (and international) forces affect the economy as a whole, every market around the country is actually on a different point of the above perpetual circular economic cycle.

Understanding the cycles and what to watch for (or what we have seen in the past) can change the way that you invest in real estate.  This tool will identify the best time to buy in a market and when to sell before the market begins to decline.  

Starting next week, I will examine each of the 4 phases in depth and give you my predictions of where we are in the market and what you should be doing right now.

Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment real estate. He owns and manages almost 30 investment property units from single to multi-family. Find his blog at www.minnesotainvestmentrealestate.com. His website can be found at www.mnirea.com

I continue to be amazed by the quality of the investment properties that are for sale in Minneapolis.  Many of these are priced 10-20% below what they would have been priced at just 12-18 months ago. 

Here are some examples:

• 30xx 3rd Ave South, Minneapolis, $324,000.  4-plex building, each unit has 3 bedrooms, 1 bath.  It has updated kitchens, hardwood floors and bathrooms.  All utilities are separated with newer furnaces and water heaters.  This building should cash flow over $1500/month for a well qualified borrower!
• 27xx Blaisdell Ave South, Minneapolis, $499,000.  7-unit building.  Most units have 1 bedroom, 1 bath.  It has been exceptionally well maintained building by a caretaker that has lived there for 14 years!  Even with owner-paid heat, this property cash flows almost $1000 per month.
• 36xx Elliot Ave South, Minneapolis, $300,000.  4 unit building that is currently bank-owned and vacant.  It needs light renovation, but could be a gem as it has 2 bedroom units and all utilities are paid by tenants (4 boilers).  Once repaired and rented, it could generate over $1100 per month.

These are just a couple of the outstanding opportunities in the investment property market right now.  Don’t wait, call me now and discuss how you can get started.

Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment real estate.  He owns and manages almost 30 investment property units from single to multi-family.  Find his blog at www.minnesotainvestmentrealestate.com and his website can be found at www.mnirea.com.