There’s no inventory. It’s just incredibly sparse out there. So are buyers starting to look more to 2-4 unit properties since they are struggling to get into contract with single family homes? Well, maybe so. Let me share some visuals. If you’re not local, what’s happening in your market?
FIVE THINGS TO KNOW ABOUT THE 2-4 UNIT MARKET
1) First-time buyers are pulling the trigger: Last year more first-time buyers purchased two to four units compared to previous years in the Sacramento region. Both FHA and VA loans have seen an uptick and are essentially at their highest level in recent years. Keep in mind FHA has actually been declining as a loan type in the single family market, so it’s interesting to see this uptick among multi-units. We need more time to fully understand this trend, but this could very well be an example of buyers looking to other types of properties since the single family market is struggling so heavily with few listings to purchase.
2) Prices have increased: Here is a look at the annual median price over 18 years. The trend for multi-units follows the single family market closely as there was a huge increase, a bubble burst, and we’re now in our tenth year of price growth (with the current nominal price having surpassed 2005 prices).
3) Volume isn’t what it used to be: Just like the single family market, we’re seeing fewer sales today from the previous market height between 2003 to 2005. Moreover, last year there were 10.9% fewer multi-unit sales in the region. When the pandemic started investors pumped the brakes, but the second half of the year was much stronger.
4) Types of financing: Here is a deeper look at the type of financing involved in two to four unit sales. In recent years conventional has been dominant and cash has been declining. This is the same trend we’re seeing in the single family market because it’s just so cheap to borrow money. Look at FHA and VA though showing an uptick overall, which is telling of a growing appetite among many first-time buyers for multi-units.
5) X-factors to consider: One thing to consider while pulling comps these days is whether tenants are paying full rent in light of an eviction moratorium in place in California. The reality is some investors may expect a price discount in light of rent not being paid. Also, it’s important to keep watching to see any effects of rent control since we’ve now had one year of rent control under our belts.
I hope that was interesting or helpful.
Questions: What are you hearing from first-time buyers? What are you seeing in the 2-4 unit market? I’d love to hear your take.
If you liked this post, subscribe by email (or RSS). Thanks for being here.
Interesting to see median prices trending up so steadily year-over-year for the past eight years in this segment. Thank you for keeping an eye on the multi-family market as well.
Thanks Gary. I appreciate it. I think lots of people are watching the 2-4 unit market wondering if it’s losing steam in light of some tenants struggling to pay rent, rent control, and an eviction moratorium that keeps getting extended. I think it’s going to be fascinating to see how the stats unfold.
I listed a rented SFR in Res Inc because I got zero investor calls but many agents wanting me to evict tenant (No, and H no.) to sell it to owner occs when it was listed in Res.
It is a failing of MLS that there is no SFR category in Res Inc. – just “other” – Though it is the lowest priced listing in Res Inc, calls are sparse, except for wholesaling Sundae Cavemen ibuyers that offer me 70 to 80 cents on the dollar.
My take on this. Investors these days only want SFRs to “fix”* and flip, or vacant so they can install their own choice of tenant. I can’t blame them too much. Cap rates nudging down towards 3 even on starter home rentals. Less than 3 cap rate on a median value rental. Finance a duplex with less than 35% down you are likely going to have negative cash flow if your expenses are honest and not using a fantasy pro-forma.
*Flippers are still trying to “fix” by slapping paint over the dry rot, spreading red bark over the weeds and rocks, and laying carpet over the uneven floors. Then asking and getting top dollar. SMH.
Thank you Jim. I always appreciate your take. The market is always moving AND so are the players. This is what is most fascinating about real estate to me. Please keep me posted if you see any shifts or changes in what sellers and buyers are doing in the 2-4 unit world (or the SFR world for that matter). I’m always curious.