How about investment properties?

Most discussion of residential real estate focuses on single family homes, or at least traditionally owner-occupied property types — houses, condos, and townhouses. Multifamily properties (2 to 4 unit structures) are also very important. So how has that market performed in 2012?

As a proxy for that entire class of investment-oriented real estate, I have focused on duplexes in the Austin metropolitan area. I have pointed out that averages obscure details, but I believe this overview will be useful. Of course, I will be pleased to discuss specific properties and specific areas in the context of specific investment objectives, but that is beyond the scope of this discussion now.

Between January 1, 2012 and November 30,2012, there were 449 duplexes sold in the Austin metro area.  There are 107 duplexes for sale in our MLS today, representing 2.6 months’ supply at the year-to-date sale pace — even lower inventory than the single family market.  Here’s a quick look at the range of sale prices:

As you can see, the range of sale prices is extreme:  from $35,000 to $785,000!  The “meat and potatoes” segment of this market, however, is more tame.  The average duplex sold for just over $204,000 this year.  The median price was lower at $177,500.

The average sale price was 96.6% of the average list price — very near the same comparison as the single family market.  Also much like the single family market, properties that were priced right sold more quickly and for a higher percentage of list price.  Using the average list price as a starting point, 98.73% (0 to 30 days) of $211,386 was $208,701.  Properties that were on the market for 91 to 120 days sold for 91.32% of list price, or $193,038.  Again, we’re working with averages here, so those figures probably don’t match any specific property, but the penalty for overpricing is real.

In an attempt to judge investment value, let’s compare average gross rents to average sale prices:

Again, the range of successful leases is huge — from $475/month to $4,600/month!  The bulk of the market is more “reasonable,” however:  average rent $1,077.40; median rent $975.  Annualizing those figures and comparing them to average and median sale prices yields Gross Rent Multipliers (GRM) of 15.8 and 15.2 respectively.  (If you assume operating expenses amounting to 15%, those ratios translate into a Capitalization Rate of about 5.5.  That’s not stellar, but compare it to the likely return on many alternative investments and you’ll understand why this has been a fast-moving market this year.)

The Days On Market figures in the leasing market are interesting.  Using average list price as a reference point, properties absorbed in 30 days or less were leased for $1,078/month.  Those where the owners held out for more than 120 days leased for $1,110/month.  The difference was $32/month, or $384/year.  Giving up just one average month to vacancy would cost almost 3 times the annual gain in rental income.  Not a good trade!

Now, here’s just one more point about where we are in this market segment in December 2012:  For the first eleven months of the year, the average time on market for sold duplexes was 62 days; median 26 days.  Compare that to the active listings now available:  average 171 days; median 88 days.  The “good ones” sold fast this year, and there are still some in the inventory.  But there is a lot of aging stock due to problems with price, location, and/or condition.  The one thing the market does well is match price and value, and well-informed, rational investors sort out the right properties.  The others will still be available for less discerning buyers.  Let’s talk about your plans and objectives and find the right property for you.