The End of the Apartment Glut — What’s Driving Rents Higher | How To with Gino Barbaro

[00:00:21] Hello and welcome. My name is Gino Barbaro, one of the co-founders of Jake and Gino. And in this how-to lesson, we're going to be discussing the end of the apartment glut. Is it here? Is it not? What's driving rents? Are they going up or are they going down? It's been very interesting to see apartments being built. It's something you can just drive through a neighborhood, drive through a city, you're seeing all these cranes, but you're not understanding that there's a significant time limit.

[00:00:52] Now, I want to take you back to the 2008 Great Recession. You may be saying, why do we need to go back there, Gino? What are we going to find out from back there? Well, it's called a market cycle. And one interesting thing that happened back in 08, after 08 happened, buildings stopped for years. You're talking three or four years of very little building. But population is still growing. There's still need for housing. It didn't really start kicking back in until 2013, 2014, where we're going to get a little bit of housing.

[00:01:21] We were in the recovery part of the cycle. And it continued to plow along. The economy got better. Rates dropped. Builders going back into the market. They start building. 2020 hits and bam. All of a sudden, things slow down for a little bit. Supply chain issues, problems getting stuff online. But the crazy part was money's cheap. And we needed housing. And builders all flocked into there.

[00:01:48] And when the cost of capital is that low, and you've had it that low for years, it spurs building. It spurs people taking risks. And unfortunately, what COVID did is it lengthened the market cycle. We'd be through all the nonsense. We'd be through this recession. We'd be through higher interest rates if we had gone into a regular recession back in 2020. We let the market play itself out. And things would have gone down. Things would have slowed down.

[00:02:14] But what's happened is during that 2021-2022 push, a lot of multifamily permits were issued. Money was still cheap. People were still building. But it took a lot longer to complete. And now that's what you're seeing right now in some of these real high-level markets, high-leverage markets. Ironically, if you go into the Northeast, into areas like New York City, into areas where there's not a lot of supply coming online, rents are tight.

[00:02:43] And that's where they always talk about rent control. The only way, I mean realistically, to get rents low. This may be my political bias. I just don't think trying to control a price ever works. You have hundreds, I don't know if it's hundreds of thousands, but you have tons of units in New York City not being renovated, not being fixed.

[00:03:10] Because if they do fix them, they can't support the $1,000 a month rent-controlled dollar that they're going to get. So instead, the business plan is to keep them vacant. Now think about that for a second. It hurts the investors. It hurts the neighborhoods because these cities become a blight. And it hurts people trying to find housing because there's not enough housing. So in the Northeast, there's not enough units coming online. And there's still population growth.

[00:03:39] You still hear people leaving and all, but there's still tons of population growth. There's not a lot of new stuff being built. That's the issue. The issue is if you don't have stuff coming online and there's still demand, rents are rising. Whereas conversely, let's go down and let's take a look at some of the markets that are getting, I don't want to say hammered, but really in distress as far as occupancy rates, as far as rents, where they're going,

[00:04:04] and where you'll see it mostly is where it's been really hot the last five, six years as far as population growth, demand, jobs. Building got ahead of itself like it does in every market cycle. And those who were understanding, those who knew what was going on, they didn't use bridge debt in 2023 because they knew that we were sort of towards the high and things were sooner or later were going to slow down. And sooner or later, rates had to go up. So you're looking at markets like Atlanta.

[00:04:34] Occupancy rates in Atlanta are like in the low 90s. Rents are really not going up. You may be saying to yourself, why Atlanta? Why is that happening? Because so many investors flock to Atlanta and there's so much building going on that supply overtook demand. And now you don't have as much absorption. And really what you need to do is when you go into a market, this is very important when you're analyzing a market, start looking around the markets, start going on to apartments.com, start seeing what kind of concessions they're giving.

[00:05:03] And really important, I'm going to give you a little nugget here. You may be looking at a property you're buying and rents, let's say, at $1,300. A savvy seller, what they would do is they would say, I'm not going to drop rents to $1,195. What I'm going to do is I'm going to give $1,000 off the rent for the first month and continue along with that $1,300 a month. In effect, you've given a concession of around $100 a month, but it hasn't hit the rent roll.

[00:05:33] What that does, which is pretty cool, is right now if rents are soft, by the time that 12 months are up, that market is $1,300. I think in the next 12 months, rents are going to get back to stabilization in a lot of these markets. So you've saved yourself. If you drop it down to $1,195 to get back up to $1,300, that's tough. That's 10%. Let's say 8% increase. It's harder to do that, and your NOI is going to take a big hit. So what a lot of them do is they offer concessions, $1,000 off, moving specials.

[00:06:03] Take a look at what those are. Two months free rent. You got a month or two months of free rent. It doesn't show up on the P&L. What you're seeing is you're seeing less rental income coming in. But what you're looking at the rent roll, you're seeing $1,300. Whereas if you get a free month's rent of $1,300, you're only paying $1,300 for 11 months instead of 12 months. So just be wary of that because brokers are going to say to you, hey, our rents are at $1,300. That's the market rent. Well, is it really the market rent?

[00:06:32] No, it's not the market rent because you give a concession on that. So understand when you're underwriting deals, it's very important. And I think the other reason why I don't want to say I'm really passionate about this topic. I am. But the reason why I'm sharing this to you is because you need to understand where we are in the market cycle. You need to understand that deals right now are going to come out, but you need to understand where rents are. And you can't be overly aggressive in rent increases. You just can't right now.

[00:07:01] Unless you know and you have assets in the market where we're buying deals at two bedrooms that are renting for, let's say, $800. But we have the same asset down the street renting for $1,100. Well, okay. Then you know you can go to $1,100. But if you're newer in the market, be careful of that. Now, if we go into some of these other areas, everyone's like killing Austin right now. Austin rents are down 4% year over year from last year. They've got a huge glut. Let me see what the numbers are here. I had some numbers pulled up for you. You know, 7.5% to 10% vacancy.

[00:07:30] So you're looking at a 90% occupancy rate. 4.5% year over year decrease. We had peak oversupply in 2024. So why is this important? When you're looking at an asset to buy in Austin, you cannot underwrite it for 95% occupancy. You've got our underwriter for a 90% occupancy and for rents really not rising for the next 12 to 24 months at takeover. That changes your underwriting dramatically.

[00:07:58] And if you're in a certain market, make sure you get these metrics. I would go to Bercadia.com. Go to Cushman Wakefield. Go to Collier's. Go to these different sites that have this data. Heck, even go to ChatGPT. Start building your own chatbot where you can actually go and start doing market research through chat. You know, full disclosure. I should say full disclosure. I use chat a lot. I use AI a lot. But it's not always reliable. Go to other resources.

[00:08:26] You know, when I'm looking at median income of certain markets, chat can't pull it up all the time. I go to a government website where I can pull up median income. So back up what chat is telling you. But a lot of these sites, these real estate sites, they do the data for you. If you have somebody who can pull CoStar for you, great. Another great tool is Crexie. It's going to cost you a couple hundred bucks a month. But it's so worth it because you get data, real-time data of what's going on in the market. I just got back from Dallas.

[00:08:56] Went to a multifamily event, Wheelbarrow Profits. If you want to learn more on how to become an investor in multifamily, go to wheelbarrowprofits.com. Schedule a call with a team member. What you're looking for is number one, accountability. What you're looking for, number two, is track record. They've closed over 90,000 units to members of Wheelbarrow Profits Academy. And number three, you're looking for community. AI, chat, all these beautiful tools. It's great.

[00:09:25] But in multifamily, you need to build a team. You need to build a base. You need to build a network. You need to learn what kind of vendors to trust. Trust. That's why you join a group like Wheelbarrow Profits. Go to wheelbarrowprofits.com. And, you know, listen. My email is gino at jakeandgino.com. If you want to get a free copy of the Wheelbarrow Profits book, The Three-Step Framework, just email me. Gino at jakeandgino.com. And I'll send you a free copy by PDF.

[00:09:53] Now, let's get back to these other markets that I wanted to highlight. I've got the next one here. Dallas. Dallas, when I was there a couple weeks ago, I can't believe how many Fortune 500 companies have moved their headquarters there. I can't believe how little cities like Midlothian used to be out in the middle of nowhere. And now they're in the path to progress. It's got to be such a big city. There's over 800,000 multifamily units in Dallas. There's been such building, such demand. Pricing has dropped dramatically.

[00:10:22] I have a member there in Jake and Gino who was buying deals last year, 180 a door. They're buying new stuff. They just put a new deal on the contract for 129 a door. That's one of the opportunities right now. These builders are trying to offload their assets because they can't rent them. They had some type of projection on what rents were going to be. But it's very hard to project out two years. And that's what they were doing when they started building. They thought they were going to get to X in rent. But who knew that the supply glut in Dallas was where it's going to be?

[00:10:50] Now, long term, if you're in Dallas, don't shy away from it. Just be conservative in your underwriting. Because once all of this supply works itself through, and it seems as if that's what it's doing right now. And even in Austin, once that works itself through by the end of 2025 going into 2026, if you bought right, you are going to look amazing. It's going to look like an amazing deal. And I think one of the other markets that I love to mention is Phoenix. Phoenix, Arizona is another one of those deals. It was a high flyer.

[00:11:18] People were buying 1960s vintages at three caps, thinking that they could get them to seven or eight caps with the yield on costs and flipping them. It's great when the market's going up. But when rates go up, plus the capital gets more expensive. You have a lot of supply online. It's interesting. Now, to really finish this conversation and really to try to bookend it, what I've seen over the last couple of months is rents were really starting to stabilize.

[00:11:46] And these last couple of months, right now we're recording in the middle of June. The last couple of months have been challenging for a lot of these markets. It's going to work itself through. You put on top of that, debt's been a little bit more challenging. You put on top of that, interest rates are higher. You put on top of that, that I read a stat that one in five multifamily deals has some type of distress. It looks like it's going to be a party for buyers in the next 12 months.

[00:12:16] If they select the market, if they do proper underwriting, and if they can secure debt. If you have capital investors out there and you can raise money for some of these deals, they're going to look phenomenal. But just be aware of what market you're in. You may be saying to yourself, Gino, you don't know what the heck you're talking about. My market is doing great. Rents are going great. It's true. When we look at real estate, we look at it from a national perspective. But you can go down to a city.

[00:12:44] You can go down to a neighborhood. You can even go down to a street. It can get that localized in real estate. And understanding your neighborhood, your market is crucial to your success. And to what we say, implementing the buy right strategy. I'm going to hold up another book that I wrote. It's called Happy Money, Happy Family, Happy Legacy. I'm all into making money. I'm all into leaving money for the next generation.

[00:13:12] I wrote this book because I saw a lot of the members who joined were struggling closing deals. I'd have a 25 or 30-year-old who's out there crushing it, had no balance sheet, had no experience. They were doing phenomenal. Then I might have a 45 or 50-year-old who's got seven figures of liquid capital. They have a great net worth. But they're out there complaining there's no deals.

[00:13:38] For me, it comes down to more than anything, a person's relationship with money, a person's mindset, person's willingness to do the work. And I wanted to put that in this book where how do you create that happy money for yourself? But also, how do you create a happy family while creating the happy money? And ultimately, what does a happy legacy look like? We're buying these assets. We're putting these portfolios together. How do we leave the next generation in better hands?

[00:14:05] And that's one of the reasons why I've continued to do these videos and these lessons for the last almost 10 years plus. Because I want to leave them as a legacy for my kids and my grandkids. So they can always look back and say, huh, grandpa, dad was always talking about this stuff. How can I learn more? Well, legacy is different to everybody. But what I would want you to think about is not only the financial legacy and becoming financial stewards, but them also adopting your values and what's important to you and to your family.

[00:14:34] Now, if you want a free copy of this book, just email me, Gino at JakeandGino.com and I'll send you a free PDF copy of this book. Because this book is really going to become my life's work. Working as a money coach and helping people out with their blocks on money. With their mindset. With all the beliefs that they have in challenging them. And seeing your patterns as it relates to spending money, saving money, and investing money. It's been a game changer for me. Because when I started out with Jake, I had zero.

[00:15:03] Bro, I had a triplex. You know, 10 years later, 11 years later, we own over 1900 units together. No syndications. Almost $400 million in assets in the management. Once I understood my beliefs. Once I understood my relationship with money. Once I understood why I was doing this. And how to create happy money through the portfolio. Everything changed for me. And I want to share that with you. Once again, Gino at JakeandGino.com. Now, if you like this video, give me a thumbs up.

[00:15:32] Subscribe to the channel. And last words on this apartment glut. It's part of the market cycle. What I want you to do is to take advantage of this part of the market cycle. Not overpay for your assets, number one. And number two, start looking for some developers. Some builders who have assets who have owned them and are trying to sell them. That's where the value is in this part of the market cycle. I want to thank you for spending part of your day with me. I know your time is valuable. It's precious. And I honor that.

[00:16:02] And it's a privilege to spend a few minutes with you in your day. And I hope to see you on next week's How To. Take care, everyone. Thanks for tuning in. If you enjoyed today's video, be sure to like and subscribe so you'll never miss another episode.