The southern Florida multi-family real estate market is red hot! There is a lot of money chasing a few deals and multi-family investors are wondering if the rules have changed and should they start buying properties that don't cash flow.

The answer is NO! The key to any good multi-family investment is Cash Flow. With out it, you'll have a very hard time getting financing, you'll have to come out of pocket each month to maintain your investment, and you'll be relying on appreciation as your only profit center.

Many Florida investors tell me that it is getting harder to find properties that cash flow in southern part of the state. There are three reasons for this phenomenon, they are interest rates, foreign investments, and condo conversions.

Because interest rates are at historic lows, capitalizations rates (the return an investor expects to get from his investment) have also been able to fall to historic lows making properties more expensive (the lower the cap rate, the more expensive the property). Typical cape rates have ranged from 8 ? 12%. In today's market, we are seeing cap rates as low as 6!

With adjustable rate financing as low as 3.5 % investors able to get a 2.5% increase in their investment at the start (this is the difference between the 6 Cap, (the return,) and 3.5% interest rate, (the cost of money)).

Here's the problem with this scenario. Most multi-unit financing is written with 5 year balloons. Interest rates are historically kept unchanged during an election year and are predicted to start rising again in 2005.

As the interest rates surpass the cap rates that investors paid for properties, they will be unable to refinance those properties to pay off the balloon. Thus, we'll begin seeing a wave of foreclosures taking place starting in 2007. Start preparing now to take advantage of the upcoming opportunity. Fortune favors the prepared.

The second reason is foreign investment. There is no better, securer place to put your money than in United States of America. With a huge number of people migrating to southern Florida, there theory is that there is no better place in the United States to put your foreign money than in Florida.

Hence, we have a huge flow of funds entering the marketing looking for investments. With and excess supply of money chasing fewer properties, the prices rise.

With prices rising, the Affordability Index, the index that tracks how affordable single family houses are in an area, goes higher and higher. This means that the average house price cost more than the average person living in the area can afford to pay for it.

When the affordability Index is high and the average person is having a hard time purchasing a single family property, the market become ripe for condo development.

Condo developers either build from ground up or convert existing multi-family properties into condominiums.

Because they are converting existing complexes into condos, they reduce the supply of multi-unit properties that are on the market, resulting in higher multi-family prices.

More importantly, because they are able to make a $30 ? 40,000 profit on each unit at resale, they are able to buy at capitalization rates of 3 and 4! This means that there is not cash flow in the property, but they don't care because they are not buying for cash flow, they are buying to convert!

So how do you find deals in a market like this? Direct mail to multi-family owners. Get to the owner before a broker does and you'll have a better chance of getting a property that cash flows and you'll have a better chance of getting a property with little or no money down.

Like all markets, this cycle will pass. The condo market will be over built and because of the crazy money being thrown at multi-family units today, there will be a huge opportunity to get in cheap tomorrow.

Should you wait until tomorrow to start investing in multi-family properties? Absolutely not! In any market, there are always great deals that are available. The freedom that you will get from creating massive cash flows from multi-family properties and the big checks that you will cash because of their appreciation is well worth the hunt!

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