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With rising rents, Buffalo Niagara a great place to own rental property

Don Gilbert has seen rents rise steadily in the Allentown area of Buffalo, but not like they have in the last few years.

The real estate investor who has been a landlord in the neighborhood for about 30 years, owns five apartment buildings on Franklin Street and one on North Pearl Street, with 54 units in all.

Most recently, he bought and is converting a former union hall at 481 Franklin into 12 “luxury” studio and one-bedroom apartments, renting for $1,000 and $1,350 per month, respectively. Those will be the most expensive of his units, which start as low as $625 a month for a studio at 444 North Pearl St.

But that’s indicative of the price increases in the city. Over the last six years, he says, rents are up at least 20 percent – a much faster pace than in the past. Yet, he’s not worried about being able to lease his apartments, citing growing demand from the nearby Buffalo Niagara Medical Campus and the revival of downtown Buffalo.

“Everything I rent is the highest I’ve ever rented it for,” he said. “With the critical mass that’s developing at Main and Allen because of the medical campus, there’s more interest with people living there.”

And that, in turn, makes the properties more attractive for investors eager for a stable and growing flow of cash. Gilbert beat out at least three other offers at the table for the union hall. “There’s been a strong interest in rental properties, because of the increasing market size of that area,” he said. “Obviously, it was an attractive piece of property.”

Buffalo’s continued affordable real estate prices and rising apartment rents are landing it atop a new type of ranking these days: best places to be a landlord.

A new report by national housing research firm RealtyTrac cited both Erie and Niagara counties among the 51 counties nationwide with potential returns of at least 10 percent a year for rental properties and an increase of at least 3 percent in average weekly wages in the fourth quarter of last year. That means a landlord can earn back 10 percent of a property’s purchase price from one year’s rents, and tenants here can afford rate increases.

“That has been the case for many years and still is if you have owned the properties for over four years,” agreed Anthony Trusso, owner of Tru Commercial Development.

Specifically, the report found that the average monthly rent for a three-bedroom property had risen 8 percent in the Buffalo-Niagara metro area, to $1,038 this year compared to $965 in 2014. Meanwhile, the average sales price of such properties was flat or even down from a year ago, at $108,004 in Niagara County and $121,854 in Erie County.

At that rate, the rental yield for a property owner this year rose to 11.53 percent in Niagara County and 10.22 percent in Erie County – the highest level for both in at least five years.

Some specific neighborhoods performed even better. An examination of 23 ZIP codes in both counties found the yield rose in 18 of them, with some as high as 18 percent.

And other local landlords say their experience backs that up. “I would say that is true,” said Aaron Siegel of Franklin Asset Management, who teamed up with Brett Fitzpatrick last year to buy and renovate 13 buildings with 295 units of affordable housing throughout the city. “It’s been attractive for the last three to four years. The yields are more favorable compared to any of the larger cities.”

That’s good for investors, because they don’t usually come to Buffalo for significant price appreciation. “A lot of my investors come from out of town, and they’re coming here to put their money in a relatively safe investment and get cash out of it,” Siegel said.

Giles Kavanagh, a real estate investor on Buffalo’s West Side, said it used to be hard to get more than $450 to $500 a month for a one-bedroom apartment on some streets, including Niagara Street. Now, he said, “if you clean them up, you can do $700, and that’s starting to happen.”

“There’s a ton of people looking for properties to rent,” said Kavanagh, who owns about 105 apartments in 22 buildings, with partners. “I think the sweet spot for an owner is to have dignified, clean, not fancy one- and two-bedrooms for $750 to $1,000. It’s not stratospheric yet, but it’s on the cusp of getting in that direction. Had I had all of my properties renovated going into this rental season, I could have rented everything out for $800 to $1,200, even on the far West Side.”

Kevin Myszka, an investor and also a Hunt Real Estate Corp. broker, said he bought a 14-unit building on West Avenue for $210,000 in March, rented it fully, and resold it within two months, for twice the price. The two-bedroom units lease for $750 a month, while one-bedroom apartments are $480. He also just bought an eight-unit building at 1469 Niagara St. that he’s renovating into luxury one- and two-bedroom units over the next three to four months, for which he’s “expecting big rents.”

Part of the boom stems from changing demographics and finances of renters. There’s a new attraction to city living among younger professionals. And recent college graduates, often heavily burdened by school debt, aren’t eager to take on the additional load of a mortgage, even with the affordable prices of Buffalo. So they decide to rent for longer instead.

Of course, the spurt of economic and real estate development activity in Buffalo is also starting to drive up property prices for purchases. More people want to live in the city, prompting both large and small investors to snap up Buffalo’s popular doubles and triples in places like the Elmwood Village, Delaware District and North Buffalo. Bidding wars are now commonplace, so the values of multi-family homes and apartment buildings are surging, which could impact the yield on rents.

“It might be getting to the point where the valuations are getting a little too rich,” Siegel agreed. “Buffalo is getting tighter. It’s almost like the first guys in the Gold Rush were finding gold on the ground. The next guys were panning in the river, and the last guys were digging in the mines. We’re probably at the panning-in-the-river stage.”