What happens now?

Question

I’m looking to buy my first property, I ran the numbers and the cash flow is roughly $500 a month with both units occupied.. but what happens if I buy the Multi-Fam in todays high priced market and rent prices went down in the next couple of years. What happens then? Do I have to just accept that and now own a property that doesn’t cash flow because the average rent prices went down? This is what is holding me back from buying a property in a high priced market, even though the numbers show I’d cash flow right now. Please help me understand this! Thank you everyone!

Ko Kashiwagi · Answer

Hi Devin,

Rents are typically very slow to catch up to volatility. There is a much higher likelihood that your property value goes down than your rent going significantly lower. In terms of cash flow, there are a lot of other things to look out for like cap ex, HOA fees, insurance fees and evictions that can eat your cash flow.

There's risk inherently involved in every investment, which is why it's important to cover yourself with reserves and exit-strategies. You can't completely eliminate risks, but you can always lower it to protect the cash flow!

Glen Wiley · Answer

It is rare for rents to drop, rent tends to be sticky unless there are significant problems in the local economy. If you have done a thorough analysis and see that cash flow then I would do the deal.

The two most important things to know about when projecting rent futures for a local area are: 1) employment trends with large local employers, 2) population growth projected for the area.