What To Do In a Changing Market?

Question

Hi Folks!

I'm a new BP member, although I totally just binged a dozen podcast episodes! So much fun to hear interviews of other investors!

Real quick, I'm a Bay Area multifamily investor. I started in 2010, and things have been all on the up-and-up... rents have nearly doubled, appreciation has been crazy, and of course everyone knows the interest rates have remained super. However, this year the Bay Area market seems to be normalizing. There may also be signs of rents backing off and there's nowhere for interest rates to go but up!

Here's my dilemma: I've ONLY seen the good so far in my career. I'm wondering, how are other seasoned investors strategizing now that we may be cresting the top of the market? Hold? Sell? Diversify? Is there a way to maximize returns as a buy and hold investor even heading into a dip?

In general, it seems like younger investors tend to be sellers (pay the tax and wait) and older investors tend to say "hold". Thoughts?

Russell Brazil · Answer

For me personally, it does not matter if prices retreat. I know that in 10 years they will be higher than they are today...it doesnt matter to me if in 1 year they are lower.  So with that being said, my strategy is to continue to acquire more mortgage debt while rates are still this low. By the way, you probably thought rates had no where to go but up 6 months ago as well (I did) and they have been in a steady 6 month decline since then.  Frankly I thought rates had no where to go but up from 5% (Owner occupant 30 year note) in 2010, and they went all the way down to 3.3%.

Ori Skloot · Answer

Very interesting thread.  Thanks for sharing folks.   Would love to hear from other people on this topic.

Robert C. · Answer

Thanks for the reply, Russell. You hit it right on the nose regarding six months ago. Silly me locked in a 4% thinking the rate would go up .5%-1% this year. I know it's not a big deal over the long run, but hindsight is always the worst!

Regarding your hold strategy, are you concerned with not "outperforming the market"? Are you laying off on new acquisitions right now, or do you continue to buy? My main mental struggle with holding is figuring out how to balance maximizing cash flow vs having funds available (through increased mortgage debt) to take advantage of any significant drop in the market. It's nice to be prepared to buy, but I don't want money just sitting in the bank, not doing anything (I stay away from stocks).