Idle Cash and the War Chest Strategy

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

A - Invest $100, add value to $120, market corrects to $100 in year 1, but you achieve an 8% return from cash flow and principal reduction.

B - Invest $100, add value to $120, market remains as-is (or it takes longer to correct), you achieve target returns of 15-20%

C - Invest $0, earn $0.

Substitute appropriate figures...just trying to generate dialogue.

It's hard to model things like a market correction or rising cap rates, get excited about lower returns, and make a purchase but idle cash and the war chest strategy (scenario C) can be costly relative to scenario A (except with an appreciation only/market timing strategy...let's ignore that one for simplicity).

Many of us have analyzed and turned down a ridiculous number of deals and we see a lot of posts about waiting for a correction but the math seems to suggest otherwise if investors are adding enough value (and generating cash flow, using long-term debt, buying in solid locations, or investing for the very long-term). Please share your thoughts.

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JD MartinBusiness Member

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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

I have no answer. That's my honest answer. Last year I thought "well, I'll just slow down and wait for prices to get better", but because I'm buying so low already I might just be unrealistic. The tough thing about investment is getting past the psychology of past investment. If I bought a house at $25k, I think *all* houses should be able to be had at $25k, or thereabouts - so I tell myself I just need to 'wait for the right deal', or 'work the margins harder', or something similar. It may just be that I have to recalibrate to reality, and not the other way around. Of course, you never know for sure except in the rear view mirror.

As an investor, you almost by definition have to believe that you're smarter than the other guy. And I say that not in arrogance, but just in the very nature of what we are doing. Anything you buy as an investment - if we define investment as increasing your overall financial stores, i.e. getting more money out than you put in - has to gain more value than its present day value, meaning that we have to believe that what we are buying is being sold at some kind of discount relative to its potential. If you believed the absolute ceiling on Apple was $500/share, it would make no financial sense to buy it for $501/share. That goes for everything - whether you think it's just undervalued in the first place or has lots of headroom to expand based on inputs. So we think things like "Oh, the market's overheated, I'll buy when it comes down", when in fact it may never come down.

All of our guesses - and that's all they really are, educated or not - are based on our own experiences, values, financial position, abilities, etc. I may think a house that was $25k 2 years ago is a ripoff at $50k. Someone from another market might think they hit the lottery. If enough of them do, then my reality was wrong. Further, we are much better at remembering how right we were than how wrong we were. Everyone remembers how smart they were to get in just before everything took off. No one remembers all the stuff they were thinking about buying that tanked.

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Will G.
Rental Property Investor · Maryville, TN · Member since 2009 · 529 posts · 414 votes
8y
Hmmmmm, how about $300k? This amount would let you purchase a $1millionish property with fannie mae financing($750k minimum amount financed), or a couple of houses, but theoritically cost you 1700 month if it were otherwise off making 7% somewhere.
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Bjorn AhlbladPro Member
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
8y
I am actively looking for another 10-20 unit building that is within my self imposed limit of one hour drive away. Not finding anything; but ready to pull the trigger if something turns up.
I'm not ready to compromise just because the market has gone insane-still want a quality property that throws off lots of cash. Buy crap today and it will get crappier tomorrow. I am willing to add value as needed but not willing put lipstick on a pig just for fun. In my market I am seeing buildings that cap as low as 1.5-1.5!! and that is with outdated numbers for taxes and insurance. I am strictly buy and hold; anything I buy today has to be really appealing-not going to gamble on any dogs or overpriced queens at this stage of the market-and certainly not counting on any appreciation for the next while. ;<))
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Mike Dymski
OP
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8y
Great replies. Scenario A vs holding a little cash for the opportunities that come with a downturn are the same...except the 8% return generated prior to the crash. Holding a property into the crash that drops to $100 is the same as buying a "deal" for $100 during the crash...being in the market is the same as buying in the market (adding value upfront still required). This fact is true for holding value plays right now as well...if you are not selling, you are buying (at today's prices). Most investors don't think this way. And if you are modeling a downturn, it's hard to pull the trigger even if you think this way.
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Account Closed
Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
8y
Originally posted by @Jay Hinrichs:

Originally posted by @Shiloh Lundahl:
@Mike Dymski people say we can’t predict the future but I believe we can. We just can’t predict it with exactness. In other words we can predict market corrections and market downturns because that’s what markets do, but we can’t predict the exact time or the degree of correction.
So in my opinion, if I can’t predict the timing or the severity of market corrections, the next best thing would be to hedge for them. So rather than flipping in an expensive market, I may buy properties that cash flow in just below the market average where there is still high demand regardless of fluctuations in the market.
My partner and I are still buying properties that make sense number wise, that cash flow, and that have a likelihood of appreciation. But because we don’t depend on our real estate investing income for survival, if there is a market correction that causes a decrease in home values more than 20% and rents to drop 15-20% also, then our cash flow may temporarily go down to zero. But it won’t stay that way forever. Even people who bought in my market at the top of the market in 2006 and 2007, if they bought it to where they were able to cash flow even a little, and were able to hold on to the property, then today they have an asset worth about the same as when they purchased it but the mortgage has been paid down over the past 10 years and they have a good chunck of equity in it now.
If you wait to only swing at pitches that look like they will be home runs then you will strike out a lot more than necessary. If you look for more singles and doubles and occasionally are able to hit a home run, then, in my opinion, you will win a lot more games (have more success with investing).
Shiloh keep in mind in the PHX market many investors cash flow did not drop 20% it dropped 100% and stayed that way for an extended time.. now not predicting another 08 meltdown but it happened to many of my personal clients that I sold Multi to up here in PDX they also bought PHX and lost their properties altogether..
in my mind doomsday you need some pretty good reserves... but I am uber cautious these days after living through that one and 2 before it..
Jay, you are absolutely right about the drop in Phoenix's market of 100% for plenty of people. And as you say, not only that, they lost their properties. (Fortunately I wasn't in that notable crowd, but it doesn't mean I won't be in the next one if I'm not careful about how I continue to buy properties.) Wisdom is to realize that surprises happen, unfunded liabilities exist, bonds are headed for a dive, rents are peaking in some markets, Illinois is broke and getting broker, 800,000 rich people are leaving California and New York and heading to Arizona, Nevada, Texas and Florida (and New Zealand) and there is a migration that runs from new taxes. Real Estate cycles through. At one time Detroit was the wealthiest city in the U.S. The only constant . . . is change.
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Will G.
Rental Property Investor · Maryville, TN · Member since 2009 · 529 posts · 414 votes
8y
@Bjorn Ahlblad And here i thought there were no good deals out there....2135 california st in san francisco is being "offered" at a screaming 3.9% cap! (at 30% expenses) and WAY better than the 2.5% cap rate from the listed comp! You guys wanna go in on it? only $16000000,... wait, is that in dollars or?
full disclosure, this is not a solicitation for a syndication offering, I do NOT want to buy property in s.f. :)
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Bjorn AhlbladPro Member
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
8y
Originally posted by @Will G.:

@Bjorn Ahlblad And here i thought there were no good deals out there....2135 california st in san francisco is being "offered" at a screaming 3.9% cap! (at 30% expenses) and WAY better than the 2.5% cap rate from the listed comp! You guys wanna go in on it? only $16000000,... wait, is that in dollars or?
full disclosure, this is not a solicitation for a syndication offering, I do NOT want to buy property in s.f. :)
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Bjorn AhlbladPro Member
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
8y
@Will Grabert Funny! I have actually been in that building, friend of mine lived there quite a while ago. It is a beauty-but why do people buy those? Where is the ROI? Those renters pay more for a garage space than my tenants pay for a 2 bedroom apartment AND garage space! You may have missed a decimal on that cap? Sounds too high; the total rents don't even cover the mortgage with 20% down!
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Will G.
Rental Property Investor · Maryville, TN · Member since 2009 · 529 posts · 414 votes
8y
@Bjorn Ahlblad that listing showed up as an alert right before I saw your post, wow, what a coincidence that you have been in it!
The o.m. listed a closed comparable @ 2.5% cap rate!
I bet someone on this thread could explain how that makes any financial sense????
My guess is something like the swiss national bank, along with their 80 billion in us stock purchases, went shopping for some real estate with their freshly printed francs.
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Account Closed
Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes
8y
This is a very complex topic. Do not over simplify it. Very few people on bigger pockets own enough properties to treat them like commodities. They are not cash equivalents.
Serious real estate investors should always keep enough cash or cash equivalents on hand to jump on great deals. That is one reason why the rich get richer.
In this part of Texas...
You always want enough cash to buy properties on a 21 day auction notice.
You always want enough cash to buy properties when a major announcement comes out. These can happen at any city, county, state, or school district meeting.
Maybe in an area that is slow moving and not growing extremely fast, it is different. In my area, the opportunity costs of not having cash on hand would be unacceptable.
I would suggest paying cash and doing delayed financing or bringing in partners after you own the property.
Of course, if a person is trying to treat SFRs like a commodity then dollar cost averaging is one likely thought process.
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Amit M.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
8y
@Will G. and @Bjorn Ahlblad you guys have to remember that buildings like California st in SF are brought by people who already have made a lot of money. Often either foreign money looking to be parked in blue chip real estate, or existing RE investors who have made a lot of money, know the local market well, and are adding prime properties to feather their nest while mitigating taxes. Granted the Multifamily market peaked in SF in 2016, so the guys who brought these in 2014-15 already gained equity. And now in 2018 some are thinking that the cap rates are slightly better than 2016-17, and think it’s time to buy good properties. Definite risky buying at low cap rates now, given interest rate momentum. But if you believe the economy will continue to be robust, then that’s your bet.
Me personally, I only buy high value add/change of use buildings here in SF. Plus only in gentrifying neighborhoods (California st has been super prime for 30+ years.) So I mitigate risk by a whole host of factors. But this discusssion reminds me of the question “if you had to buy your existing buildings now, at current market value, should you do so?” My answer is of course no (as they are now approaching prime status/low cap rates.) But the whole point is to buy stuff early on (per my criteria above) that will become prime in the future! Then you can just sit on it, manage prime property, collect strong cash flow, and have tons of appreciation for cash outs, or just to lower your loan exposure (your choice.)
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Frankie Woods
Investor · Arlington, VA · Member since 2012 · 1k+ posts · 491 votes
8y
Originally posted by @Jay Hinrichs:

Originally posted by @Shiloh Lundahl:
@Mike Dymski people say we can’t predict the future but I believe we can. We just can’t predict it with exactness. In other words we can predict market corrections and market downturns because that’s what markets do, but we can’t predict the exact time or the degree of correction.
So in my opinion, if I can’t predict the timing or the severity of market corrections, the next best thing would be to hedge for them. So rather than flipping in an expensive market, I may buy properties that cash flow in just below the market average where there is still high demand regardless of fluctuations in the market.
My partner and I are still buying properties that make sense number wise, that cash flow, and that have a likelihood of appreciation. But because we don’t depend on our real estate investing income for survival, if there is a market correction that causes a decrease in home values more than 20% and rents to drop 15-20% also, then our cash flow may temporarily go down to zero. But it won’t stay that way forever. Even people who bought in my market at the top of the market in 2006 and 2007, if they bought it to where they were able to cash flow even a little, and were able to hold on to the property, then today they have an asset worth about the same as when they purchased it but the mortgage has been paid down over the past 10 years and they have a good chunck of equity in it now.
If you wait to only swing at pitches that look like they will be home runs then you will strike out a lot more than necessary. If you look for more singles and doubles and occasionally are able to hit a home run, then, in my opinion, you will win a lot more games (have more success with investing).
Shiloh keep in mind in the PHX market many investors cash flow did not drop 20% it dropped 100% and stayed that way for an extended time.. now not predicting another 08 meltdown but it happened to many of my personal clients that I sold Multi to up here in PDX they also bought PHX and lost their properties altogether..
in my mind doomsday you need some pretty good reserves... but I am uber cautious these days after living through that one and 2 before it..
I'm still struggling with the rents dropping to 0% for a long period of time. This to me means that the landlords were charging too much and rather than take a "market" loss by charging current rents, they chose to go to zero because they didn't understand the change in the market. Full vacancy at the current market rent to me suggests that people chose to go homeless rather than rent your clients properties. This can't be true. Am I crazy?
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Frankie Woods
Investor · Arlington, VA · Member since 2012 · 1k+ posts · 491 votes
8y
Originally posted by @Joe Splitrock:

Originally posted by @Jay Hinrichs:
Originally posted by @Shiloh Lundahl:

@Mike Dymski people say we can’t predict the future but I believe we can. We just can’t predict it with exactness. In other words we can predict market corrections and market downturns because that’s what markets do, but we can’t predict the exact time or the degree of correction.
So in my opinion, if I can’t predict the timing or the severity of market corrections, the next best thing would be to hedge for them. So rather than flipping in an expensive market, I may buy properties that cash flow in just below the market average where there is still high demand regardless of fluctuations in the market.
My partner and I are still buying properties that make sense number wise, that cash flow, and that have a likelihood of appreciation. But because we don’t depend on our real estate investing income for survival, if there is a market correction that causes a decrease in home values more than 20% and rents to drop 15-20% also, then our cash flow may temporarily go down to zero. But it won’t stay that way forever. Even people who bought in my market at the top of the market in 2006 and 2007, if they bought it to where they were able to cash flow even a little, and were able to hold on to the property, then today they have an asset worth about the same as when they purchased it but the mortgage has been paid down over the past 10 years and they have a good chunck of equity in it now.
If you wait to only swing at pitches that look like they will be home runs then you will strike out a lot more than necessary. If you look for more singles and doubles and occasionally are able to hit a home run, then, in my opinion, you will win a lot more games (have more success with investing).
Shiloh keep in mind in the PHX market many investors cash flow did not drop 20% it dropped 100% and stayed that way for an extended time.. now not predicting another 08 meltdown but it happened to many of my personal clients that I sold Multi to up here in PDX they also bought PHX and lost their properties altogether..
in my mind doomsday you need some pretty good reserves... but I am uber cautious these days after living through that one and 2 before it..
That is the killer situation for an investor, when values drop 100% and there is no tenants to rent to. I had a tenant that was a landlord in Michigan prior to the crash. He owned two single family homes and his primary residence and lost them all to foreclosure. The crash happened and his tenants stopped paying rent after loosing jobs. Then one of the properties was trashed by a big dog that did $8000 damage. I know people will say, well that was Michigan, it would never happen in my market. I suspect if you had warned people in Michigan two years before the crash, they wouldn't believe it could have gotten that bad. Human nature is to not believe the worst will happen.
I challenge people to look closely at the markets they invest in. Look at the underlying economy. Things like medical and universities are stabilizing forces. Military bases, major manufacturers or markets dominated by a single employer present risk. I believe if you pick your markets carefully, that over time you can weather anything.
Still struggling to understand this scenario. This could happen in "good" or "great" markets. What am I missing here? I see the point about knowing your market dynamics, but you should be able to make money in any market (well, just about). I feel uncomfortable about the looming correction, even though I can't forecast when or if will happen. But I feel as if many of us have a reference bias based on the GFC. Sorry, I just finished Thinking Fast and Slow which blew my mind and now I'm questioning everything lol. Nothing against any responses, which I think are great. But I'm trying to wrap my head around this to put myself in the best possible position.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Frankie Woods:

Originally posted by @Jay Hinrichs:
Originally posted by @Shiloh Lundahl:

@Mike Dymski people say we can’t predict the future but I believe we can. We just can’t predict it with exactness. In other words we can predict market corrections and market downturns because that’s what markets do, but we can’t predict the exact time or the degree of correction.
So in my opinion, if I can’t predict the timing or the severity of market corrections, the next best thing would be to hedge for them. So rather than flipping in an expensive market, I may buy properties that cash flow in just below the market average where there is still high demand regardless of fluctuations in the market.
My partner and I are still buying properties that make sense number wise, that cash flow, and that have a likelihood of appreciation. But because we don’t depend on our real estate investing income for survival, if there is a market correction that causes a decrease in home values more than 20% and rents to drop 15-20% also, then our cash flow may temporarily go down to zero. But it won’t stay that way forever. Even people who bought in my market at the top of the market in 2006 and 2007, if they bought it to where they were able to cash flow even a little, and were able to hold on to the property, then today they have an asset worth about the same as when they purchased it but the mortgage has been paid down over the past 10 years and they have a good chunck of equity in it now.
If you wait to only swing at pitches that look like they will be home runs then you will strike out a lot more than necessary. If you look for more singles and doubles and occasionally are able to hit a home run, then, in my opinion, you will win a lot more games (have more success with investing).
Shiloh keep in mind in the PHX market many investors cash flow did not drop 20% it dropped 100% and stayed that way for an extended time.. now not predicting another 08 meltdown but it happened to many of my personal clients that I sold Multi to up here in PDX they also bought PHX and lost their properties altogether..
in my mind doomsday you need some pretty good reserves... but I am uber cautious these days after living through that one and 2 before it..
I'm still struggling with the rents dropping to 0% for a long period of time. This to me means that the landlords were charging too much and rather than take a "market" loss by charging current rents, they chose to go to zero because they didn't understand the change in the market. Full vacancy at the current market rent to me suggests that people chose to go homeless rather than rent your clients properties. This can't be true. Am I crazy?
Frankie remember this was during the great recession of 08 to 2011 ish.. but the fact is rentals in PHX went zero because the renters moved and left the area.. I had clients who lost four plexs and not one but 5 or 6 of them as they went 100 % vacant for extended periods of time.. 1 year or longer rent could have been 50 bucks.. it happened.. and it happens.. what you find with larger multi is those that buy it especially in syndication form. usually put max debt on them.. and then when you have vacancy rates in excess of a certain number and that might be only 15% or so.. these properties become negative cash flow.. reserves get sucked up cash calls are needed maintenance gets differed etc etc.. it happened.. and it does happen.. were do you think all these guys buying distressed multi or rentals get them from.. someone is not running them right..
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
8y
Originally posted by @Frankie Woods:

Originally posted by @Joe Splitrock:
Originally posted by @Jay Hinrichs:

Originally posted by @Shiloh Lundahl:
@Mike Dymski people say we can’t predict the future but I believe we can. We just can’t predict it with exactness. In other words we can predict market corrections and market downturns because that’s what markets do, but we can’t predict the exact time or the degree of correction.
So in my opinion, if I can’t predict the timing or the severity of market corrections, the next best thing would be to hedge for them. So rather than flipping in an expensive market, I may buy properties that cash flow in just below the market average where there is still high demand regardless of fluctuations in the market.
My partner and I are still buying properties that make sense number wise, that cash flow, and that have a likelihood of appreciation. But because we don’t depend on our real estate investing income for survival, if there is a market correction that causes a decrease in home values more than 20% and rents to drop 15-20% also, then our cash flow may temporarily go down to zero. But it won’t stay that way forever. Even people who bought in my market at the top of the market in 2006 and 2007, if they bought it to where they were able to cash flow even a little, and were able to hold on to the property, then today they have an asset worth about the same as when they purchased it but the mortgage has been paid down over the past 10 years and they have a good chunck of equity in it now.
If you wait to only swing at pitches that look like they will be home runs then you will strike out a lot more than necessary. If you look for more singles and doubles and occasionally are able to hit a home run, then, in my opinion, you will win a lot more games (have more success with investing).
Shiloh keep in mind in the PHX market many investors cash flow did not drop 20% it dropped 100% and stayed that way for an extended time.. now not predicting another 08 meltdown but it happened to many of my personal clients that I sold Multi to up here in PDX they also bought PHX and lost their properties altogether..
in my mind doomsday you need some pretty good reserves... but I am uber cautious these days after living through that one and 2 before it..
That is the killer situation for an investor, when values drop 100% and there is no tenants to rent to. I had a tenant that was a landlord in Michigan prior to the crash. He owned two single family homes and his primary residence and lost them all to foreclosure. The crash happened and his tenants stopped paying rent after loosing jobs. Then one of the properties was trashed by a big dog that did $8000 damage. I know people will say, well that was Michigan, it would never happen in my market. I suspect if you had warned people in Michigan two years before the crash, they wouldn't believe it could have gotten that bad. Human nature is to not believe the worst will happen.
I challenge people to look closely at the markets they invest in. Look at the underlying economy. Things like medical and universities are stabilizing forces. Military bases, major manufacturers or markets dominated by a single employer present risk. I believe if you pick your markets carefully, that over time you can weather anything.
Still struggling to understand this scenario. This could happen in "good" or "great" markets. What am I missing here? I see the point about knowing your market dynamics, but you should be able to make money in any market (well, just about). I feel uncomfortable about the looming correction, even though I can't forecast when or if will happen. But I feel as if many of us have a reference bias based on the GFC. Sorry, I just finished Thinking Fast and Slow which blew my mind and now I'm questioning everything lol. Nothing against any responses, which I think are great. But I'm trying to wrap my head around this to put myself in the best possible position.
Generally speaking, great markets pull most businesses up. For example, when there is high demand for automobiles, even a poorly run automotive company can survive. When we have economic down turns, it takes out the weak businesses first. My point was look for diversification or stable industries when investing.
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David S.
Investor · Bay Area, CA · Member since 2014 · 165 posts · 45 votes
8y
@Jay Hinrichs. Given your comments above, maybe have to be extra careful now to investing into multi-res syndications. Mobilehome Parks are supposed to be much more recession resistant. During the last great recession, were there situations where people abandoned their mobile homes en masse? If so, is this risk mitigated by the park owner being able to clean up the mobile home park and rent it to someone else quickly, maybe someone moving from an apartment.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @David S.:

@Jay Hinrichs. Given your comments above, maybe have to be extra careful now to investing into multi-res syndications. Mobilehome Parks are supposed to be much more recession resistant. During the last great recession, were there situations where people abandoned their mobile homes en masse? If so, is this risk mitigated by the park owner being able to clean up the mobile home park and rent it to someone else quickly, maybe someone moving from an apartment.
Not so sure about the whole MF space but I sure would not be doing some sponsors very first deal.. I would personally want to be with some sponsor who has lived through the down turns.. and not a beginner or only a few years in the space.. like you see all these folks that have never done a syndication jumping in. you know its frothy when the how to guru's start selling courses on how to be a syndicator.. just my thoughts on it..
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David S.
Investor · Bay Area, CA · Member since 2014 · 165 posts · 45 votes
8y
@Jay Hinrichs. Got it. When it comes to mobile home park syndications, there seems currently to be many more MH Park sponsors that have NOT lived through the last downturn than those that have. And those that did, were in a different class like apartment buildings or SFHs.
Just looking for safe cash flow investments with some potential for upside rather than being in completely in idle cash.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @David S.:

@Jay Hinrichs. Got it. When it comes to mobile home park syndications, there seems currently to be many more MH Park sponsors that have NOT lived through the last downturn than those that have. And those that did, were in a different class like apartment buildings or SFHs.
Just looking for safe cash flow investments with some potential for upside rather than being in completely in idle cash.
I have a definite bias to MHP since I have owned 4 of them.. it really depends on the class of park and where it is..
a well position west coast park with city sewer and water and park set homes that are newer and not full of junky single wide's is rock solid in my mind.. but of course the experienced syndicators are still buying and making MF work for sure.. but they usually have some deep pockets themselves... Experience matters in this stuff in my mind.. how can you take someone who has never managed investor money before ?? they are going to go through some sort of learning curve.. some will be fine some will be train wrecks.
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Mike Dymski
OP
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8y
Originally posted by @David S.:
@Jay Hinrichs. Given your comments above, maybe have to be extra careful now to investing into multi-res syndications. Mobilehome Parks are supposed to be much more recession resistant. During the last great recession, were there situations where people abandoned their mobile homes en masse? If so, is this risk mitigated by the park owner being able to clean up the mobile home park and rent it to someone else quickly, maybe someone moving from an apartment.
Hey David. MF, MHPs, and SS all held up very well during the last recession. The country experienced both a housing crisis and an economic recession, which are two different events that don't always coexist. The housing crisis threw landlords, in many markets and asset classes, a life preserver with all the displaced homeowners and lack of financing. All recessions are different though and it would not be prudent to expect that going forward. What is prudent is (1) good locations (2) cash flow (3) prudent debt (4) add value (5) reserves.
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JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
8y
Originally posted by @David S.:

@Jay Hinrichs. Got it. When it comes to mobile home park syndications, there seems currently to be many more MH Park sponsors that have NOT lived through the last downturn than those that have. And those that did, were in a different class like apartment buildings or SFHs.
Just looking for safe cash flow investments with some potential for upside rather than being in completely in idle cash.
As soon as you start thinking you're bulletproof is when you'll find yourself stripped of properties. No one is completely immune to any kind of economic downturn, and there are a lot of people running around on the margins. There are more than a few people on here who don't believe in owning anything outright and carrying maximum debt load on everything. Personally, that's way too much risk for the return - and I can't really fathom where they carry all that cash, and if they're not carrying cash they're even more prone to be walking the margins. Most of my portfolio is free & clear, and though I know I could make more money if I cashed everything out I don't like to be in that kind of leveraged position. I'm not against leverage, I just believe there has to be some reasonable limits if you're going to guard against the downturns. Don't forget that most of the people you talk to on here have little to no real estate experience before 2008. That may have been a once and done situation, but local downturns happen all the time.
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