Last week I pulled the plug on the purchase of a fourplex during inspection because the numbers weren't going to work out if the RE market dropped much and the property needed rehab the owner didn't want to deduct for. (I dropped the offer substantially) Then I decided to wait a bit and watch the market a few months and "buy low" later.
Fast forward to yesterday and a better deal just fell into my lap. Better looking numbers, nicer unit, lower purchase price, etc. But in a "C" town nearby for sure instead of "B".
In my local market (Eastern Idaho) its tough to find 1% rental property most of the time, but this one actually meets the criteria.
My only hesitation is tying up cash now on deals if the deals are going to look much better in the coming months /years with the economic uncertainty. If values drop and rents actually need to drop in the coming months this deal goes from great to bearable...
I watch the forums and keep the pulse of the industry as well as I can. I see 3 schools of thought here:
1. Realtors of the group are still singing praises and telling everyone to buy.
2. The savvy and well capitalized investors are starting to smell blood in the water and are waiting for the feeding frenzy.
3. Many are in between, hoping to weather the storm and come out without losing everything they've worked hard to build.
I'd love to see what the general consensus is. Where do you fit in these three categories and what are you doing right now in the current market? Would you take a good deal now or wait until it gets better. I realize some have nearly unlimited amounts of cash and will take every good deal that comes along, but for the rest of us who need to be careful about our purchases what are your thoughts?
I tried to raise money this last week on a larger deal and one piece of feedback I got was your second point. There was anticipation of desperate sellers in 90 days.
@Joe Blakley My main concern is buying right now if the tenants are unable to pay. If things don't turn around quickly but instead get worse, all businesses closed for a couple months (think worst case scenario) most tenants will lose their income and therefore be unable to pay. Once of my tenants currently is in that situation who works at a casino which is no shut down until further notice.
For your class C property you are referring to, those tenants will likely be the worst hit. I have property in Arkansas where, even though the property is nice class B, the tenants still have to work to pay rent. If they can't work, they can't pay rent. And what I fear most is that maybe some can pay, but if one or two others in the same building can't and we work out something with them, the others will want to do the same which is bad for me.
With that. I am still looking and if I find something that is worth it I will still pull the trigger. The values dropping are not the main concern for me as much as the tenants having jobs that can pay rent. For that reason for larger purchases, like 20+ units, I will wait another month or two to see how things play out. I hope for the world's sake we are past the coronavirus effects by then and return to some normalcy.
Thanks for the replies Jace and Don. Good to hear from a couple of like minded guys from E. Idaho. Just wanted to update you both since you took the time to post. I offered asking on the property since it met the 1% rule and I could cover some missing or reduced rents no problem if we had issues with payments due to Corona Virus. (Which I DO anticipate) Seller had 4 offers, and countered at $35K over asking. I only upped my offer a few thousand dollars and they took another offer. Not heart broken to miss a normally good deal this week! I'm anticipating much better deals coming by in the next months/years. This is almost an identical scenario to the one I had with the four-plex earlier in the month, except that I was ready to pay the 30K over asking price until the financial markets started to tank! Good for the sellers right now being able to still get reasonable offers while they can in this market! I'm just not ready to pay pre-recession prices while we're staring off the edge of a potential cliff in the RE markets. After those two deals, I think I owe my realtor and his wife a gift card for a steak dinner!
I’m a Realtor in the Boise area, and reading threads like these helps me to keep a pulse on where people’s thoughts and fear levels are. I would not “sing praises” that people should still buy- but cautiously suggest to make sure you are in daily contact with a knowledgeable realtor and lender to get the actual data. It is changing daily, but in the Boise market, is not yet indicating a repeat of 2008. As always, you have to make your decisions based on if the numbers and deal work for you. People will always need housing and rentals. Just ask yourself if you can still afford the property if the market dropped somewhat and can afford to weather it out.
There are still so many people wanting to move to Idaho and are putting that on temporary hold. Our inventory is low anyways, and will get lower as sellers’ fears prevents them from listing. One scenario is that, if this shut down from the virus is short lived, there will be a flood of people wanting to move here, (and investors wanting to invest here) kind of like the virus is a dam holding everyone back for now. If that were to happen, the prices in Idaho could increase with low inventory and high buyer demand as soon as this ends.
Of course, if the shut down lasts a few more months and people lose jobs, etc..that could all flip flop. Another likely scenario to think about is, if Trump lifts the current restrictions by April 12, states can still decide individually what to do. I would expect some states to keep their restrictions going longer and others, such as Idaho, to lift restrictions if the virus numbers are low. So possibly some markets like ours will get back to work and others will still be on hold. (Which will effect us too).
The bottom line is, no one knows. Use current data from actual lender and from MLS resources. Don't make choices from fear but from what your data and personal situation are. I had someone contact me saying that he was living in Ca and kept "hearing" that high end listings in Boise area are getting pulled off the market in huge numbers. (He is not an investor nor an agent). I looked at the numbers and found that only 3 had been cancelled out of 34 listed over $1 mil (for the city of Eagle). And 14 were pending. So did some people cancel? Sure. In huge numbers? Nope. Will it change next week? Possibly? Depends on seller's motivations, personal situations, virus numbers. But In the average market range in Boise area (around $360k), we still- as of March 25- have some homes and investment properties getting offers on day one and multiples sometimes.
Everyone is coming from a different viewpoint, fear level, financial situation, and motivation right now. Waiting to purchase an investment prop might be wise depending on the length of this shut down (can’t control) and your personal situation (can control). Waiting might be unwise due to the same factors. So...again, make decisions based on data and what’s best for you. The fact that the quad you wanted got multiples over asking shows that the market is still chugging along here in Idaho.
Good luck out there! It’s going to be interesting!
@Joe Blakley I'm glad to hear that a better deal fell into your lap and I honestly think that with uncertainty in the air for who knows how long that "C" class town might be better suited to weather a decline in the economy. To answer your question as to where I fit in the current state of affairs I am trying to lock up as much liquid capital as possible just in case things go south quickly. If institutions and lenders decide to tighten I want to already be ahead of the game and ready to go shopping if and when everything goes on sale. Best of luck to you, BP members and all kind humans inhabiting our amazing planet. Stay safe and carefully keep moving forward!
Thanks Summer and Michael for your insights. After watching events unfold these past few weeks, I'm glad I held off a bit on the purchase!
Summer, great point about the Idaho market... Both sides of the state have had a lot of great things happening and I don't anticipate that will change in the long term. Not sure if I love the masses moving here, but it's sure good for the real estate industry! With that being said, it looks like there's certainly potential that the combo of Corona and Wall Street struggles may be a bit more than the short term market will be able to bear...
Michael at this point I'm with you. Keep capital liquid for a bit and see how things play out.
I certainly don't want to be making decisions based on fear, but at this point, it's hard not to anticipate a rough patch across the board in most all markets.
In my opinion it's just a matter of how hard and long will the downturn be?
Thanks again for the insights!
Summer, I'll hang on to your name and may hit you up some day if I decide to venture into the western side of the state with my investments!
Joe - very thoughtful post and a good assessment in my opinion 👍
Your 3 schools of thought are right on the money.
Personally, as a Boise/treasure valley Idaho REI, I am saving/rebuilding cash piggy bank, waiting for prices to drop (for whatever reason, you can think of top 3 easily) so I can purchase cash flow positive small multi-family when opportunities present themselves in next 6 - 12 months. Boise market has been over priced past 1 - 3 years, in my opinion, so there's some room to drop.
Thanks for the kind words Ryan.
Yep, definitely the right thing to do right now in my opinion, saving for the coming deals. I sold a business about six months ago with the anticipation that this downturn was very likely on the horizon soon, but it's been amazing to watch the day by day progress this has taken, and the lack of historical perspective we have in this situation.
I agree that there's certainly room for "correction" in the whole Idaho market, across the board.
Best of luck to you in the coming months. Hope you can help out some property owners and take some of their burden off their hands!
@Joe Blakley I liked your 3 way division of the investors market. I find it entertaining that realtors keep a very rosy outlook of the market. It makes sense of course, their livelihood depends on selling more properties now.
One thing to keep in mind with a downturn or a correction is the difficulty of raising money. If things go south, you can bet lenders and banks will make it harder to borrow. Unless I find an incredible deal, I'm keeping my cash available to use at a later stage when I can hopefully use it in better deals . Even if the market doesn't fall, the chances of RE prices going up in the coming year is low so the risk is just the opportunity lost in the coming few months.