Multifamily Is Likely To Start Recovering in 2024—Here’s Why
15 Replies
- 2yScott TrenchPro MemberRental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
J - As always, really appreciate your insights and the rebuttal here! Thanks for writing it. We disagree, and that's ok - I hope I am wrong about 2024 and that there are a lot of thriving real estate investments - the one that I am fearful will be a nearly 100% loss for me included.
Scott - You're one of the smartest people I know, and like I said at the beginning of this article, your reasoning is solid on this topic. I'm closer to the industry than you, which is both good and bad. I probably have more insight, but I also likely seek confirmation bias which skews my perception. I hope I'm right that we're turning a corner this year, but we're all just guessing!
- Real Estate Investor · Titusville, FL · Member since 2013 · 121 posts · 26 votes2y
@biggerpockets-e52cf8362c664270575b333c0310fa05:disqus I respect your opinion a lot and I think you're a very intelligent person. I've learned a ton from following you and reading your books, but after having read @biggerpockets-2927330ab724fe08a84cd7769cd61d27:disqus's article, when I read yours it did sound like it was written by someone who is bias. Having said that, I think it's extremely valable to get oposing opinions from two smart guys like yourselves. Might I suggest this be a recurring format where you both take opposite sides of a topic and write articles. It could be called "Scott & Scott" maybe with some tagline as well. No need to say who's name comes first. :D
I cannot wrap my head around this idea that despite all the stong economic data you mentioned, we're going to see the Fed drop the fed funds rate. How would that not be counterproductive to the Fed's goal? It makes sense to me that the Fed won't start to lower rates if they think it will throw fuel on the inflation fire. Until they have negative economic data telling them there are cracks in the ecnomoy I just don't see rates dropping.
Very interesting rebuttal to Trench's article. Lots of thoughts while reading this. First, it is a complicated issue and analysis, and MANY potential factors are unpredictable in this politically charged and government manipulated environment, especially in an election year.
That said, there are a lot of truths which even politics will only be able to possibly delay the inevitable. I do not believe the CPI numbers, the employment numbers or ANYTHING the govt or FED says about all of this. It is observably not the truth. And their speculations are based on that perspective, so not trustable or reliable at all for real world business people.
I believe that we are and will remain a "Renter Nation" for a decade, at least. Not because of demographics, but because of the basis for comparison being so skewed in the last 40 years. The American dream of being a homeowner, is probably dented, if not dead now. It was a government created thing in the first place, based on political and ideological machinations, and business greed.
It was NEVER sustainable, and many cycles of "corrections" in housing markets have proven it, such as the RTC formation- a completely predictable outcome of trying to make the FICTION that every American should own their own home, a reality. Never worked and never will. The rest of the world, also inhabited by intelligent ambitious people too (USA does not have a monopoly on ambition), has NEVER imagined that everyone should own their home. Other countries were infected with this fiction, as usual, by American idealism and propaganda.
The reality, IMHO, is that we are in the beginning of the beginning, of a multi-decade unwinding of 40 years of stupid excesses. The reckoning has arrived, and thankfully, it will be spread out over a decade and not a catastrophic correction (hopefully).
We as a nation, and a world now, have pushed the limits on so much for so long, and artificially bolstered up the whole Ponzi scheme paradigm with nonsense "monetary theory" and unlimited "money printing" so long, it has amazed me it was still going for the last 20 years! But alas, never underestimate the power of the govt and greedy "leadership" to sell us all out for short term gains, real or perceived.
SO...here we are. I believe we are simply reverting to the mean, now, and for the next 10+ years probably. Maybe longer. It will SEEM like a negative environment, but it is simply an unwinding of decades of excesses built upon unsustainable ideologies, monetary policies and marketing propaganda. I own over 70 residential units, and have become wealthy riding this wave, as have many others. But I do not delude myself into thinking it is all because I was a genius, or that there were not tons of manipulations and artificialities at hand, lifting me along with the tide.
Am I worried about my own rental portfolio and future? No. But I have been careful to invest in class C properties and at the lower end of the entire rental market space, working class renters who will never be able to buy a home. So, in many ways, my rentals are almost the last stop, before slum properties or homelessness. A safe niche, despite the sometimes ugly side of dealing with the lower middle class level renter. It works for me. But I buy cheap and renovate, often the only "bidder" willing and able to make an offer - so I avoided competition from potential owner occupant buyers. YES, I have forgone $Millions in appreciation as a result, but NOW I am feeling good about it. Not out ahead of my skis or swimming naked! I have high equity and almost zero vacancy. I have never evicted a tenant in my life (And I have a law degree and could do it cheaply).
I advise everyone, especially newer, later arrivals to this game to be CAUTIOUS to protect oneself from what anyone and everyone espousing a confident optimistic view of our economy's and real estate market's future. Need I say the same about stock markets and the CNBC fan boy club of Wall Street? Beware, the reckoning is coming. The ice is melting beneath our feet.
People will soon learn terms familiar to us older ones, like "Jingle mail" and "bank Failures" and "runaway inflation" and "skyrocketing unemployment" and "Crashes" of all kinds. Don't be caught surprised...Be CAUTIOUS.
- Investor · Irvine, CA · Member since 2014 · 81 posts · 30 votes2y
Your have some great points and are a wise person. Recommend a book called The Secret Wealth Advantage by Akhil Patel. It talks about RE cycles and shows how there are predictable and repeated. And of course the government that has a big part in helping create them. I also buy distressed and often the only bidder. Am selling to the lower end of the market in the SFR space.
- Rental Property Investor · Orlando, FL · Member since 2019 · 109 posts · 49 votes2y
Some good points here. My observation has been that rents are not only slowing, but decreasing in most markets that I'm in (sunbelt). Also, expenses are through the roof this year, everyone is experiencing this from tenants to landlords. Insurance has skyrocketed, as has labor like roofing, garage door, plumbing, etc., property taxes, and they've increased for the tenants as well decreasing affordability for monthly rent (groceries, etc.).
I don't believe this is sustainable as most W2 workers don't receive a pay increase anywhere near the inflation that has doubled costs in the last few years on many items. I also don't believe we'll see sub-6% interest rates anytime soon, this year or next. I was in the mortgage business back in 1998 and watched interest rates fluctuate between 6-8'ish percent. My opinion is that we'll be in that same ballpark this year and I don't feel they have a handle on inflation which will make it hard to lower rates.
Cap rates are decompressing a bit, which will make multi-family acquisition more attractive if the increase in cap rates and decrease in monthly rent and post move-out vacancy don't both offset each other (not to mention interest rates are still much higher than they were, increasing the cost as well).
I agree there are many tax benefits and other things you can factor in like bonus depreciation, and I agree I believe it will come back to 100% with legislation being looked at for this currently. I hope you're correct, this is just my opinion as I'm ready, but hesitant, to get into multi-family and diversify a bit from self-storage.
One way or another, long term holding of real estate is always a good play in my opinion and this site is the best out there for ideas, information, and opinions which are always good to see to get perspective from both sides. All the best in 2024!
- 2yG. Brian DavisPro MemberInvestor · Hatboro, PA · Member since 2016 · 3k+ posts · 905 votes
Both great arguments and well articulated. I lean more in J's direction that there are some great opportunities to invest in 2024, and that the greater risk came with investments from 1.5-4 years ago that are now struggling. What we're seeing when we vet deals in our investment club is that operators are far more risk-conscious today than they were even 12-18 months ago.
I don't see rainbows and butterflies for past deals in 2024, but I do see some risk-adjusted opportunities for new investments. - Member since 2018 · 76 posts · 15 votes2y
Thanks for offering an opposing perspective. Having bought two quadruplexes last year and being poised to make an offer on an 8-plex in the near future, I want to hold onto the positive news.
That said, I've seen property taxes and insurance going up 50% year over year for many of my properties, and rents in Atlanta, where I own six SFRs, are flat or going down.
I am getting cash flow still and plan to have positive cash flow on these multi-families, while I'm also seeing the long-term picture and know that things will just get better over the years. We all know this isn't a get-rich-quick scheme.
- Denver, CO · Member since 2018 · 133 posts · 97 votes2y
Great article. Would love to hear Scott and J. debate this on the podcast.
- 2yAustin BarryPro MemberNew to Real Estate · Denver, CO · Member since 2021 · 6 posts · 5 votes
Not only a debate...but maybe a wager as well?!
Great information and insight as always @biggerpockets-e52cf8362c664270575b333c0310fa05:disqus, but I'm with @biggerpockets-2927330ab724fe08a84cd7769cd61d27:disqus on this one. I don't believe in a soft landing. We will enter into a recession this year and we'll continue the crash in CRE that has already started.
- Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes2y
J Scott is wrong! He states he doesn't have a crystal ball but I beg to differ!
Great article and rebuttal to Scott Trench.
I would also point out that both of these writings from both of these stars are from a macro viewpoint and each city or two in each state may experience different results. As a CA resident and investor/developer who has invested in my own backyard and out of state (multiple states), I have seen this first hand. What one area may be doing today, another area is doing something different. So read through the macro analysis and then get more microscopic for your individual location of investment before making any decisions to buy or sell. - 2yMichael NelsonPro MemberNew London County, CT · Member since 2021 · 55 posts · 18 votes
Both side have good points. I do agree with J scott. Especially regarding smaller mutlifamily I think it will be a good year. as for the larger commercial I am a little more on Scotts side of things but I am looking at it how Scott mentioned though "with multifamily values off 25% to 35% over the past 18 months, there’s good reason to believe that the next five to 10 years could provide an opportunity that we haven’t seen since the Great Recession to “buy low” and generate strong multiyear returns." It will create a great time to buy.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.