Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
I have been saying this for awhile that the market is frothy and that IF you buy larger multifamily you better be using conservative underwriting numbers.
Those placing money into properties with the prediction of above markets numbers continuing indefinitely you are in for a big surprise.
Anything today listed by a major brokerage (CBRE, Cushman, Marcus & Millichap) has been bid up to nonsensical pricing.
I don't care what anyone says, if you're buying nearly anything today (heavy value-add somewhat excluded) and you have 65% LTV+ debt that matures in under 7 years you're going to be in some serious trouble. (Leaving aside all the idiots buying with ARMs floating over LIBOR who are just completely screwed.)
I'm under contract on a deal at a 6.8% cap rate in a 5% cap rate market with rents $200 below market. And yet I'm STILL considering wholesaling the deal, taking a 7 figure windfall and waiting for the crash because I doubt things are going to hold up another 18 months.
Even if the Fed doesn't hike rates further (and they've got $19T reasons not to raise rates), the coming inflation in expenses (when they bring in the next round of QE) will not keep pace with rent increases and NOI will suffer, causing serious refinancing problems.
And I know all the reasons I'm "wrong" but I'm not buying it. This time is NOT different.
My mentor who owns $600mm+ in property in the NYC area told me he bought something like $75 million of property from 2008-2012. He said he's only purchased 2 deals in the past 4 years because of all the silly prices in the market. He's refinancing left and right as we speak in order to sit on cash to scoop up deals in the coming crash.
"I look for the desperate optimism of the invested that occurs at market tops."
Michael Janszen
Doesn't the above quote sound like all the bulls today saying "we're becoming a renter society", "foreign money is limitless", "no new housing supply is coming online", "construction financing is still tight", etc.?
P.S. People should checkout RealForecasts.com, see how an Austrian Economics trained institutional real estate analyst is predicting the next crisis at the end of 2016.
Flipper/Rehabber · Littleton, CO · Member since 2014 · 75 posts · 75 votes
10y
Lots of good points on this thread. Enjoyable read. The problem with bubble predicting is getting the timing right. It's easy to spot, just not so easy to time. I remember right before oil collapsed in 2008 you could easily be hired as a Landman making $500/day with absolutely zero experience. Now that was a bubble clue for sure. Bubbles are fascinating.
