Market cycle

10 Replies

Where are we currently in the multi family market cycle? Any signs of prices going down any time soon? 

@Account Closed if any one had an accurate answer to this question he'd be billionaire by now. 

We all ask the same question all the time and the answer changes depending on who you're asking. 

Personally, I believe we are at the end of the stretch. We will see a turn soon. 

What's soon?

Well, the US is too big to say that all markets will see the turn at the same time. Some markets had already gone soft while other will push through until the entire country has turn but eventually, all markets succumb to the macro economy. 

The red flags are already out. It's the small things like getting mail from mortgage brokers promising $0 down payment, it's when you hear your plumber saying he is invested in real estate and so does his grandmother, stuff like that. 

If you want to look forward, I suggest you look back first. Watch the movie "The big short". It'll give you a little insight to what happened last time...

Every individual market has its own cycle. If you're looking for a shift from a sellers market to a buyers market, it may be some time because employment seems healthy in most markets. Keep an eye on the days on market report. 

Multi family has been frothy the last 2 to 3 years at least.

I think it is over valued but people keep buying it. I won't buy at these cap rates and pricing levels with my cash.

Right now overseas buyers parking money here,1031 buyers with looming large tax penalties if they do not buy something, buyers from other states where there cap rates are 4 will take a 6 in another state, etc. are pushing some of the low cap rate sales. 

If you can build cap rate to cost and have a  9 plus cap on a brand new product that is different. These people buying 30 year old properties (newly rehabbed) better watch out for the future. If in years ahead economic times are hard and rents go to flat or actually go down but the costs of the building go up because the newly rehabbed was just carpet,paint,and knobs the owners stand to lose a lot of money.   

All real estate is local. Rather than macro trends, we look at local SFR trends, Multifamily building permits, income growth, population growth, job growth, hyper-local competition, and interest rates. Look at those and decide accordingly, regardless of nationwide economics. Also, if you're buying listed properties, you're probably paying too much. Find the retiring Mom and Pops who will carry a note and accept a cap rate that provides your target cash on cash return and you'll be fine.

Long term low interest debt is what we're looking for, we like the multifamily deals that cash flow in double digit's. Lock in long term agency debt and sitting back and wait

@Joel Owens

What are you doing with your cash Joel?  Are planning on stacking it up until the bad times come back or are you able to find deals out there still?  I am finding it difficult to find anything and am wounding what I should be doing.

Originally posted by @Eric Bilderback :

@Joel Owens   

I am finding it difficult to find anything and am wounding what I should be doing.

 Where are you looking? How are you prospecting? Oregon metros have been overpriced for at least 6 years, at least for listed properties. 

Eric I am not doing anything with multifamily right now. I am developing out retail out parcels for national tenants and small national retail strip centers such as 3 to 4 units. There are also redevelopment plays in commercial.

I make cash flow from transacting as a principal commercial broker for clients that want to own directly so the development side is some cash flow but mainly equity gains for me.

My friends are all being conservative in their projects. I like smaller projects hitting singles and doubles so that you continually score runs across home plate and move up the ladder. If you swing for the fences every time with larger projects you can strike out a lot and the occasional home run might not win you the game.

So you keep buying and then keep residual cash for the next downturn and load up when it happens.

The people that are not conservative and grow to big too fast can go under when a market shifts and they did not plan accordingly. Those bigger projects can take many years to happen and then you are stuck.   

@Marc C.

It's tough here. I am up to two 22 units 6 of which I have a 50/50 partner on. I have tried direct mail, and calling owners no luck so far. Both of my purchases a 15 unit and a 6 unit I made offers on as soon as they came to MLS. They were both right around 8 caps, which is great around here. I would like to invest in a different state one day that has a track record of sold stable cash flow. But I need to have more to invest first to make it worth while. All of Oregon is overpriced in my opinion, we are Northern Northern California. What about you guys? Does New Mexico follow Arizona? Is there deals to be found in New Mexico still?

Originally posted by @Eric Bilderback :

@Marc C.

>It's tough here.  I am up to two 22 units 6 of which I have a 50/50 partner on.  

 New Mexico doesn't follow either Colorado or Arizona. Prices here are more reasonable, at least for off-market stuff. I can live with the 8% cap rates. I am also up on the Kansas City market, which is very stable. As usual, the prices for listed properties are typically too high...brokers are too good at convincing out of state buyers and sellers that their listings are worth it. Albuquerque is full of C-class neighborhoods and crime. Buying in the right area is the trick. KC is much larger and has good and bad areas, plus lots of suburbs. Right now, however, we are getting good responses to our mailings in Albuquerque, so we're sticking with that. But I am also investing in multifamily in different areas through I'm thinking that placing lots of $50,000 bets in a lot of different markets is the safest way to invest right now. I hope. 

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