No buying multi-family until we hit the bottom?

Multi-Family and Apartment Investing
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No buying multi-family until we hit the bottom?

Vlad Denisov
Glendale, CA · Member since 2018 · 60 posts · 13 votes

Everyone around seems to agree that recession's gonna come within 3 years with a high probability. If it's true, does it mean that it makes all the multifamily deals right now much worse than lets say 5 years ago? I saw a lot of people on BP saying they exiting on all the properties they have right now. Would you say it's a bad time to start this year for a beginner or not? Why?

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
7y

I dont know why everyone who doesnt have the courage to invest during a booming economy believes they will have the courage to invest during a recession, or how they will access credit when credit markets tighten.

You know who buys during the depths of recessions?......the same people who continue to buy regardless of market conditions.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    The best time to start is when you have a good deal and the money to finance it.  No one knows what the market will do-yes it will go down, but it will also go up.  If you find a good deal, get it.   

    I'm in Canada and the prices in Vancouver and Toronto are still going up albeit more slowly than before.  The prices went up for many years after they said it was going to 'crash'...and it still hasn't 'crashed'.  Some of that hype is wishful thinking from people wanting to get into the market, other is based on the prices being so high that they don't feel it is sustainable.  Prices everywhere else in the country are quite different-some cities are stable, some have increased and some decreased over the last 10 years.

    10Reply
  • Charley C.
    North of Houston · Member since 2018 · 349 posts · 181 votes
    7y

    Multifamily markets are specific to its local economy and its local apartment supply/demand, not national trends or talking heads on news parroting what they say . And if you wait 5 years, you will not be 5 years younger. 

    if you got too many people moving out (or just loosing their jobs) in Glendale, then try a looking in other states with freedom base economies which = growth. 

    3Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    7y

    At any time buying MF successfully will depend on your ability to judge; what to buy and how to buy it. When the market is high like it is today make sure it cash flows well, and gets better when you have done the rehab, if one is warranted. Don't count too much on ordinary appreciation-that is going to the seller. 

    3Reply
  • David Smith
    Rental Property Investor · NJ/PA · Member since 2016 · 555 posts · 149 votes
    7y

    Depends on markets.   Some markets  focus on cash flow , almost no value appreciation.  Others little cash flow with high jumps.  

    At this market, better to focus on cash flow.  

    Buy in big cities during recession.  

    2Reply
  • Greg Scully
    Rental Property Investor · Johnson City TN · Member since 2016 · 386 posts · 271 votes
    7y

    @Vlad Denisov - I agree that it is very market dependent. There are always deals to be had.  People exiting are realizing that they timed the market well and can takes some significant profits.  

    If you buy for cash flow it's easier to ride out the downturns.  

    In my opinion under capitalization, bad financing, and poor execution kills more deals than market cycles.

    3Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    I dont know why everyone who doesnt have the courage to invest during a booming economy believes they will have the courage to invest during a recession, or how they will access credit when credit markets tighten.

    You know who buys during the depths of recessions?......the same people who continue to buy regardless of market conditions.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    62Reply
  • Alina Trigub
    Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
    7y

    @Vlad Denisov

    I believe I answered your question indirectly in another post of yours. In summary, you need to know your market well to determine what stage of the cycle it is currently in. 

    Here's the post on market cycles again: https://www.biggerpockets.com/member-blogs/10850/81214-what-goes-up-must-come-down-or-market-cycles-fluctuation

    Finding deals currently (or at any point) is hyper-local, so determine the cycle stage for your market. If it doesn't allow to buy there right now, you have several options.

    1) buy some place else where it makes sense

    2) sit tight on your money until the market crash (no one can predict until when) 

    3) switch to another asset classes that can sustain economy fluctuations better

    2Reply
  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    7y
    Originally posted by @Russell Brazil:

    I dont know why everyone who doesnt have the courage to invest during a booming economy believes they will have the courage to invest during a recession, or how they will access credit when credit markets tighten.

    You know who buys during the depths of recessions?......the same people who continue to buy regardless of market conditions.

     Exactly. Most people say prices are too high, they’ll buy when it’s cheaper. But did they buy in 2009-2011? Most didn’t. 

    People don’t realize that during downturns, credit tightens up. Unless you are a cash buyer, a recession isn’t really giving you a better buying opportunity. 

    2Reply
  • Tyler R.
    Rental Property Investor · Savannah, GA · Member since 2016 · 49 posts · 18 votes
    7y

    @Vlad Denisov, if you align your exit strategy and debt type/length with where your location is in the market cycle, that will help you mitigate risk from the market. While I believe this is a simple statement, I think it address the primary areas where every deal experiences risk. 

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Vlad Denisov. Sounds good to me. More deals

    For the rest of us. If I like the deal now. I’d have also liked it in a recession.

    I started in 2017. Guess how many people were talking about recessions then? Everyone. Two years later and I’ve made thousands of dollars in real estate. Investing then was the best decision I ever made. If the market tanks, I’ll buy more. I keep low debt and my rentals are working class rentals. Those people will still pay their rent, just like they have now.

    6Reply
  • Chase McArthur
    Specialist · Washington, DC · Member since 2019 · 177 posts · 150 votes
    7y

    @Vlad Denisov

    No matter what stage of the cycle you're in a properly executed investment strategy will make you money.

    Consider all those that bought when no one else was. They are the ones capitalizing on the markets in this cycle.

    0Reply
  • Serge S.
    Rental Property Investor · Scottsdale, AZ · Member since 2010 · 390 posts · 599 votes
    7y

    I'm not sure I'd be waiting but I would very much be sure my strategy does not rely on huge NOI gains to attain an estimated exit cap rate to make the deal work. Buy on undervalued in place NOI not pro forma. Buy where the rookie syndicators are not. If the market continues to grow they will follow later and be the ones buying your exit. Have an exit strategy that can work with multiple operational plans and higher exit cap rates. Make sure all your assets have adequate reserves. Sell assets that are directly tied to the strength of this economy (i.e SFRs in certain markets). Last but not least, I want to be sitting on some cash into 2020-2021. If no asset fits the above then continue to stack cash and look at alternative asset classes. Multifamily is today's preferred investment. It will not always be like that.

    5Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    7y

    @Vlad Denisov

    I’ve been hearing the same thing about the stock market for 10 years now. The best time to start investing was yesterday. The second best time is today.

    10Reply
  • Jason Yarusi
    Investor · Murfreesboro, TN · Member since 2013 · 430 posts · 178 votes
    7y

    @Russell Brazil so true.

    0Reply
  • Account Closed
    Member since 2018 · 83 posts · 66 votes
    7y

    @Vlad Denisov focus on cashflow and do a good sensitivity on vacancy rates and you’ll be fine regardless of the broader market.

    0Reply
  • Hunter Ambos
    Real Estate Agent · Pickerington, OH · Member since 2017 · 55 posts · 26 votes
    7y

    @Vlad Denisov

    (Disclaimer:I don’t have any deals yet)

    However, I’m actively looking for deals but buying for cash flow in case a downturn happens in the near future

    1Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    Base your decision on individual deals not the over all markets. Investing in areas that have had the highest appreciation in the past will likely be hardest hit with a recession. Investors that buy at a high point in a appreciating market will lose equity and the likely hood is they went in with very low if any positive cash flow. Investors in areas like Vancouver and Toronto (Canada) will be hit from both sides. They will be the big losers so concentrate on cash flow not appreciation

    1Reply
  • Chris Grenzig
    Property Manager · Orlando, FL · Member since 2016 · 479 posts · 277 votes
    7y

    @Vlad Denisov there was just an article posted the other day about the inability of economists to correctly predict recessions/downturns/depressions etc by examining claims and market cycles over the past 100 years or so. 

    I'll save you some time and just it was abysmally wrong and basically a joke. I think as long as you have deals that are not over levered, stress tested so it would be very tough to go into default, you/your investors understand that if things go south it is very possible extra capital could be required, and you did everything reasonable to make sure the business plan gets executed, there's not a whole lot anyone else can do. 

    Someone talked about credit in the bottom of the recession (they were spot on), the problem with trying to buy at the bottom is getting loans is 100x harder than it is today. I was talking to our manager and she would tell me about how she could've bought deals for 15-20k a door that are worth 60-80k a door today, but there was no financing available then! You basically had to buy all cash, freddie and fannie weren't lending like they are today. 

    Also, we are in a time where investor dollars are extremely high, it is going to be significantly harder to raise capital when everyone is clinging to their dollars and people start to lose jobs. 

    So my advice is lower return expectations, stress capital preservation with solid returns to investors, because not making 100%+ return in 2-3 years is better than potentially losing everything in 2-3 years in my opinion.

    1Reply
  • Jason Bible
    Rental Property Investor · Houston, TX · Member since 2015 · 75 posts · 66 votes
    7y

    What does a recession have to do with investing in MF?  How is wall street tied to MF?  

    0Reply
  • Nick Rutkowski
    Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Vlad Deniso

    Interest rates are at historic lows. It’s a horrible time NOT to be investing in RE.

    0Reply
  • Randy Bloch
    Rental Property Investor · Minneapolis · Member since 2019 · 257 posts · 244 votes
    7y

    @Jason Bible

    Recession don't only impact Wall Street, there is typically loss of jobs during a recession which impacts Main Street...people's ability to pay rent and housing demand. Now some recession are worse than others. The 2008 one was particularly bad for real estates because of the loose lending practices and pooling of sub prime mortgages. I would not expect the next recession to impact real estate as much, especially SFR and Multi residential. It might impact commercial and industrial more. Also, farmland is still at historically high prices. 10yr of historically low interest rates have caused cap rates to compress ...there is lots of capital chasing returns...retirees and pension funds need returns to live. Eventually interest rates will go higher and people will require higher cap rates for the associated risk they are taking on....when does this happen? That is the million dollar question....but it will happen at some point....and when the 30yr bond is paying 5-6% with no risk, investors will buy those rather than a REI with 6% cap rate and prices will adjust.

    0Reply
  • Jason Bible
    Rental Property Investor · Houston, TX · Member since 2015 · 75 posts · 66 votes
    7y
    Originally posted by @Randy Bloch:

    @Jason Bible

    Recession don't only impact Wall Street, there is typically loss of jobs during a recession which impacts Main Street...people's ability to pay rent and housing demand. Now some recession are worse than others. The 2008 one was particularly bad for real estates because of the loose lending practices and pooling of sub prime mortgages. I would not expect the next recession to impact real estate as much, especially SFR and Multi residential. It might impact commercial and industrial more. Also, farmland is still at historically high prices. 10yr of historically low interest rates have caused cap rates to compress ...there is lots of capital chasing returns...retirees and pension funds need returns to live. Eventually interest rates will go higher and people will require higher cap rates for the associated risk they are taking on....when does this happen? That is the million dollar question....but it will happen at some point....and when the 30yr bond is paying 5-6% with no risk, investors will buy those rather than a REI with 6% cap rate and prices will adjust.

    I dont disagree with a lot of what you said, however your last point is where I have a litany of heartache.  I just dont see money, all of a sudden, becoming more expensive.  The world is so much more different than it was 30 years ago.  30yr paying 6%?  Most likely not in our life time.  

    Wealth is becoming more concentrated at higher levels.  When one, a company, country, or  individual, has REAL wealth they worry more about risk of capital than rate of return.  Look at Breaburn capital, Apple.  They can't buy enough high quality debt.  The wealthier we become the more we look to preserve capital with risk-less assets.  

    0Reply
  • Randy Bloch
    Rental Property Investor · Minneapolis · Member since 2019 · 257 posts · 244 votes
    7y

    I guess I’m planning on living longer than you :). I’m not talk about it going to 12-14% like the 80’s. I said 6%, which it was in 2000.  there is a whole generation that is getting use to low interest rates environment.  At some point there will be inflation and fed will have to raise rates...and when this happens all the people with variable debt will be like WTF. Including corporate America who keeps issuing more variable debt and buying back shares to makes earning and prop up the stock market.  Rates will rise and people and companies will not be able to service their debt,  this will be when there is blood in the streets.  I am not saying tomorrow, I actually think rates are going lower in the next couple of years...but eventually they will go hire.

    0Reply
  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    7y
    Originally posted by @Randy Bloch:

    @Jason Bible

    And when the 30yr bond is paying 5-6% with no risk, investors will buy those rather than a REI with 6% cap rate and prices will adjust.

    The long term holders don’t make their money on cap rate speculation but on rental growth. No one can predict where cap rates will go. But if you can bet on rental growth you have appreciation. 

    0Reply
  • Randy Bloch
    Rental Property Investor · Minneapolis · Member since 2019 · 257 posts · 244 votes
    7y

    Rental growth?  Cap rate correlates directly to the price people are willing to pay for the asset.  Please explain more.

    0Reply
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