Would it be a good time to sit on cash or acquire something now?

Question

Would it be a good time to hold on to the cash and sit on it for a while or acquire some properties and add value when the economy slows down?

Dan Weber · Answer

If you find a property that fits your investment criteria then move on it now. It is impossible to predict the future and when the economy will slow down. When the economy slows down, there will be a new set of difficulties that make it hard to invest. For example, financial institutions may tighten lending standards and make it really hard to finance properties. If you find a good investment now, do it.

Cameron Tope · Answer

Kay Kay,

I agree with @Dan Weber & @Eric Johnson - you buy when the deal fits your criteria, regardless of the market.

It's almost impossible to get hurt buying great deals over 10-15 years.

Rick Martin · Answer

@Kay Kay Singh it is a tough question to answer, right? Has there ever been so much anticipated uncertainty before? Playing devil's advocate to the previous comments, how do we really underwrite right now with the eviction moratorium being extended, and unemployment being cut. That is not a great recipe. You tack on it being an election year to the pandemic craziness, and I proceed with caution.

Pricing has not responded to this recession, because the FED has kept renters afloat. Owner/sellers are saying, hey my T3 looks pretty. Here is my NOI and here is the stabilized market cap, so if you're not going to pay xyz/door, the next buyer will. What is October through February going to look like?

Having said that, if you can get good value while still stress-testing at 70%, 0 rent growth for a couple of years, and an escalating reversion cap, submit that LOI. I know you are anyway, but it is a good question at this point in time. Not a bad idea to have some cash waiting for 2021 IMO.

Jonathan Barr · Answer

Like said above you find the right deal now move on it.

I think right now is just time to be that much more conservative. Give yourself more buffer, higher vacancy and extra reserves in case you need carry property for sometime.  Maybe try to avoid big rehab projects. For example a multi-family deal I'm about close its more expense reduction management play.   The property needs very minimal work.

A lot people are scared on the sidelines.   If you take a chance now those brokers will remember and bring more deals later.   I honestly thinks its really good time to jump in on the deal. Happy Hunting!

Eric Johnson · Answer

@Kay Kay Singh this depends on your strategy and asset type. If you start doing developments or large flip projects, you could be caught in a tough spot depending on where the market goes.

For long term cash flowing rentals, just move when you find a good deal that hits your criteria.

Austin Sine · Answer

@Kay Kay Singh If you find a deal that fits your investment criteria/return profile, and you can meet lender requirements (conservative due to COVID) then the time is now. A few reasons;

•  lock in low interest rates (sub 4%)
• inflation hedge (QE!)
• avoid potential tax revisions (increased cap gains tax) under new leadership
• equity market uncertainty

If the market tanks and you're holding a great, conservatively financed property you should be OK. Your future self also now has a track record and can take advantage of the distressed assets coming to market.

With that being said - I would avoid taking on heavy repositions/flips (as mentioned) and wouldn't be surprised by increased taxes (you can u/w a fudge factor).

Hope this helps! Good luck!

Ned Carey · Answer

Always be ready to do deals, But only do great deals.

The average deal right now, I don't think is worth doing at all.  But if you can find a great deal it is still worth doing. The better the deal the lower your risk.

Travis Watts · Answer

I recently wrote a BP Blog on this topic. The biggest question is...Is It The Right Time For YOU?

https://www.biggerpockets.com/member-blogs/12418/91101-the-best-time-to-get-into-multifamily-how-to-decide

Nick Barlow · Answer

@Kay Kay Singh congrats on the acquisition!

Kay Kay Singh · Answer

Thanks, everyone for the great insight, I really appreciate your insight. Actually we are closing on a 150 unit property next week in the Galleria area of Houston, TX.

Would it be a good time to sit on cash or acquire something now?

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