What will happen to the SFR market?

Question

Home prices are beginning to either level off or come down depending on your area. Here in FL I'm seeing appraisals come in lower than expected.... There's volatility in the stock market which generally is the first indicator of a recession on the horizon.

I am hoping for a mild one, but preparing for a tough one.

That said, unlike the early 2000's, many folks gobbling up single family residences have been investors this past decade. As people lose jobs they will inevitably be unable to afford to pay the rent. This increases turnover and the pool of qualified renters shrinks.

If you're holding a bunch of single family rentals how do you game plan for this? Is the response to simply ride the wave and minimize the effects on your cashflow to the extent possible? Basically hodl your way through the storm? Is it to reduce rents and potentially operate at a loss?

I don't think we have seen a real estate market quite like the one we are seeing now where so many investors own so many single family residences that may have otherwise been under mortgage by the occupant, but are not due to credit or cash issues, or both.

Sorry to be a debbie downer but would really like to hear your perspectives.

Alexander Felice · Answer

How should I prepare for an unpredictable, theoretical event of unknown proportion and timing, with little to no supporting evidence?

I've sold all my assets and used the cash to buy guns and ammo and prepare for the inevitable doomsday, OBVIOUSLY.

jk jk jk

I'm gonna keep buying houses on good terms, with lots of risk mitigation, and I'm going to do it as fast as I possibly can. Meanwhile, this post has been made 3x a day for the last 4 years on this site, If I listened to these predictions I would still be broke, waiting on the sidelines for the crash while everyone passed by me while getting rich.

OP - you don't know what the market will do, stop having PTSD about the past. Make decisions for growth based on solid fundamentals. The key isn't to hunker down, the key is to grow as fast as possible. Resources get your through downturns, collect a ton of them while you can.

Joshua Bendaw · Answer

Account Closed, it depends on how leveraged you are. If you are 60% or less with decent liquidity you'll probably fare OK in most cases. Actually, now that I think about it most people who got financing from SF rental lenders should be OK as well. The lowest DSCR I've seen is 1.2, so even if rents dropped (which in many cases they may not) and vacancy goes from 5% to 15% you should be able to ride out the storm. It may be that the big time institutional investors (who are SUPER leveraged) are the ones that will be left holding the proverbial bag. Only time will tell. For now my best advice would be to be conservative when you run your numbers on deals and ALWAYS build in vacancy and capex into your projections. Best of luck!

Regards,

Joshua

Joe Villeneuve · Answer

On the other side, there is a housing shortage in most areas. The Lower prices/appraisals could be just a natural brake to slow down the rise.

Thomas S. · Answer

SFHs will be hit the hardest with a down turn in the market. Right now it is at or very near the top of the market. I would take advantage of the phenomenal run up we have had and liquidate all SFHs now at the top. I would hoard the cash to invest after the down turn but not in SFHs. Personally I have never liked the high risk/low cash flow of SFHs so not really my thing.

SFH rentals will have a tougher go but if major part of your play is appreciation as opposed to cash flow now is the time to reap the rewards.

Peter M. · Answer

As long as all of your rentals are cashflowing they should be able to weather the storm as long as rents don't drop too dramatically. Anyone who is holding houses that are negative cashflowing but being supported by other cashflow streams would be wise to get rid of those while the market is still high.

What will happen to the SFR market?

What will happen to the SFR market?

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