Fourplex investing with an impending recession?

203 Replies

@James C Norman Jr you'll move out here to Vegas, drive past the small multi families, become less interested in owning a multi family, then look up the asking price and be astounded at how people are buying these 4plex for the prices they're selling for.

I would steer clear of 4plex in Vegas right now unless you can get a 40% discount magically.

And you're talking about putting down 0% with VA loan.....you'll be paying more out of pocket to house hack than it would be to rent.

Originally posted by @Jay Hinrichs :

keep in mind once you purchase and if its a rental  most likely during a recession your rental continues to perform and well you would not sell during a recession right ??

so for rental buyers I think recessions are non events.. and keep in mind with BP so many started after the GFC that's their only experience with a recession and the GFC is more of a great depression than a recession.. you can have a recession that does not TANK the entire worlds economy like the GFC did. 

and they don't last for ever.. next one could last a few quarters or maybe a year..  Also keep in mind if it is a deep deep recession and really bad times.. many buy and hold investors if they don't have cash will be locked out of the market as lenders will pull in their horns.. Like in the GFC you could not get an investor loan for 3 years or so.. at least the average investor could not. that's why prices fell so bad and only those with cash were able to buy.. that's why foreigners with cash cleaned up if they choose right and did not buy ghetto dogs.

 I have a friend who we've partnered with here. He had 200+ properties before the recession and then bought even more when everyone else was having problems. He told me that he had no perceivable damage during the recession, in-fact he made a killing when Arizona was first exploding. Renters in the right area will always be there. 

@James C Norman Jr stop listening to CNN and MSNBC. We are nowhere near a recession. Maybe in a year or two, but not now. The best time to buy a rental property is 10 years ago. The second best time is now. Only buy when there is an opportunity for a deal. You can't just call a real estate agent and tell them you want to buy a multi-family. You will be over paying. You must know your market and how to calculate an acceptable rate of return. 

@Anthony Dooley . Thanks Anthony. Just trying to have my T’s crossed and my I’s dotted, before I jump in head first. I’ve only purchased a single family home (which I lived in) which was a new construction, so I’ll be dealing with two unfamiliar factors: deferred maintenance and tenants.

Originally posted by @Mike Dymski :

Search the forums for "recession".  There have been weekly posts on this topic since 2014.

Bingo. 

@James C Norman Jr One thing to consider and a reason I like quads is that you can easily get residential fixed-rate, 30 yr. amortized loans whereas 5 units and up is considered commercial and hard to find anything besides adjustable rate loans with balloon payments. If you're stuck trying to refi into a different loan product, or have to sell or come up with cash from other investment vehicles during a downturn because you've got a hefty balloon payment coming up, that could be trouble. I have commercial properties too but I feel safer about my 4 unit buildings due to being locked in with low interest loans on them with no ARM or balloon.

@Steve K. Thanks Steve. Those were my sentiments, exactly. Especially considering the fact I have no experience in multi-family dwellings. I guess the underlying concern I have is how differing economic groups would respond to a recession. Through research, I’ve heard investors categorize properties into different groups (A, B, C, & D properties). Depending on the property type, there is a commensurate lease cost to the tenant, thus economically stratifying the tenant pool. Does anyone who invested during the last recession have any experiences they care to share? What were some of the challenges you encountered in collecting rents and maintaining occupancy rates during that time? What class of properties were these “trials and tribulations” associated with?

Buy your fourplex. Make sure it’s in a nice, solid B neighborhood. If things go south the people living in a class will be downgrading. Things keep going good.... the C class tenants will be upgrading. You’ll be good. Just don’t panic and fire sale the thing if we hit a speed bump.

Originally posted by @James C Norman Jr :

@Steve K. Thanks Steve. Those were my sentiments, exactly. Especially considering the fact I have no experience in multi-family dwellings. I guess the underlying concern I have is how differing economic groups would respond to a recession. Through research, I’ve heard investors categorize properties into different groups (A, B, C, & D properties). Depending on the property type, there is a commensurate lease cost to the tenant, thus economically stratifying the tenant pool. Does anyone who invested during the last recession have any experiences they care to share? What were some of the challenges you encountered in collecting rents and maintaining occupancy rates during that time? What class of properties were these “trials and tribulations” associated with?

The last recession was more location specific than property type or economic group specific: certain areas of the country got hit super hard across all asset classes and are just now recovering while in other areas appreciation merely slowed down a bit and maybe had slightly higher than normal foreclosure rates but most people weren’t directly affected unless they had to sell off stocks or lost their jobs. That was the case in my area: property values and rents continued going up just not quite as fast and vacancy rates stayed low across all property types. The next recession? Neither I nor anybody else has any clue. I recommend buying the highest overall quality property you can afford in an area with solid underlying fundamentals (jobs, population growth, good schools, low crime, desirable area with high appreciation potential), don’t get over-leveraged, have sufficient liquid cash reserves, get as much cash flow as you can, manage your properties or property manager well, take care of capex issues before they domino, excel at your day job until your rental income is enough to cover all your expenses and fund your retirement, and you’ll be fine even if we go into a recession. If you’re in it for the long haul you’ll likely be holding through several downturns. 

 

The optimal is now to buy a mulit-family residential property. Now, you want to put a substantial DP and ensure that the property will cash flow. Since, none of us has a crystal to predict the future, its always best to act now. 

@James C Norman Jr

I agree with @Jay Hinrichs that recessions are non events for rental property owners.

As long as you don’t over leverage and there are no fundamental changes to your market (think the biggest employer closing etc.) you will be okay.

Make sure to have enough cash reserves (or access to them) to help pay for any unplanned events.

A recession primarily affects discretionary spending. That is optional things you don't need to purchase like vacations and luxury items. My absolute favorite thing to do during a recession is go on vacation. Hotels are half empty, airfare is cheap and you get good service. Of course on the flip side, vacation areas get disproportionately affected negatively by recessions. Less tourists means less workers needed and also means less housing for those workers. 

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