Fourplex investing with an impending recession?

203 Replies

@James C Norman Jr

Great mindset and head on your shoulders. I would look at it from a cash flow point of view versus doors. If you bought two duplexes and after PM they netted 200 a door versus the 4 plex at $250 a door or vice versa I would choose the situation that nets a better P&L.

Regarding the use of loans - I don't know if the $0 VA loan has PMI but if it does I would just factor that into the numbers for whatever you purchase with it.

If it doesn’t, then I would use that for the largest unit you plan to purchase and just make sure your monthly rent numbers are spot on - talk to local agents and use Rentometer, Craigslist and local investors to confirm what they say.

Good luck dude, Vegas is a cool area.

@James C Norman Jr

Interesting! I haven’t considered the unique dilemma posed by multi family neighborhoods. My comment was mainly about how common recessions affect the macro economy vs what we experienced in 2008. I’ll have to continue reading. Good thread!

There is always a next recession in out future. No investor can accurately predict or control the timing or severity of said recession, although we can all waste our time and attention trying. It's my opinion that we should be applying our efforts to plan for how we will react to changing economic conditions, rather than trying to predict their course. Once you've done this you can safely invest (conservatively), even in an inflated market. It sounds to me as though the O.P. is looking for advice on how to insulate himself against the next recession, rather than when it's coming or whether he should buy now.  

@James C Norman Jr

The area with 4plexs are a B/C area. Right behind MGM Casino, off Maryland Parkway. I bought in Apr'16, and thought that when tenants moved out, I would upgrade and raise rents. All original tenants never moved out. Maybe a few units become available, but they are rented quickly. In fact, whole Vegas market, rentals go quickly.

You have a unique financing situation where you can go VA or conventional 25% down. VA means you have to owner occupy for minimum duration. If you had to live in one unit, it would be break even or a few hundred negative. If conventional 25% down, then 1% higher interest rate, and would net about $600 using market rents. The unique mix of these 4plexs are (1) 3 bed/2 bath, (1) 2 bed/2 bath, and (1) 1bed/1bath. All come with single car garage.

Terry

@Jay Hinrichs Jay I've been meaning to ask about this on BP.

People always tell me about people who _lost everything" when the housing market crashed and I'm always confused as to how it would affect me.

I still work in IT for non RE industries. I still have my income and can still afford my mortgages so having never gone through this as an investor what am I missing?

I have a SFR and will soon have a new quadplex that I'll be living in.

@James C Norman Jr The Best time to invest was 10 years ago. The second best time is now. Educate yourself, read books, listen to podcasts, analyze deals. Success comes from good decisions. Good decisions come from experience and experience comes from bad decisions. Good deals are available regardless of market conditions. If you are able to find them and make them work now, so much the better when the going gets tougher.

Originally posted by @Wy Kay :

@James C Norman Jr

I so agree with Kay.  Having been through several economic downturns over the past 3+ decades, I would take this time to build up cash reserves, wait it out for the next 2-3 years (be anxious for nothing!), while paying attention to the sectors that will/or are beginning to slow down (i.e., retail, manufacturing, etc.) and the employment figures.  I have been a landlord owner and operator for over 30 years in Brooklyn, NY and am now in North Carolina; my niche renter has always been the moderate working class person.  Not everyone is going to be interested in taking on the responsibility of owning and maintaining a home and there will always be renters.  Appreciation is great, but for ME, cash flow is even better!  

Final note; after being in this business over a length of time, one can develop a sense of the ebb and flow of the economy; and I just roll with that.  Just my 2 cents; but hope it helps.  All the best to you!  


Ideally, the optimal time to buy is when everyone is selling and running for the hills, when it's a buyers market. Right now, the markets across the country are overheating and it's a sellers market. Sellers can demand all cash, a fast closing and get offers above asking price too. It doesn't mean you shouldn't be a buyer, only that it's significantly more difficult to find a good deal.

In addition, unless someone has a crystal ball, there isn't a surefire way to know when the next downturn will come about. It can be in a month or 2-3 years from now, no matter the dire predictions we constantly hear.

If an investor is savvy enough and has the means and patience to wait, potentially another 2-3 years or more, properties will be selling for steep discounts to what they are going for now and will put some of the best deals you can find now to shame. Warren Buffett is sitting on $122 billion in cash just waiting for the next opportunity. Buffett is very savvy, patient and disciplined to do so.

There are still deals out there and plenty of profit to be made with the current market conditions, just depends on your investment profile.

 

No one indicator or person can accurately predict a recession. There's entirely too many moving pieces and factors. With that being said, as somebody who follows the equity markets and macroeconomic conditions, domestically and globally, we are at the highest risk we've been at since 2007 for a complete downturn. Every key global and US economic indicator are worse today than in 2007, which was the last time the Fed cut rates for the first time after a long hiking cycle.

We've lived, and continue to exist in a financial market that has afforded a limitless creation of debt. Near zero interest rates, negative yielding bonds, quantitative easing and other manipulations that eventually will all come to a very dramatic end. I have no idea when it all happen, but what I can tell you is, it's not if, it's when ... and the party will end at some point. Ignore all the noise and focus on what central banks are doing if you want to be abreast of the biggest indications of what the future looks like economically. Hint: it's a very negative one.

The name of the game is research, education, knowing one's risk/reward scenarios and tolerance, always have cash reserves, and focus on capital preservation. We've all had deals that didn't pan out the way wanted or projected, but the key is to not have deals where you lose capital. 

That's just my $0.02. :)

I have never seen a fourplex in Las Vegas in a B neighborhood. Maybe B- at the very very very best. Most are C/D/F neighborhoods. If you like dealing with junkies taking dumps next to your fence, hookers doing business next to your dumpster, and cops breaking through your fence to surprise the drug dealers living in the building behind yours, buy a fourplex in Las Vegas. LOL (and yes, I have dealt with all of these things and more, managing small multis here)

My 2 cents.   If you buy it smartly and for a decent price and it cash flows you should be ok.  Even during a recession people still need a place to live. I can remember in 08 when applying for an apartment and 10 -20 other applicants applied for the same place.  It did not hurt the rental market at all that I saw in my area.  It was crazy hard to find a rental!

Remember the renter is paying down your mortgage not you. (unless you decide to pay it down)  Even if your house value goes down, but it cash flows you should still be ok.

What you can do is build up those cash reserves and leverage some of that HELOC you have to be ready. Build up that portfolio to what you are comfortable with.

Originally posted by @Cody Z. :

@James C Norman Jr

Great mindset and head on your shoulders. I would look at it from a cash flow point of view versus doors. If you bought two duplexes and after PM they netted 200 a door versus the 4 plex at $250 a door or vice versa I would choose the situation that nets a better P&L.

Regarding the use of loans - I don't know if the $0 VA loan has PMI but if it does I would just factor that into the numbers for whatever you purchase with it.

If it doesn’t, then I would use that for the largest unit you plan to purchase and just make sure your monthly rent numbers are spot on - talk to local agents and use Rentometer, Craigslist and local investors to confirm what they say.

Good luck dude, Vegas is a cool area.

Thanks Cody!  V.A. Loans negate P.M.I. which makes them so appealing!

 

Originally posted by @Scott Kibby :

@James C Norman Jr

Interesting! I haven’t considered the unique dilemma posed by multi family neighborhoods. My comment was mainly about how common recessions affect the macro economy vs what we experienced in 2008. I’ll have to continue reading. Good thread!

 I think Las Vegas has some unique dynamics where fourplex multifamily structures are concentrated in D class areas.  Other metros may have a more diverse dispersion.

Originally posted by @Darren Mesibov :

There is always a next recession in out future. No investor can accurately predict or control the timing or severity of said recession, although we can all waste our time and attention trying. It's my opinion that we should be applying our efforts to plan for how we will react to changing economic conditions, rather than trying to predict their course. Once you've done this you can safely invest (conservatively), even in an inflated market. It sounds to me as though the O.P. is looking for advice on how to insulate himself against the next recession, rather than when it's coming or whether he should buy now.  

Exactly, Darren.  Just trying to get an idea of how different class multifamily properties, specifically in the Greater Las Vegas Metropolitan area fare during economic downturns.

 

Originally posted by @Terry Lao :

@James C Norman Jr

The area with 4plexs are a B/C area. Right behind MGM Casino, off Maryland Parkway. I bought in Apr'16, and thought that when tenants moved out, I would upgrade and raise rents. All original tenants never moved out. Maybe a few units become available, but they are rented quickly. In fact, whole Vegas market, rentals go quickly.

You have a unique financing situation where you can go VA or conventional 25% down. VA means you have to owner occupy for minimum duration. If you had to live in one unit, it would be break even or a few hundred negative. If conventional 25% down, then 1% higher interest rate, and would net about $600 using market rents. The unique mix of these 4plexs are (1) 3 bed/2 bath, (1) 2 bed/2 bath, and (1) 1bed/1bath. All come with single car garage.

Terry

I know EXACTLY the community you are talking about!  Creme/Tan with brown garage doors and brown shingle roofs?

 

Originally posted by @Don Mangiarelli :

@James C Norman Jr The Best time to invest was 10 years ago. The second best time is now. Educate yourself, read books, listen to podcasts, analyze deals. Success comes from good decisions. Good decisions come from experience and experience comes from bad decisions. Good deals are available regardless of market conditions. If you are able to find them and make them work now, so much the better when the going gets tougher.

 Agreed, Don!

Originally posted by @Denise Brown-Puryear :
Originally posted by @Wy Kay:

@James C Norman Jr

I so agree with Kay.  Having been through several economic downturns over the past 3+ decades, I would take this time to build up cash reserves, wait it out for the next 2-3 years (be anxious for nothing!), while paying attention to the sectors that will/or are beginning to slow down (i.e., retail, manufacturing, etc.) and the employment figures.  I have been a landlord owner and operator for over 30 years in Brooklyn, NY and am now in North Carolina; my niche renter has always been the moderate working class person.  Not everyone is going to be interested in taking on the responsibility of owning and maintaining a home and there will always be renters.  Appreciation is great, but for ME, cash flow is even better!  

Final note; after being in this business over a length of time, one can develop a sense of the ebb and flow of the economy; and I just roll with that.  Just my 2 cents; but hope it helps.  All the best to you!  

Ideally, the optimal time to buy is when everyone is selling and running for the hills, when it's a buyers market. Right now, the markets across the country are overheating and it's a sellers market. Sellers can demand all cash, a fast closing and get offers above asking price too. It doesn't mean you shouldn't be a buyer, only that it's significantly more difficult to find a good deal.

In addition, unless someone has a crystal ball, there isn't a surefire way to know when the next downturn will come about. It can be in a month or 2-3 years from now, no matter the dire predictions we constantly hear.

If an investor is savvy enough and has the means and patience to wait, potentially another 2-3 years or more, properties will be selling for steep discounts to what they are going for now and will put some of the best deals you can find now to shame. Warren Buffett is sitting on $122 billion in cash just waiting for the next opportunity. Buffett is very savvy, patient and disciplined to do so.

There are still deals out there and plenty of profit to be made with the current market conditions, just depends on your investment profile.

 

Thanks Denise!

 

Originally posted by @Scott McGuire :

No one indicator or person can accurately predict a recession. There's entirely too many moving pieces and factors. With that being said, as somebody who follows the equity markets and macroeconomic conditions, domestically and globally, we are at the highest risk we've been at since 2007 for a complete downturn. Every key global and US economic indicator are worse today than in 2007, which was the last time the Fed cut rates for the first time after a long hiking cycle.

We've lived, and continue to exist in a financial market that has afforded a limitless creation of debt. Near zero interest rates, negative yielding bonds, quantitative easing and other manipulations that eventually will all come to a very dramatic end. I have no idea when it all happen, but what I can tell you is, it's not if, it's when ... and the party will end at some point. Ignore all the noise and focus on what central banks are doing if you want to be abreast of the biggest indications of what the future looks like economically. Hint: it's a very negative one.

The name of the game is research, education, knowing one's risk/reward scenarios and tolerance, always have cash reserves, and focus on capital preservation. We've all had deals that didn't pan out the way wanted or projected, but the key is to not have deals where you lose capital. 

That's just my $0.02. :)

That's gotta be at least $0.04!  Thanks for your perspective, Scott!

 

Originally posted by @Casey Powers :

I have never seen a fourplex in Las Vegas in a B neighborhood. Maybe B- at the very very very best. Most are C/D/F neighborhoods. If you like dealing with junkies taking dumps next to your fence, hookers doing business next to your dumpster, and cops breaking through your fence to surprise the drug dealers living in the building behind yours, buy a fourplex in Las Vegas. LOL (and yes, I have dealt with all of these things and more, managing small multis here)

Did someone say hookers???  Asking for a friend...

 

Originally posted by @Brent Paul :

My 2 cents.   If you buy it smartly and for a decent price and it cash flows you should be ok.  Even during a recession people still need a place to live. I can remember in 08 when applying for an apartment and 10 -20 other applicants applied for the same place.  It did not hurt the rental market at all that I saw in my area.  It was crazy hard to find a rental!

Remember the renter is paying down your mortgage not you. (unless you decide to pay it down)  Even if your house value goes down, but it cash flows you should still be ok.

What you can do is build up those cash reserves and leverage some of that HELOC you have to be ready. Build up that portfolio to what you are comfortable with.

 Solid plan.  Thanks Brent!

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