Fourplex investing with an impending recession?

203 Replies

@Shashi P.

Yes, I do manage my own properties, and doing it from out of state. It is not that difficult, just need the right contacts. Like handyman, general knowledge of home repair, and common sense. I currently manage (8) units, and have a full time job. All you need is cell phone to move things along. At some point, maybe 50 units that you will need a property management.

Terry

Originally posted by @Scott Kibby :

@James C Norman Jr

“Impending recession” is fake news. A LOT can happen in the next two years including USMCA, a deal with China, deals with the EU and deals with the UK that will throw gas on an already hot economy. People need to understand the last recession was the “Great Recession.” It was a perfect storm for the housing market. Most recessions don’t affect housing to that degree. That’s why real estate is one of the best investments. This article is a good read.

https://www.curbed.com/2019/8/15/20807042/recession-housing-market-interest-rates-home-prices?hs_social=facebook&hs_profile=nar%20research&hs_sid=2d94b3aa-f764-41f2-a404-83650b47986e

Nice read. Seems very rosy - but I understand the reasons. They say a mortgage rate cut is in order - when do you see that happening. Is that even possibility.  Can I get a 4 percent real estate loan. Is that even possible. - if so where are the sources to do it.

 

Originally posted by @Terry Lao :

@Shashi P.

Yes, I do manage my own properties, and doing it from out of state. It is not that difficult, just need the right contacts. Like handyman, general knowledge of home repair, and common sense. I currently manage (8) units, and have a full time job. All you need is cell phone to move things along. At some point, maybe 50 units that you will need a property management.

Terry

Do you insure your properties man. 

So Basically you are calling the guys to get it done. The plumber and handyman. Is there any insurance once should consider paying on the house to get an immediate fixer upper when things go wrong.

 

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.

So People take HELOC and then have a Loan to value ratio of like 85 percent. What amount of risk is acceptable. I am ok with 80 - I think that's a reasonable amount.

 

Originally posted by @Ola Dantis :
Originally posted by @James C Norman Jr:

@Ola Dantis agreed. How are multifamily prices affected (if at all) in an extended-duration economic downturn?

Interestingly, of all asset classes, Multifamily remains strong during recessions, as more people move into Apartments during recessions. 

But Multifamily literally has the WORST cap rates every. Is 8 percent cap rate even acceptable. Should that be the way it is?

 

Originally posted by @Jay Hinrichs :
Originally posted by @Ola Dantis:
Originally posted by @James C Norman Jr:

@Ola Dantis agreed. How are multifamily prices affected (if at all) in an extended-duration economic downturn?

Interestingly, of all asset classes, Multifamily remains strong during recessions, as more people move into Apartments during recessions. 

while generally correct  just think about todays syndicators they are buying value add all the time from landlords who just cant make a go of it.  so its not like you just buy a MF and it all goes perfect.. plenty of MF was lost in the GFC in the hard hit areas  of GA FLA AZ Central CA  Vegas  .. in vegas many MF went to 30 to 40% vacancy and landlords could not debt service and lost them.. but again I am for one not predicting another GFC that hopefully was a once in a lifetime event.. but it did happen.. 

What on earth is GFC? Global Financial Crisis?  30-40 vacancies? that's a possibility? OH GOD. but also explain one more thing - are single family home more immune?  I feel like in America you really have to target upper middle class people with single family housing.

 

@Shashi P.

If I know the process to get something fixed, then I don't really have to be there. For example, replace kitchen faucet. The faucet can be purchased from home depot for $60-80. Labor to install is about 1-2 hours. Labor rate is $25. So total should be under $200. 

Normal landlord insurance can be purchased through Allstate or similar. For the first year, I would suggest getting a home warranty policy that is paid by the seller. Cost only about $700 and can put into contract that seller buys. Then see if you use alot and can justify renewal for the second year.

Terry

Originally posted by @Terry Lao :

@Shashi P.

If I know the process to get something fixed, then I don't really have to be there. For example, replace kitchen faucet. The faucet can be purchased from home depot for $60-80. Labor to install is about 1-2 hours. Labor rate is $25. So total should be under $200. 

Normal landlord insurance can be purchased through Allstate or similar. For the first year, I would suggest getting a home warranty policy that is paid by the seller. Cost only about $700 and can put into contract that seller buys. Then see if you use alot and can justify renewal for the second year.

Terry

Is that insurance 700 dollars an year based on any house value or is it broken into tiers.  I am thinking of just managing it myself.  You seem like a guy who has put a hammer to a nail. So let me ask you this brother.  I want to model my houses in such a way that the materials used don't show wear that easily and last for good.  So let me give you an example - I rent a single family house out to bachelors room by room and it does cash flow positive. But the carpets on the stairs and other high traffic areas.... - well saying they are ruined is an understatement. There is like dark color to them now.

What materials and asthetics do you go with to avoid any remodeling?
 

Originally posted by @Ronald Starusnak :
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. 

 Is Dallas-Fortworth Texas area the right area?  Please a numbered  bullet point fashion - state out basically all the criteria that make a n area the "right" place and evergreen for renters and high rental demand.  Now let me be very very clear right now.  Bay Area does not qualify - that place is out of reach for all but the wealthiest with F U Money.

@Shashi P.

The price that I quoted you is for 4plex, which is what I buy. SFR price for home warranty under $400.

For long lasting materials for SFR, then for first level homes for flooring use tile. For stairs, use lament wood (12mm) thick. For second level use lament wood because need to be flexible. First floor, not so much. Tile cost more but last way longer than lament wood. However, still get 10+ years with lament wood vs maybe 3-5 years with carpet.

Terry

@Shashi P. If you follow Philosophy, I think it was the Buddah that said, the best time to plant a tree was 10 years ago, the second best time is now. If you follow successful investors you will learn that your best strategy is buy low and sell high. 10 years ago the market was at a bottom, well really about 7 years, but the strategy is to be fearful when everyone is greedy (i.e. everyone is buying), and be greedy when everyone is fearful. If you had bought 10 years ago, you'd be sitting pretty as far as cash flows and equity's are concerned. You could continue to hold and rent, or you could choose to cash out and buy more houses.

Regardless of the market, as others have pointed out, if you follow the successful strategies, you will fair well. If the deals are fundamentally sound, they will work in any market.

Don

@James C Norman Jr. 

As you've seen from the other comments that rents stay the same and frankly a recession is a great time to buy. The real Real Estate Investor sees every moment as an opportunity.

"Sell when the market is High. Sell when the market is high, Buy when the market is low (i.e. Recession)"

With full disclosure: yes, I understand that's when the banks didn't lend money and only those with cash were able to buy. The concept is still true to not be concerned about owning a property then and buying now is still great. See the advantages on each side of the coin.

Originally posted by @Shashi P. :
Originally posted by @Terry Lao:

@Shashi P.

If I know the process to get something fixed, then I don't really have to be there. For example, replace kitchen faucet. The faucet can be purchased from home depot for $60-80. Labor to install is about 1-2 hours. Labor rate is $25. So total should be under $200. 

Normal landlord insurance can be purchased through Allstate or similar. For the first year, I would suggest getting a home warranty policy that is paid by the seller. Cost only about $700 and can put into contract that seller buys. Then see if you use alot and can justify renewal for the second year.

Terry

Is that insurance 700 dollars an year based on any house value or is it broken into tiers.  I am thinking of just managing it myself.  You seem like a guy who has put a hammer to a nail. So let me ask you this brother.  I want to model my houses in such a way that the materials used don't show wear that easily and last for good.  So let me give you an example - I rent a single family house out to bachelors room by room and it does cash flow positive. But the carpets on the stairs and other high traffic areas.... - well saying they are ruined is an understatement. There is like dark color to them now.

What materials and asthetics do you go with to avoid any remodeling?

Most bullet proof rentals was a bundle of 40 section 8 houses on one property in Hattisburg MS I offered on way back when

Concrete floors with Asian style drains in the bathroom floors and one in the main living area and cinder block walls with just paint.. concrete counter top and stainless kitchen cabinets like a restaurant..  you could literally go in and do a turn over with the fire hose.

 

@Don Mangiarelli Buddha is great yes man. I love Buddha.

But your making a claim as such that I sony understand.

Buy low sell high. That’s tough. Obvious but tough.

But I like the part where you day but in the right market and almost guaranteed to make money.

My question is: is Texas Dallas such an amazing market. I hear it’s the best opportunity place - all the statistics point to that right? I heard Austin is also good.

Sorry folks...

The recession’s been delayed again...

Nationwide: Sales are up, prices are up and inventory is down...

https://apple.news/AWqlRF_eFS-...

Check back with us next year...

Ps....No one ever seems to mention 89 consecutive months of year over year price gains in their “recession guesses”

“The median existing-home price in July was $280,000, up 4.3 percent from July 2018. This was the 89th consecutive month of year-over-year gains.

Yun said the supply of affordable housing is severely low, which has been affecting prices. Total housing inventory was down 1.6 percent compared to a year ago.”

Yes, I know you know a place where prices are down, or stable, but that means the other markets are up even more. Especially if you’re talking about expensive places. If prices drop 1% in a million dollar neighborhood, how good is the rest of the $300k market if the average is up 4%. 

Originally posted by @Terry Lao :

@James C Norman Jr

The complex is called Parkway Villas and distance to strip is about 5 minutes. The fact that all units have a 1 car garage is unique. Most don't park their car, but rather use it as storage. Just imagine if you lived in an apartment and did not have enough storage? It's a gated community with over 100 buildings. Rarely a few become vacant, and they go quickly. It's a perfect rental for those working on the strip. It's location, location, location.

Terry

Yep. That's the complex. Can you break down the numbers? Rents per unit/rough estimate in maintenance costs/HOA fees?

Originally posted by @Jack Orthman:

Multi unit properties are recession proof and thrive in all markets.

That seems to be the general sentiment, Jack.  Thanks for your,  perspective!

 

Originally posted by @Terry Lao :

@Stephan Kraus

Based upon 25%, 30 year loan, PITI, with HOA of $660, first year home warranty, estimate monthly repairs $200, raise rents to market, you can net $500-600. The hidden pluses, are in the HOA payment, it includes water, sewer, trash, 24 security guards, gated community with guard shack, and 5 minutes to strip (behind MGM).

Don't believe me, run your own numbers and due diligence. 

Terry

Looks like you already answered my questions.  Thanks Terry!

 

Originally posted by @Bill Brandt :

Sorry folks...

(...)

Yes, I know you know a place where prices are down, or stable, but that means the other markets are up even more. Especially if you’re talking about expensive places. If prices drop 1% in a million dollar neighborhood, how good is the rest of the $300k market if the average is up 4%. 

<------- THIS. a lot of people are having problems with using averages and medians in statistics, leading them to confused conclusions, not taking into account the whole picture or how a small unrelated change can completely misinterpret and undermine a whole other set of data.

 

Originally posted by @James C Norman Jr :
Originally posted by @Jack Orthman:

Multi unit properties are recession proof and thrive in all markets.

That seems to be the general sentiment, Jack.  Thanks for your,  perspective!

 

I think one has to consider refinancing risk.  I think you are in good shape in a downturn with most modestly leveraged properties.  The problem is if you have to refinance in the middle of a recession.  what do you do?  I would not want to be sitting on loans that had to be refinanced in the next 3-5 years. 

 Who knows if banks will be lending on multi family properties that are under water in a recession?  and if they do what if the rates go way up?  will those multi family deals still do ok? (honestly I think you can rinse and repeat for really any asset class)

I Think having reserves, long term financing, and cash flow is the best way to make it thru if not even prosper in the next recession.

 

@Jason Seward - Check this out.  This is exactly what I was saying in our PM, but Wy said it better.
Originally posted by @Wy Kay :

@James C Norman Jr

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.

 

Labor rate $25 for repairs in Las Vegas? Maybe for some uninsured street laborer. Not for legitimate licensed and insured repair vendors. Using such cheap “handymen” is a good way to end up like the chic in Shameless when the unlicensed roofer’s “employee” fell off her roof and sued the property owner. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you