Fourplex investing with an impending recession?
Tukwila, WA · Member since 2019 · 70 posts · 88 votes
Fourplex investing with an impending recession?
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Specialist · New York City, NY · Member since 2019 · 34 posts · 111 votes
7y@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.
203 Replies
- Rental Property Investor · Member since 2019 · 304 posts · 462 votes7y
No one can time the market so regardless of when you decide to invest, you have to be prudent. Make sure you have sufficient reserves, and that your cash flow is sufficiently positive so that if there is a downturn in the rental market the property still generates enough income to cover the fixed costs. When the market is peaking, as it now seems to be, it is not a time to be overleveraging. That can be dangerous and you run the risk of losing everything.
- Rental Property Investor · Las Vegas, NV · Member since 2017 · 134 posts · 93 votes7y
Originally posted by @Andrei Zamfir:
@James C Norman Jr
Phoenix and Vegas were the epicenter of the last downturn. The problems that caused the GFC have not been resolved. They are even bigger today.
Those who say we cannot have another GFC or worst are deceiving themselves and others.
Rents have dropped in the GFC. Not in all areas but in many of them. During a crisis, people get creative, they will live with relatives or friends and rent out their homes. This creates a ton of supply on the market which in turn causes rents to drop.
Nobody knows exactly how this will play out. As long as you use low leverage and cash flow net with a built in cushion to survive a drop in rent of up to 50%, the chance of survival (aka keeping the rentals) is very high.
Wish you all the best. Real estate is great and the best way to build wealth, but only if you can keep it long terms.
Morning Andre, im curious, which main driver of the last GFC dont you see resolved / still at risk? Genuine question, as i believed that with tighter underwriting of loans and Dodd-Frank there won't at least be another pricing bubble? (like we still have it with sub prime auto loans and student loans though)
Of course there will be another downturn eventually, but it will most likely not be due to an over inflated housing market. If you look at the very linear upwards trending price index historically, we are just arriving at (or in vegas and phoenix still slightly below) the levels that we were supposed to be at, if the kink in 2006 would have never happened.
What problem do you deem bigger than before or during the last recession?
I agree on your tip that leverage and a cushion in rent plus an emergency fund should be good shelter for whatever reason the next recession will cause
- Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes7y
@Andrei Zamfir such things as Great Resessions don’t happen too often: look at the history charts. 2008 was the worst after 1929 but there were quite few recessions - it’s normal for markets to cool down.
In last downturn rents didn’t drop - the prices stagnated. Vacancies increased because people were loosing their jobs. However, people Didnt Rent their houses - they’ve lost them, so there were plenty of overqualified Tenants. The major problem was to find these who kept the jobs.
Rentals with good quality were still rented but these dumpy one were empty - when someone was qualified for a rental - they got to choose.
Also, the problem caused last recession was in fraudulent mortgage securities, which is now heavily regulated.
Next crisis will be due to different reason: student loans, pension not funded etc......but with RE market that under supply of houses, it won’t happen overnight.
I bet that market will still be riding for the next 5 years but if I lose - well so it will be a recession but is it going to affect everyone or just some specific groups of people?
Bottom line: if numbers make sense - still good to buy. Just don’t fudge the numbers, be honest with yourself.
If you think you shouldn’t buy - then maybe don’t
- Rental Property Investor · Nashville, TN · Member since 2019 · 7 posts · 5 votes7y
@Shashi P.
I use a local bank that only loans to projects in middle Tennessee. Their rate is 1 over prime for investment properties. You can probably do better but this particular loan essentially lets you brrrr in one step if you can get the right deal (which is tough in middle TN).
- Rental Property Investor · Arizona City, AZ · Member since 2019 · 21 posts · 15 votes7y
@Scott McGuire
Very well said.
- Tukwila, WA · Member since 2019 · 70 posts · 88 votes7y
Originally posted by @Bart H.:
Originally posted by @James C Norman Jr:
Originally posted by @Account Closed:
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.
Good points, Bart!
- Tukwila, WA · Member since 2019 · 70 posts · 88 votes7y
Originally posted by @Andrei Zamfir:
@James C Norman Jr
Phoenix and Vegas were the epicenter of the last downturn. The problems that caused the GFC have not been resolved. They are even bigger today.
Those who say we cannot have another GFC or worst are deceiving themselves and others.
Rents have dropped in the GFC. Not in all areas but in many of them. During a crisis, people get creative, they will live with relatives or friends and rent out their homes. This creates a ton of supply on the market which in turn causes rents to drop.
Nobody knows exactly how this will play out. As long as you use low leverage and cash flow net with a built in cushion to survive a drop in rent of up to 50%, the chance of survival (aka keeping the rentals) is very high.
Wish you all the best. Real estate is great and the best way to build wealth, but only if you can keep it long terms.
Great insight! Thanks Andrei!
- Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes7y
Originally posted by @Shashi P.:
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?
Multifamily has the worst Cap Rates is a generalistic statement, as Cap Rates are dynamic and market (even submarket) based. Undoubtedly, the great recession did hit the real market, but MF, in general, did better in weathering the storm than most asset classes.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes7y
Why is everyone so caught up in a supposed recession - most people don’t even know what a recession is defined as.
7e investments53 Reviews - Rental Property Investor · USA · Member since 2019 · 6 posts · 0 votes7y
@Joe Willets
Can you explain the inverted yield curve you speak of to an amateur?
- Member since 2019 · 38 posts · 8 votes7y
Originally posted by @Stephan Kraus:
@Spencer Cornelia
BRRRR doesnt work in Vegas?
i must be doing something wrong then.. 🤔😉
BRRR can work anywhere is my understanding - can you tell me in private or just reply to this message some of the resources which you use in order to track down/evaluate
- Dallas, TX · Member since 2016 · 1k+ posts · 745 votes7y
Originally posted by @Chris Seveney:
Why is everyone so caught up in a supposed recession - most people don’t even know what a recession is defined as.
2 consecutive quarters of negative GDP growth.
- Rental Property Investor · Las Vegas, NV · Member since 2017 · 134 posts · 93 votes7y
Originally posted by @Shashi P.:
Originally posted by @Stephan Kraus:
@Spencer Cornelia
BRRRR doesnt work in Vegas?
i must be doing something wrong then.. 🤔😉
BRRR can work anywhere is my understanding - can you tell me in private or just reply to this message some of the resources which you use in order to track down/evaluate
what exactly would you want me to explain? i think calculators (here on BP and others) are great tools to get familiar with analyzing deals, which is the number one thing i suggest you do to get a good understanding of your local market (or any market you want to get familiar with for that matter). It will also sharpen your understanding of underlying things like estimating rehab costs etc, if you continue to and get really good at running numbers. Also set alarms and notifications to new listings that match your criteria and keywords on the forums. talk to people, network if you can, and read, read, read, listen to podcasts...
Good Luck on your journey!
- Dallas, TX · Member since 2016 · 1k+ posts · 745 votes7y
Originally posted by @Kevin Riven:
@Joe Willets
Can you explain the inverted yield curve you speak of to an amateur?
The yield curve is a graph of the interest rates for each US bond. So if the yield on the 3 month us treasury was 1.5%, and the year was 1.6%, and the 2 year was 1.65%, and the 5 year was 1.75%, and the 10year was 1.85%, and the 30 year was 2.0%, then the yield curve would NOT be inverted.
IF however the yield curve looked like:
3 month us treasury was 1.5%, and the year was 1.6%, and the 2 year was 2.5%, and the 5 year was 1.75%, and the 10year was 1.85%, and the 30 year was 2.0%, then the yield curve would would be inverted.Because the rate of return you are getting on the 2 year is 2.5%, and the rate of the return on the 10 year is 1.85%. Ie the 10 year pays less than the 2 year, its inverted.
Typically the yield curve is thought of as a potential leading indicator of an upcoming recession. Now history tells us that an inverted yield curve happens 12-24 months before a recession. BUT its not uncommon for the yield curve to invert and there not be a recession.
And we can discuss the merits of how much influence the global central banks have on the market dynamics. For example the Germans just sold negative interest rate 10 year bonds (maybe it was 30 year notes), so there is some thought that bond buyers are flocking to US bonds because they pay more. (which lowers our long rates, while the short term rates are heavily influenced by fed policy.
So yes the yield curve is inverted, and yes it might be a signal of a recession ,but it doesnt automatically mean we are headed to a recession, nor do we know how bad a recession would end up being.
- Attorney · Sacramento, CA · Member since 2014 · 300 posts · 172 votes7y
Originally posted by @Ola Dantis:
Originally posted by @Shashi P.:
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?
Multifamily has the worst Cap Rates is a generalistic statement, as Cap Rates are dynamic and market (even submarket) based. Undoubtedly, the great recession did hit the real market, but MF, in general, did better in weathering the storm than most asset classes.
I agree. If you invest in a rental that has strong cash flow, the worst that happens is that your property cash flows less or breaks even. Rentals and the long term slow path to wealth IMO. Recession or not.
- Member since 2019 · 38 posts · 8 votes7y
Originally posted by @Stephan Kraus:
Originally posted by @Shashi P.:
Originally posted by @Stephan Kraus:
@Spencer Cornelia
BRRRR doesnt work in Vegas?
i must be doing something wrong then.. 🤔😉
BRRR can work anywhere is my understanding - can you tell me in private or just reply to this message some of the resources which you use in order to track down/evaluate
what exactly would you want me to explain? i think calculators (here on BP and others) are great tools to get familiar with analyzing deals, which is the number one thing i suggest you do to get a good understanding of your local market (or any market you want to get familiar with for that matter). It will also sharpen your understanding of underlying things like estimating rehab costs etc, if you continue to and get really good at running numbers. Also set alarms and notifications to new listings that match your criteria and keywords on the forums. talk to people, network if you can, and read, read, read, listen to podcasts...
Good Luck on your journey!
But you clearly must have a website which you rely on in order to find broken down houses and such. I was wondering what the Zillow of bad houses is. Also The calculators here are Pro membership. Which I assume you are supporting me getting. I think I may. I am cheap enough that I don't even buy Netflix or anything really - well I pay for my cellphone bill monthly. But I think I just might do it.
- Rental Property Investor · Sacramento, CA · Member since 2017 · 8 posts · 1 vote7y
The truth is that no one has a crystal ball to predict when the market will crash... However, if you're buying a cash flowing multi-family property, there's no need to worry about an "impending recession". If values crash, who cares as long as your property is cash flowing positively. You won't be forced to sell the property during a recession if the property continues to make money during a downturn. So long as you're not looking to sell the property in the next couple of years, you should just buy when you are ready.
- Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes7y
Originally posted by @Account Closed:
Originally posted by @Ola Dantis:
Originally posted by @Shashi P.:
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?
Multifamily has the worst Cap Rates is a generalistic statement, as Cap Rates are dynamic and market (even submarket) based. Undoubtedly, the great recession did hit the real market, but MF, in general, did better in weathering the storm than most asset classes.
I agree. If you invest in a rental that has strong cash flow, the worst that happens is that your property cash flows less or breaks even. Rentals and the long term slow path to wealth IMO. Recession or not.
Couldn't agree more 🤗
- Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes7y
Being cheap is okay, as I too am cheap. You don't have to buy premium BP membership to get access to spreadsheets. You can find online. However, based upon the many questions you are asking, it is very obvious you are a novice. This too is okay, everyone including myself was once a novice.
The question you have to answer is when the time comes (opportunity), are you willing to pull the trigger? This will usually mean putting down 25% or maybe 50k to purchase the property?
FYI. 1 in 10 people on BP fail to purchase any property. A fact that Brandon himself has quoted many times.
Terry
- Rental Property Investor · Farmington, UT · Member since 2018 · 171 posts · 148 votes7y
@James C Norman Jr here’s your #1 concern. CASHFLOW!!! If you can buy in a good area with consistent demand and you cash flow plenty with a fixed IR on your mortgage you’ll be fine!
Also keep in mind that with all this crazy borrowing governments and corporations have been doing I’d guess inflation is in our future. It kind of has to be at some point otherwise when rates rise people will be in a world of hurt. When you own real estate inflation is wonderful! Paying back loans with cheaper dollars is tough to beat.
- Rental Property Investor · Nationwide Remote Wholesaler · Member since 2019 · 49 posts · 10 votes7y
@James C Norman Jr Yes I'm convinced that a recession is around the corner, Apartment buildings ,go for it!!!😀
- Rental Property Investor · Nationwide Remote Wholesaler · Member since 2019 · 49 posts · 10 votes7y
@James C Norman Jr If you choose wisely you can make a fortune during a recession
- Tukwila, WA · Member since 2019 · 70 posts · 88 votes7y
Originally posted by @Brent Crosby:
@James C Norman Jr here’s your #1 concern. CASHFLOW!!! If you can buy in a good area with consistent demand and you cash flow plenty with a fixed IR on your mortgage you’ll be fine!
Also keep in mind that with all this crazy borrowing governments and corporations have been doing I’d guess inflation is in our future. It kind of has to be at some point otherwise when rates rise people will be in a world of hurt. When you own real estate inflation is wonderful! Paying back loans with cheaper dollars is tough to beat.
The problem is, finding cashflow without the migraine. Vegas area quadplexes are typically D-class properties. The few that are C-class are HOA restricted which cuts into profit margins. I plan to relocate to Vegas and prefer to have my properties within commuting distance, plus I will owner-occupy, initially.
- Tukwila, WA · Member since 2019 · 70 posts · 88 votes7y
Originally posted by @Michael Justice:
@James C Norman Jr If you choose wisely you can make a fortune during a recession
That's a big if, Michael. Trying to soak up the game here, so my next move is the best move!
- Rental Property Investor · Farmington, UT · Member since 2018 · 171 posts · 148 votes7y
Originally posted by @James C Norman Jr:
Originally posted by @Brent Crosby:
@James C Norman Jr here’s your #1 concern. CASHFLOW!!! If you can buy in a good area with consistent demand and you cash flow plenty with a fixed IR on your mortgage you’ll be fine!
Also keep in mind that with all this crazy borrowing governments and corporations have been doing I’d guess inflation is in our future. It kind of has to be at some point otherwise when rates rise people will be in a world of hurt. When you own real estate inflation is wonderful! Paying back loans with cheaper dollars is tough to beat.
The problem is, finding cashflow without the migraine. Vegas area quadplexes are typically D-class properties. The few that are C-class are HOA restricted which cuts into profit margins. I plan to relocate to Vegas and prefer to have my properties within commuting distance, plus I will owner-occupy, initially.
Gonna take hustle homie. I’d be cold calling lists or something. Off market is the key to finding a decent deal in a tough market.
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