What is your prediction for multi-family homes in SoCal?

Question

Hi BP fam

The past month I've been thinking of purchasing a second property, multi-family to be specific. When acquiring on multiple properties, I've noticed a pattern, listing agents shared that owners haven't been able to collect rent from tenants due to COVID-19 and they have begun the eviction process.

With COVID getting worst by the day in SoCal, do you think it would be wise for me to wait a few more months to pull the trigger on a property?

I believe owners, who are mostly absentee, will want to cash-out and may sell their property at a discount.

What are your thoughts??

Account Closed · Answer

The price for rental units will never drop. Multi-unit properties are bullet-proof against recessions. The only way the price for rental units will drop will be after some virus wipes out half the population of the world and even then the rental business may be even stronger.

Waiting for the price of multi-unit prices to drop is like people thinking Disneyland won't be crowded on a rainy day so everyone goes to Disneyland.

I've been purchasing multi-unit properties when they were $65k for beautiful units in desirable areas. Four years ago, I purchase an 11-unit building in a not-so-desirable area for $125k per unit. The building has been a dog and money-sucker for the past four years and now I can sell the units for $350 each. My $65k units I purchased in 2001 are now worth $550k each.

So, where will it stop? It will not stop when the bank see the units are priced so high they can't justify loans because a very high percent of buyers are paying cash. I am a number-crunching fool and I can't figure out why investors want to invest millions of dollars for a 1% to 2% ROI because in there is not much upside for appreciation and appreciation is really the only way money can be made because rental cash-flow hardly keeps up with inflation.

So, don't be the guy who keeps saying the stop price is too high and waiting for the price to come down. We won't be on this earth long enough to see that happen for multi-units.

Jeffrey Isenberg · Answer

Account Closed  raises some of valid points.  Investing in the SoCal market is a long game and historical data supports the long-term appreciation that he describes.   It is more important to find the right deal that is in line with ones' investing strategy while understanding how to hedge against risk.  Remember it is about "time in the market" and not "timing the market."

Brandon Carlson · Answer

Thank you for your input Account Closed. I agree with you on the appreciation side. As far as the rental side in my market, the cashflow would be minimal unless a 20% downpayment is applied, which is usually 100k and up.

Good investing