Hello my fellow long-term buy & hold -ers. The more I listen and study (from various sources local & national), the more I hear the experts talking about an upcoming downturn in the market. Some folks have sold off their assets while others are starting.
Assuming you agree a market downturn is around the corner, regardless if your next opportunity hit all your criteria, are you planning to be in acquisition mode going into 2017? Or are you waiting for the blue light special ( a couple years from now) and plan to back the truck up?
Specifically want to hear from some folks who went thru 2006-2008 in acquisition mode. How did it work out and anything you would change going into the next downturn (regardless of when it happens)?
If the Federal Reserve continues to raise rates and does it aggressively, housing values could fall in the long term. I the near term, many will make a mad dash to buy as they see rates starting to go up.
My 06-08 experience is that I didn't have a single vacancy through the great recession. Lost market value on paper but everyone found a way to pay rent so every property cash flowed. If I would have panic sold my places, I would have lost a ton of money. What I would change: Easy to say now but I would have bought everything in sight.
My philosophy as a buy and hold. I don't really care so much what the market value of a property is today as long as it cash flows. I do care what it's worth 10-20 years down the road when it's time to 1031 into something else.As interest rate rise, Mortgage payment will go higher....and People will prefer rent over buy.
Fed will keep increasing interest rate only if economy will be good, if there is any hiccough in economy numbers... they will back off.
As @Jeff Schneider said, when economy tank... there is more demand for renting as people have less stability. People need place to live no matter what is the condition...
IF you think long term... never sale...
From my perspective, if you are looking to buy and hold properties and they are multi-family, cash flowing, in good locations, have good equity in the deals, then there really isn't anything to worry about(depending on the market/city of course). Unless you are a short term buy and hold investor, let's say 3-5 years and are looking for that appreciation in value, then I wouldn't worry about it.
For your question on the Phoenix marketplace, I would say that all around Arizona has strong market fundamentals for growth with jobs, population, quality of living, education, that it would be hard for us to be significantly impacted, which I think is the opposite of what will happen in larger more expensive cities such as New York, San Francisco, Miami, among others. Another thing that we have going for us here in Arizona is that we were hit so incredibly hard in the last Recession that we have lagged behind in growth and pricing, that other markets are seeing right now. We are the 3rd fastest growing state, our average job growth per year is 1% higher than the national average and our average population growth is .8% higher than the national average. Our workforce quality and availability is #2 in the country, #1 in higher degree education opportunities, largest community college system in the nation is in Phoenix, the largest college in the nation is ASU, Best state for Entrepreneur's by CNN Money, Kiplinger ranks AZ #2 in the nation for job growth(2016).... In case you haven't noticed, I am completely sold on Arizona haha.
Overall, I believe that should you have sound investment fundamentals and are investing for the long-term, you shouldn't worry about a recession that is simply a course correction. With that said, I will still be analyzing deals in 2017 and if it makes sense to me, then I will invest in it and if we do hit a wall and prices start to drop, then I will looking to acquire as many properties as possible.
Impossible to predict. "People will prefer" is the big unknown in economics. There are rational decisions, and then the ones people make...they don't always match up. Rent cheaper digs, move home with mom, rent better digs because you only live once, move off the grid and self-sustain, buy a 40k SUV and short-sale your house that is mortgaged for 80k 4 years later (seen this one).
I know some 30+ year investors in the Denver market that have sold all their holdings (500+ apartment units). I wise man once said, no one ever went broke taking a profit every now and then.
I know some 30+ year investors in the Denver market that have sold all their holdings (500+ apartment units). I wise man once said, no one ever went broke taking a profit every now and then.
What did they move into with all those gains?
@Jay Helms you asked specifically about Denver - there is no indication of a down turn in our market. The price run up has been driven by lack of supply, there is about 6 weeks of supply in the metro area vs what some would consider normal to be 6 months. Unless a downturn is considered to be only 6% appreciation rather than the 10%+ we have experienced the last 3 years. There is nothing that could possible change the supply quick enough to cool the market quickly. Mortgage rates are rising quickly, obviously affects affordability but we don't have affordable housing now :) and the rates even in the 5's are not a deterrent to buying.
SFR rents are so strong right now - again a function of inventory - that the properties still perform at the higher prices. I bought heavy from 09-12 and a few more in 16. For values to hit 08 levels again - not a chance.
I know some 30+ year investors in the Denver market that have sold all their holdings (500+ apartment units). I wise man once said, no one ever went broke taking a profit every now and then.
This doesn't surprise me at all - multifamily cap rates are so low and the number of units coming online that if I was holding apartments I'd probably sell too.
@Matt M. Detroit, high end waterfront apartments.
I'm using this as an opportunity to diversify my holdings. Currently, my portfolio is exclusively small multifamily. As appreciation in this market segment has outpaced (locally at least) other parallel segments like SFRs, I think this provides a good opportunity to capture the appreciation experienced while mitigating potential risk of any one segment taking a hard hit.
Additionally, the appreciation appears to be largely unjustified (i.e. NOI has not increased nearly in proportion to the appreciation). In my opinion, that's not a sustainable trend and some bounce-back at some point would not be unexpected or unwarranted.
I'm with @Logan Turner on this one. I bought in '97 and passed thru the '08 recession by standing pat. I even wrote letters to the tenants ensuring them of NO RENT INCREASES and thus retained 100% occupancy in a tough time.
Los Angeles is devoid of adequate housing and rents are increasing ( just like Silicon Valley and S.F.), so rentals look good for the near term (2-4 yrs out).
I liquidated my 6plex this Spring for personal, not economy reasons and had a bidding war within 10 days of the listing - - MFU 5+ is a sellers market, especially when there's a nice cash flow and a reasonable CAP rate.
The same can NOT BE SAID for the SFR, as the only way to win is to hold thru a recession until the market turns again.
The BIG problem for both SFR & MFUs is the ARM mortgage. If rates climb, then there's a point at which GSI = PITI and you go net negative (other expenses). The SFR hits this inflection point much sooner than a MFU as there's only one rent unit income.
FUD:- Fear, Uncertainty and Doubt are the death knell of any market; stocks, bonds and REI. As long as you can hold a cash flowing asset, smile and let time pass on. Those with W2 jobs subject to relocation have reason to fear, as they may be force to sell when they would have greatly preferred to hold and stand pat.
These same "experts" have been calling for an inevitable crash since 2010. When is it going to happen? It's always "next year"
I am always buying long term buy/holds. There will never be a perfect time. Every time is the right time IF you buy smart.
Right now i'm in a very hot market and I buy ONLY good deals. I have passed on so many deals where I have been outbid. The investors that outbid me should be the ones concerned about what the market does.
When I buy I plan on holding for 20,30,40,50 years. IE: LONG term. In this timeframe the market will change many times over. As long as you buy right and manage well, all market conditions are manageable.
When the news media starts claiming "the sky is falling" renters tend to hunker down (like they did with me from 2008-2011). I had virtually no vacancies during that time, as it appears that the renters weren't sure what was going to happen, or if they would lose their jobs, so they stay put. I think it's kind of opposite to the Stock Market or economy in general. When the economy is hot, tenants tend to move more often and often try to rent something above their means or more extravagant. That's my take. I'm still looking at B&H and if the right deals comes along, I'll jump. And I'm stockpiling cash to buy when the housing market dumps. But if history is any indication, the stock market will downturn first, followed by housing market a few months later. Just my $.02
As expressed, the upside of long term buy and hold is that you don't have to be overly concerned with the short term cycles.
It may be analogous to being a buy and hold, dollar cost averaging stock investor as opposed to a market timer.
For me, all through the financial crisis, people in my area still needed a place to live. No surprise. So competitively priced, well maintained rental units seemed to be fairly recession proof. But all markets are unique.
Back to the analogy, I think affordable rentals are akin to uber-defensive stocks like food or drugs or toothpaste. No matter the economy people don't stop brushing their teeth, eating or cutting off their prescribed meds; similarly, they never stop needing some place to live (though they may substitute lower cost alternatives, so higher end rentals may be more at risk).
Yes, I bought a fourplex the day before the bank took over at a nice discount in 2008. So there is an upside to any downturn for those with longer time horizons.
Best of luck.
Well, you can never go broke taking a profit. A lot of people will tell you to buy and hold it forever, but all the rich people I know or hear about don't just hold onto things forever. You can make educated guesses that the market has extended itself a little far. I think we see a nice pullback, but I think in the real estate world it's more spotty. in CT, there have been plenty of home sales, but not much or any appreciation in a lot of parts.
One of my friends who has a big portfolio made a statement the other day.. Said "a lot of the people delivering wood, doors, carpet, and other materials/supplies to me have been talking a lot about saving enough money finally and they all want to buy property now". That might mean absolutely squat to most, but to me it seems like what normally happens with lower income people being late to the party and buying things at the wrong time. Hence how he rich get richer and the poor get poorer.
Fear & Greed Index is once again at extreme highs (GREEDY), FEDS have suggested 3 more rate hikes next year.. We have been in a Bull market for roughly 7 years..Buying now to go long term is kind of silly. Will always be opportunities to make money, why start at the top?
Sell when everyone's greedy, buy when there's blood in the streets.
I stopped my real estate adventures for now, and currently selling premium in the stock market averaging about $3-5,000 a week in profits. High volatility makes option premium extremely high and it's easy to sell for good profits.
Matt
My understanding is that although there will be a brief downturn in 2017-2018 there won't be a significant one for a few years after that. Economic indicators for each local market can help assess where your market is as far as supply and demand.
I have considered moving from single family to commercial multi family before the next BIG downturn via 10-31 exchange since they are valued on NOI unlike SFH.
Of course very few MF look good now with cap rates ranging from 2-7% in most cases. I too want to know what these people who are selling off are moving into. I did make 20+% in index funds year to date but don't feel comfortable having all my money in a single asset class.
It's a tough decision that requires more thought and research.
I think everyone knows the market will eventually drop - the question is just when and how much?
If you are 100% confident that it's gonna drop in the next year - you would likely already have sold and be sitting on a huge cash pile waiting for opportunities. Fact is most of us (me especially!) are horrible at timing markets.
I am somewhat concerned about the frothiness in general, but not particularly worried about my assets (only have one rental atm but including other investments as well). I'm not overly leveraged, well capitalized, and am set to weather quite a storm. As long as I can stay that way, I'll continue to buy my next property sometime next year likely.
Now - if I had ARMs or anything with a balloon I would be more worried. In that case you had better be damn sure you can handle a worst-case scenario right when that financing changes. Leverage can make you rich but it can also make you bankrupt. But with long term fixed financing, as long as you can keep the lights on recessions won't bite you; my costs will likely remain virtually unchanged.
Hello my fellow long-term buy & hold -ers. The more I listen and study (from various sources local & national), the more I hear the experts talking about an upcoming downturn in the market. Some folks have sold off their assets while others are starting.
Assuming you agree a market downturn is around the corner, regardless if your next opportunity hit all your criteria, are you planning to be in acquisition mode going into 2017? Or are you waiting for the blue light special ( a couple years from now) and plan to back the truck up?
Specifically want to hear from some folks who went thru 2006-2008 in acquisition mode. How did it work out and anything you would change going into the next downturn (regardless of when it happens)?
I've being buying and holding since 2003. No, I'm not worried much. All my properties across 5 markets are on 2-3 year escalating leases with high-quality tenants. So, apart from the market having severe job loses, I'm not concerned much.
I invest nationally, target properties that I can generate a 12%+ COC and 20%+ IRR. I AM ALWAYS buying. Because I generate a 12% return from cash flow alone, I'm concerned less with the short term. Based on research I do and prices I buy at, it's very likely that I hit my 20%+ IRR number. Even if I don't I'm still generate a 12% return from cash flow, so not taking big risks.
Even now, I am still buying in several markets where I can locate deals meeting my criteria above.
If the Federal Reserve continues to raise rates and does it aggressively, housing values could fall in the long term. I the near term, many will make a mad dash to buy as they see rates starting to go up.
In good markets (ex. Austin, Dallas, Phoenix, Charlotte, etc.), experiencing strong population and job growth that is VERY unlikely.