Time to Hit the Sideline

[LaMancha Sims]

Should Investors head toward the Sideline or Continue to buy?

[Taylor Dasch]

Personally, I am looking to buy as much as possible. Rent in my market is still strong, and there are many more deals out there when compared to a year ago! 

[LaMancha Sims]

Quote from @Taylor Dasch:

Personally, I am looking to buy as much as possible. Rent in my market is still strong, and there are many more deals out there when compared to a year ago! 

@Taylor Dasch.. So, rates and what the market looks like in 2023 is not causing you any pause in your area? Thanks for replying I am just looking for data.

[Alex Evans]

I agree with Taylor. Here in the Memphis market, we are still looking to do about 300+ flips in the next year. The percentage of renters in Memphis is still strong, and with such a low supply of properties, there is a high demand for rental properties. With interest rates on a downward trend it is a great time to buy. At least in my opinion! 

[Don Konipol]

Timing the real estate market like timing the stock market, commodities markets, etc looks doable, but it’s almost never done successfully in the long run.  
The way I invest, and have for 40 years, is I set a relatively high minimum return requirement, and put in motion keys that reduce my risk should the market(s) turn against me. As you achieve a larger portfolio of investments, with more equity, you should take steps to limit the downside. The most obvious way to lower the downside risk is by using less leverage, and by purchasing better positioned properties. Unfortunately, these also limit the upside with less ROI and less appreciation potential. So , instead you can limit risk without limiting return/gain much utilizing the following

1. Limiting liability to each property with no crossover. This could entail refusing requests for cross collaterialization, holding each property in a separate entity such as a Series LLC. Etc.

2. Only financing property with mortgage notes you do not personally guarantee.  I have an agreement with a local bank that as long as I finance no more than 60% of a property’s appraised value with them I don’t have to provide a personal guarantee or cross collateralization.  In another property I own I sold 40%to a partner who manages the property and he personally guaranteed a larger mortgage note that I wasn’t required to.  Other ways to finance real property without putting your other assets at risk is by purchasing property “subject to” existing financing, using private money, or using seller carryback financing.

3. Changing the tenant mix in your properties so that you have longer term tenants with better credit and less chance of defaulting during economic downturns.

4. Leasing to less credit worthy tenants and have them pay rent upfront.  I owned a high end condo in Tempe Arizona that I rented to a tenant for six years, and always collected the full years rent at lease inception and after at lease renewal.  In another example I just leased a retail/office property to a day care center operator.  While the operator has extensive experience in managing and running daycares, she has no experience managing a business.  She does have a very well heeled backer.  We had them pay $360,000 or 4 years lease payments at lease signing.  It can be done!

5. Putting together files of potential tenants and keeping in touch with them in case you have vacancies.  Before Covid hit in March of 2020 we acquired a property (office/warehouse/retail) with a front and rear building.  We maintained a verbal agreement with an individual needing additional warehouse space to sell him the rear building if we ever lost the main tenant. Sure enough by September of 2020 the tenant stopped paying.  Getting the tenant to leave was extremely easy, we told h her we would write off and not pursue collection of remaining rent if she would leave within 30 days and leave the place broom clean.  Two months later we completed sale of this back building at 65% above what we had just paid.  And that was the downside!

In my experience I see way too often that investors, even “heavy hitters” roll the dice.  Real estate is a value added game, and value can be added in many ways.  Reducing risk is as important as finding winners over the long term.  A successful real property investor can’t rely blindly on long term price appreciation ( although it can be a large benefit!), he has to create situations or recognize situations where he makes investments with limited downside in difficult environments.  Someone once asked me how I make money in real estate.  I replied that I start by trying to ensure that I don’t LOSE money first.  

[LaMancha Sims]

Quote from @Don Konipol:

Timing the real estate market like timing the stock market, commodities markets, etc looks doable, but it’s almost never done successfully in the long run.  
The way I invest, and have for 40 years, is I set a relatively high minimum return requirement, and put in motion keys that reduce my risk should the market(s) turn against me. As you achieve a larger portfolio of investments, with more equity, you should take steps to limit the downside. The most obvious way to lower the downside risk is by using less leverage, and by purchasing better positioned properties. Unfortunately, these also limit the upside with less ROI and less appreciation potential. So , instead you can limit risk without limiting return/gain much utilizing the following

1. Limiting liability to each property with no crossover. This could entail refusing requests for cross collaterialization, holding each property in a separate entity such as a Series LLC. Etc.

2. Only financing property with mortgage notes you do not personally guarantee.  I have an agreement with a local bank that as long as I finance no more than 60% of a property’s appraised value with them I don’t have to provide a personal guarantee or cross collateralization.  In another property I own I sold 40%to a partner who manages the property and he personally guaranteed a larger mortgage note that I wasn’t required to.  Other ways to finance real property without putting your other assets at risk is by purchasing property “subject to” existing financing, using private money, or using seller carryback financing.

3. Changing the tenant mix in your properties so that you have longer term tenants with better credit and less chance of defaulting during economic downturns.

4. Leasing to less credit worthy tenants and have them pay rent upfront.  I owned a high end condo in Tempe Arizona that I rented to a tenant for six years, and always collected the full years rent at lease inception and after at lease renewal.  In another example I just leased a retail/office property to a day care center operator.  While the operator has extensive experience in managing and running daycares, she has no experience managing a business.  She does have a very well heeled backer.  We had them pay $360,000 or 4 years lease payments at lease signing.  It can be done!

5. Putting together files of potential tenants and keeping in touch with them in case you have vacancies.  Before Covid hit in March of 2020 we acquired a property (office/warehouse/retail) with a front and rear building.  We maintained a verbal agreement with an individual needing additional warehouse space to sell him the rear building if we ever lost the main tenant. Sure enough by September of 2020 the tenant stopped paying.  Getting the tenant to leave was extremely easy, we told h her we would write off and not pursue collection of remaining rent if she would leave within 30 days and leave the place broom clean.  Two months later we completed sale of this back building at 65% above what we had just paid.  And that was the downside!

In my experience I see way too often that investors, even “heavy hitters” roll the dice.  Real estate is a value added game, and value can be added in many ways.  Reducing risk is as important as finding winners over the long term.  A successful real property investor can’t rely blindly on long term price appreciation ( although it can be a large benefit!), he has to create situations or recognize situations where he makes investments with limited downside in difficult environments.  Someone once asked me how I make money in real estate.  I replied that I start by trying to ensure that I don’t LOSE money first.  

@Don Konipol. Well said and a lot for people to bite on. Thanks

[Chad McMahan]

Quote from @LaMancha Sims:

Should Investors head toward the Sideline or Continue to buy?

My clients and I are getting insane deals right now. I'm helping them get better interest rate and/or LTV. My investors are getting huge cash on cash returns. They are positioned to make great money as the market comes back up over the next several years.

Bottom line- what worked before sort of works now. But with some outside the box thinking, we are in the best investment purchase opportunity we have seen in many years.

[Paul De Luca]

@LaMancha Sims

There's no harm in at least looking for opportunities and if something meets your buy box then go for it. Depends on your market but buyers generally can be more aggressive in negotiating now than they have been able to be the last few years. If you can't get what you want then just walk away.

[Kevin Crowell]

When you try to time the market, in any investing endeavor, you're going to miss out. But Don is right, you never want to roll the dice. You need to have strong numbers behind you and you want to go into every investment with a sound strategy and not bend them just because you want to make money. We have certain locations we look to invest in and we're looking for certain returns and we plan for every situation both positive and negative. I have always thought you need to think of it like walking through a jungle. What can get me and what is coming around the corner that I can't see? If you plan for that, and take calculated risks,  there is no reason that you shouldn't buy in any market. My opinion of course. 

[Jay Thomas]

It's true that the real estate market has been affected by crisis and economic downturn, but that doesn't mean that investors have to miss out on opportunities. By working with me, my clients are able to get incredible deals while also minimizing their risk. I help them negotiate better interest rates and/or LTVs so they can maximize their cash on cash returns. My investors are in a great position to make a lot of money as the market rebounds, and I'm here to help them do just that. With my expertise, we can all make the most out of these uncertain times. Together, let's take advantage of this opportunity and create lasting success!

[Paul Moore]

Hi @LaMancha Sims! Funny story...billionaire investor, Howard Marks, with Oaktree Investments, a massive hedge fund was being interviewed while the market was in free fall in the Fall of 2008. The reporter asked if he was sitting on the sideline. He said no, we are buying half a million in assets a month. She said wait--you mean selling? He said no, buying--If not now when! 

You have to know where to look. You have to be established and know where to invest and how to invest. Howard Marks, in his wonderful book Mastering the Market Cycle--Getting the Odds on Your Side said that the worst of investments are made in the best of times and the best of investments are made in the worst of times. 

Happy investing! 

[Marty Boardman]

There's never a wrong time to buy real estate, only a wrong way.

From 2004-2007 I built up a $16 million real portfolio with about $8 million in equity. My problem was negative cash flow. I was bleeding every month. It didn't seem like a big deal to me because the market was appreciating so quickly. I figured I'd just sell off a few properties from time to time to make up the difference. Then the market collapsed by 55% in Arizona and I lost my ***-ets :)

Fast forward to 2022/23 and some experts are predicting a -20% correction. This doesn't really bother me because all my rentals cash flow $500 + per month. I'm looking to buy more because there are opportunities and I know what areas are in high demand (rentals).

[LaMancha Sims]

Quote from @Paul Moore:

Hi @LaMancha Sims! Funny story...billionaire investor, Howard Marks, with Oaktree Investments, a massive hedge fund was being interviewed while the market was in free fall in the Fall of 2008. The reporter asked if he was sitting on the sideline. He said no, we are buying half a million in assets a month. She said wait--you mean selling? He said no, buying--If not now when! 

You have to know where to look. You have to be established and know where to invest and how to invest. Howard Marks, in his wonderful book Mastering the Market Cycle--Getting the Odds on Your Side said that the worst of investments are made in the best of times and the best of investments are made in the worst of times. 

Happy investing! 

@Paul Moore. Thanks for the book recommendation. 

[Leo Ray]

Quote from @LaMancha Sims:

Should Investors head toward the Sideline or Continue to buy?

Depends on a million factors (e.g.; the investor's goals, their local market, the type of property, the investing strategy, the investor's financial picture, etc., etc., etc., etc.)

The individual property and its numbers are more important than speculation on what the market might do. At the end of the day, if the numbers pencil out, buy the property. If they don't pencil out, don't buy the property. 

I've bought properties at the bottom of the market, and at the absolute peak of the market--all of them provided good to great returns because I made sure to thoroughly analyze the financial models before buying.

As was mentioned, trying to "time the market" almost never works. RE investors (esp. new investors) are far better off spending their time learning how to correctly analyze properties and their local market than trying to figure out how to "time the market"

[David Krulac]

@LaMancha Sims  You do you.  For me, been investing for decades and I am always a buyer and always a seller; doesn't matter if the market is up, down or sideways.  In the last 36 years, I bought a property in 35 of 36 years, and sold a property in 36 of the last 36 years.  I'm NEVER on the sidelines.  You do you.

David Krulac

Bigger Pockets Guest #82

[Matt Greer]

They should continue to buy, but they need to buy correctly. During the run up of 2020-2021 a lot of investors threw the fundamentals out the window and it's come back to bite them. Stick to the fundamentals of buying real estate deals and you'll be fine.  

[Patrick Drury]

@LaMancha Sims
If the numbers work pull the trigger.