All Forum Posts by: Mike Roy

@Justin Scott - Every market is different, but go to where you can see the most comparable listings, whether that be apartments.com, Zillow or craigslist. Local PMs and investors are obviously good, but you can get a general feel online if you go to the appropriate source.

Rental property is an activity that requires human interaction.  If you replace your property manager with software, then you are going to be that human.  If you feel like software fully replaces the services and value you're getting from your current property manager, you probably need a new property manager.

@Scott Kimberly - Right on!  3% down, drive-by appraisals, the return of subprime (rebranded as nonprime) - all the mistakes of the 2008 housing bust are repeating.  That sort of tells me that 2008 wasn't a harsh enough lesson for it to stick.  We shall see ...

@Jay Hinrichs - Sounds logical, but it will depend on the magnitude of the panic and the availability of capital to put a floor under any declines.  Same could have been said about the stock market of 2000 going into 2008, but the drop was actually more severe.

Impossible to say because interest rates have been manipulated for so long.  In a free market, interest rates reflect the true price of capital and accurately reflect investment risk.  Because rates have been suppressed for 10 years, investors have lost the ability to accurately assess risk, and investments have been pursued that otherwise may not have.  Nobody knows how a decade of malinvestment will resolve itself, but history tells us that we can expect a certain amount of liquidation in the affected sectors.

In 2008, very few really knew how the sub-prime crises would affect asset backed securities, which would eventually implode banks and punch the economy in the stomach.  I'm sure there is a lot going on behind the scenes now that will manifest in ways that few can see today.

@Account Closed - During the GFC, lines of credit were pulled back as prices declined and equity evaporated.  In a credit crisis, which historically most recessions have been, it really doesn't matter what your home is worth on paper.  If credit dries up, lines of credit go away.

If you really want to raise cash from equity now to have available during a recession, your better bet is a cash out refi provided you can do it responsibly and without putting your asset at risk.

@Dan Weber - I'm with you, it matters.  There's a very good chance in your market that your price per unit will be substantially lower for a 4-plex than a duplex, but rents might be quite similar.  That means better cash flow.

Also, if you have a vacancy in a duplex, your vacancy rate is 50%.  With a 4-plex, one vacancy is just a 25% rate.  That also substantially impacts your cash flow.

Your expenses on a per-unit bases are also likely to be lower on a 4-plex than a duplex.  Take a look at assessed values, insurance quotes, and lawn/plow quotes, and this will become readily apparent.  Again, this impacts cash flow.

@Scott Kimberly - The biggest difference was that in 2000, the Dotcom burst was contained to the stock market.  Even within the stock market, there were defensive stocks in which to hide.  The broader market of  U.S. single family homes escaped untouched, as the previous downturn in single families bottomed in the early 1990's and began a climb that soared through 2000 and finally ended in 2007.  You can see this well by Googling "Case-Shiller US Home Price Index." 

So as different as 2000 and 2008 were, 2008 and the next recession may be quite different as well.  There has been a lot of monetary experimentation since 2009, and nobody on this forum, at the White House or at the Fed knows how it's going to play out.

@Nick Rutkowski - I think that investors who have built a durable real estate business have done so with future recessions in mind.  Thus, they're not over-leveraged; buying in risky markets; or counting on optimistic projections of appreciation or rent increases to achieve a successful investment.  They buy cash flow, and their portfolio has been stress-tested.  These are the investors who do well in a bull market, but absolutely kill it in a bear.  They have cash on the sidelines and are licking their chops.

You are not the only one that sees the silver lining.  Plenty of savvy investors anticipate the next recession without being in fear of it.  But it's not just about what cap rates, rents and vacancy will do - it's about the availability of credit, which will impact your ability to acquire new property as well as maintain financing on your current assets.  During the GFC, everybody saw how good prices were, but not everybody could participate.  Liquidity evaporated, lenders went risk-off, and those with cash were the winners.     

@Justin Reid - I heard Robert Kiyosaki say recently that he bought a boat by first buying a self storage facility and using the cash flow to make the boat payments.  If it's good enough for him, I'd say sell the car, buy the asset, and use the cash flow to lease something nice if you really need that second car.