Houston, TX · Member since 2017 · 11 posts · 0 votes
Trying to enter into the real estate MFH game. ALthough I am interested in 15+ units, I come across more potential 4plex, 3plex, 2plex deals. Hesitant to go for those as I learn the benefits of large vs small MFH. I am curious to know if a small MF apartment is subject to the effects of a market downturn like a SFH would be?
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
8y
Rentals are usually counter cyclical during a single family downturn. But the finance markets are usually tied together, so real estate can slow down as an industry. Right now valuations seem to be at an all time high. You are from Houston, so there is a myriad of risks and opportunities. I'd suggest that you start with a smaller building before you jump into a larger one.
Houston, TX · Member since 2017 · 11 posts · 0 votes
8y
@Brian Ploszay I see. I hadn't thought of it being counter cyclical, but that makes sense.
...and I guess more specifically if I am in the middle of a BRRRR strategy on either a large or small MFH and the market turns downward, would it have negative effects on the small MFH since the ARV is still based on local comps? ie, would I not be able to cash out at a desirable profit margin, or at all even, if it were a small MFH in a down SF market?
While for the large MFH, would the BRRRR strategy still perform well since the value of the property is based on the cash flow, which as you mentioned should improve in a SF down market?
And yes I agree the SF market has been hot for some time here in Houston, so I am trying to plan for both continued growth or a downturn.
Houston, TX · Member since 2017 · 11 posts · 0 votes
8y
https://www.biggerpockets.com/forums/311/topics/395258-brrrr-in-declining-market here is a link that may potentially be helpful for some to further add to this discussion
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
8y
If you are a small landlord and you plan to own the property long term, I wouldn't fixate on a downturn. Rental properties are not exactly like stocks. Focus on finding one that has adequate cash flow, understand the expenses and pick the best location that you can afford.
Houston, TX · Member since 2017 · 11 posts · 0 votes
8y
Cool. Appreciate it. My goal is BRRRR my way to a very large portfolio of large MFH apartments so I just want to better understand any implications of market changes. Being able to get my capital out of a deal to move to the next opportunity efficiently will be important for my strategy I believe. Starting relatively small for the experience is important, I agree. And believe me, I'd rather start smaller than bigger. But knowing that the strategy would work for both small as well as large MFHs if the market begins to down turn would help knowing which options I have as I start up. Right now, I just don't know the answer to that.
Just for my understanding, I see you're saying not to focus on the effects of a downturn... so is that because it is not an issue with this BRRRR strategy for either large or small MFH? or because it is just not as significant as the other factors the play into the deal?
Essentially, I just want to be able to cash out refinance when the time comes despite an developing down turn and no matter the size of the MFH. Thanks for helping to clarify.
Houston, TX · Member since 2017 · 11 posts · 0 votes
8y
@Brian Ploszay thanks again for the advice...I think I found the answer and it is much like you said....Buy right (aka buy as deep as you can), try to ensure it cash flows and cash out refi the thing whether it is an up or down market and whether it is large or small MFH.