Commercial Property Prices - scary chart

[Mike Dymski]

A couple of scary charts below (article link also included).  I can't predict market cycles.  For now, I am just attempting to stick with properties that cash flow in changing market conditions.

https://wolfstreet.com/2018/01/15/commercial-real-...

[Andrew Johnson]

Mike Dymski For me it’s a matter of “What drop in *collected rents* gets me to a break-even?” I can handle a downturn (emotionally and financially) and I don’t need the cash-flow today. Don’t get me wrong, I get it, I like it, and being tax-free is super groovy. I don’t “plan” on hitting break even but I do love to stress-test deals to see what would happen. For me, “suck it up and break-even” (while paying down the mortgage a little) doesn’t mean the wheels are falling off in my life. I think the danger is when people need continued rent growth to break-even or make money. Those deals I wouldn’t do, those are “scary” for me, and even if I could afford to “bleed a little” I sure as heck don’t want to PLAN to. Okay, I’ll “plan” to bleed if I’m rehabbing 8 or 16 units (a recent deal I looked at) but a lot of 4-cap deals really do bleed once you model out debt service, etc.

The other real-world issue is that I do find myself stuck in a “Where else do I put my money?” challenge. If you think that real estate is “overheated” just look at the last 12 months of the stock market, crypto currencies, etc. My apartment value certainly hasn’t jumped as much as the Dow or Russell. I don’t want to hide gold bars under my bed. And maybe I get a 1.25% return from bonds or a savings account or some other risk-free-ish instrument.

I’ve even considered paying down mortgages. So I put another $200K down to prepay. It won’t change my mortgage payment (recasting is a pain) but it would mean that more of my mortgage payment went to principal. I ran the numbers and it was something like a 4.6% return. Which isn’t good “real estate” return but certain beats the snot out of a savings account and it’s 100% assured and risk-free. And shows more tangible benefits when it’s refinance time for the 5 year fixed with a balloon payment and the new balance is lower and those future payments will be recast at the new lower mortgage balance.

Anyway, more random detail but those are the thoughts that go through my head!