Current State of the Market

[Kevin Dean]

I wanted to put a feeler out for the current state of the market at large. I recognize that Real Estate is local, but interested in hearing investors thoughts on macro, and even micro trends we are seeing right now. Here are a few questions to start the conversation, but feel free to expand. 

1. How will recent Fed actions and global macro trends affect Real Estate over the near term? What about the next few years? 

2. How do you see recent volatility in equities affecting Real Estate?

3. Where is most of the capital within Multifamily flowing to right now? Class A/B/C? Stable buy and holds, mild value adds or deep value adds?

4. Do you see anything currently under the radar that threatens Multifamily investors? What are we as investors not talking about right now?

5. Based on your thoughts above, where does the greatest opportunity lie? 

6. Based on your thoughts above, where will investors get burned in the near future?

I look forward to hearing your thoughts, thanks!

[Andrew Gingerich]

@Scott Trench had an interesting blog article on these themes recently. Basically he made the argument that multi-family commercial is maybe a little more vulnerable in a raising interest rate environment than say single families, which are financed on safer term and terms loans. Here's the link to his work/thesis https://www.biggerpockets.com/renewsblog/commercia...

I am not, nor have I had a commercial loan on a multi before so I am not qualified to answer these questions. What I know is that in my local market multi family housing and building permits for multis are flying of the shelf, relative to new construction for entry level single family homes. I think this is partly because the entry for single family is too high for most local shoppers so they need to rent. Also, younger folks can't yet afford to buy a SF. I have to believe that this is cyclical however, and that these apartment dwellers will eventually want to enter the SF market. 

On balance, interest rates going up should make it less affordable for folks to finance, and put downward pressure on home prices. It should also drive up the cost to rent, which, in theory should benefit all landlords. 

While I am not an expert, my thoughts are, be careful in this market not to over leverage, be ready to lower rents by 20% and still be able to service your debt obligations, be ready to see 20% vacancy. Buy property below market value regardless of multi or single family. Get long term loans that allow prepayment, and fix your rate. If you can do all of this you're likely able to keep growing, stay profitable, and ride out the bumps that will come. At least, that's my approach.