What takes priority in MF properties, strategy or market cycle?

Question

So it seems there's a lot of conflicting info and I was hoping to get some clarification. I hear a lot of investors choosing to not buy multi-family properties due to the market being over-inflated. But I also hear investors teach strategies depending on where the market cycle is.

So my original strategy this year was to house-hack a 4-plex to begin building my portfolio. (I'm a newbie). However, with all the articles I'm reading, it seems mulit-family is reaching it's peak in the cycle, so I'm wondering if this option is still viable. I'm finally in a position to make this happen this year. So my question is, based on your experience, is house-hacking a 4 plex a good option this year, or would a different strategy work better considering the current market climate?

(I'm currently renting, and don't want to waste money on someone else's mortgage. So whatever strategy you might suggest that's different from above, I would like to move into my own place, one way or another.)

Thanks in advance for any feedback!

Happy investing!

Mike

Joel Florek · Answer

@Mike Hoherchak in my opinion if you are buying a quality asset that cashflows and can provide moderate to strong returns you are in great shape. If you can lock in long-term fixed financing going after the small stuff, as long as you are ok hanging on if valuations turn around, you are ok. But if you are buying stuff just to buy and or really stretching the underwriting you can get yourself into a lot of trouble. The challenge is so many start to stretch the underwriting and it leaves fewer deals resulting in more people trying to stretch the underwriting to get a deal done. It is a vicious cycle until something forces a shock to the system. Stay patient and stay focused on the real goal with all this craziness and every day is always a good day to buy.

Kyle Mitchell · Answer

@Mike Hoherchak I completely agree with @Quito Keutla and would also say to focus on a niche and stick with it, it's very easy to get caught up in the shiny object game. Make sure you have solid buying criteria and stick to those criteria. The people who get in trouble are the ones who bend on their criteria to make a "deal" work because it's difficult to find something that actually fits their original criteria. With the market where it is, it's important to stay disciplined and as long as you buy right you should be ok.

Quito Keutla · Answer

Hi @Mike Hoherchak there will always be a cycle in real estate, the thing to keep in mind that real estate is a long game for building wealth. When analyzing your deals, does it meet your investment criteria. If you Buy Right, Manage Right and Finance Right your on your way to creating financial freedom no matter what the market is doing. Happy Investing!

Russell Brazil · Answer

Most peoples investing timeline is only like 25 years, from age 30 to 55 or so. Our lives are simply not long enough to let timelines of cycles, of which we can not predict, to be the driving force in our investment decisions.

Marjeanne Fields · Answer

@Quito Keutla is 100% correct. I hate hearing people holding off because of the market. If you buy a sustainable product correctly you can still make great money no matter what market cycle. You just have to plan properly in your underwriting. We are still buying multi family. I close on a property next week that we are buying at a 10% cap. The good deals are out there.

Account Closed · Answer

@Mike Hoherchak strategy all the way... buy right, buy for cashflow, and don’t over-leverage, and you’ll be fine.

Bill Plymouth · Answer

Investors create good deals! There are deals in every cycle. I am a newbie investor still working towards my first deal, but as a real estate agent I have seen this to be true.

Todd Dexheimer · Answer

Buying at peak cycle leaves little room for mistakes, where as buying at or near the bottom, gives you a lot of room to mess up. If you buy now: 1. make sure you have ample cash reserves2. buy for cash flow first and appreciation through added value only. 3. Use long term fixed debt4. Don't over leverage5. Don't over-pay (again base you purchase on the financials)6. Buy in decent neighborhoods

Mike Hoherchak · Answer

Thanks, @Marjeanne Fields! I never planned on holding off, I am planning on making something happen this year regardless. I was just wondering if, as an example, a live-in SF flip might be a better strategy for the time being, over MF.

Mike Hoherchak · Answer

Account Closed Thanks for the reply. This is what I was thinking from the jump..buy for cashflow, less vacancy risk with 4 units (vs. SFH). However, with being over-leveraged, do you mean putting a large down payment? My plan is to purchase the property using a VA loan and my intention was just to pay for closing costs.