YOU MUST STICK TO YOUR CRITERIA IN TODAY'S REAL ESTATE MARKET

[Jason Malabute]

The pandemic, inflation, and uncertainty has caused assets including real estate inflated.

I feel like the sexy thing to do in 2021 is to be a real estate investor. Combine that with low interest rates and low inventory (soaring prices) is causing people who have no business in real estate to enter the market. You have people from LA and NY entering lower priced markets and paying double and triple the price of properties (including multi-family). They are comparing apples with oranges.

This is the time for savvy investors to be even more careful than before. Have a strict buying criteria and stick to it no matter what! know the class of neighborhood, property class, property age, occupancy , and price range per unit you are interested in . Don't break your criteria for anyone.

If you will not be hitting ROI and cashflow goals walk away. Never invest on speculation or appreciation. Cash flow and ROI is more important than ever.

I have turned down so many deals that don't meet my criteria .

Remember. What goes up must come down. Be careful.  

[Arn Cenedella]

@Jason Malabute

I understand your frustration and your position about holding to your investment criteria. All of us would love to buy a deal that produces 8% cash on cash right out of the gate (in a growth market). I can’t find anything like that and it disappoints me.

There is merit in that position.

Please let me share a somewhat contrarian position - not saying you are wrong - simply, here’s another way to possibly look at the market.

That being said, an investor must also adjust to changing market conditions good or bad. I don’t think using the same criteria one used 5 years ago is the be all end all best right answer.

Let’s take cap rates. 5 to 10 years ago for MF, cap rates were probably 7% to 8%. An investor could then count on obtaining various return metrics like cash on cash etc. So an investor then develops his or her investment criteria based on those 7% to 8% cap rates.

Those cap rates and return metrics based on those cap rates simply are not available in today’s market. So if one was to hold to those metrics, one will not buy anything at this time.

So one can decide to sit out the market until cap rates return to “normal”. That’s each investor’s choice. In my opinion this decision means one believes the market will return to normal as defined by what happened 5 years ago.

But that is not a sure thing.

I paid 11.75% interest rate for my first house back in 1980. Did anyone foresee 2.5% 30 year fixed home loans would be available today? Did anyone see negative interest rates prevalent in Europe? 

We can’t predict the future, bottom line.

Who knows what the world will be like in 10 years? I certainly don’t. 

For over four decades, my investing approach and criteria has been flexible - it has changed as economic and market conditions change - my criteria adjusts on geography - my investment criteria was not the same buying an SFR in Silicon Valley as it was in Charlottesville, VA. I don't see any other way to do it.

If an investor doesn’t adjust to current conditions, that in my mind is a big mistake.

My approach has been: Does the deal and the property make sense now? Do then numbers work now? Does one have rational reasons to be optimistic about the future of the area and of the property?

If the answers to these questions are Yes, I buy the property.

And then I let life unfold. I made the best decision I could. I have no control over the future. I will need adjust as time moves on.

There is a famous very successful large syndicator who is NOW selling his entire MF portfolio. He believes the market is over-heated and headed for a fall. His perspective is similar to yours. He has his opinion and he is putting his money and property where his mouth is. I say Bravo to him.

Only time will tell if this investor was right.

One final point if you sell smaller appreciates assets now to buy a larger asset - it can be a wash - you are selling at an allegedly inflated price but are also buying at an allegedly inflated price.

Over 40 years, I have bought and sold, continued to invest through all sorts of market cycles. Good investments can be made in any environment.