Portfolio Strategy for Next Stage of Cylce

[Chris Fitzpatrick]

Hi All -  long time reader first time poster.

I am curious as to how other small/medium size MF investors are thinking about operating their portfolios as we head into the upcoming rate cut environment (however far in the future that may be).  Specifically looking at current risk vs opportunity to expand.

I have a few properties all done post COVID, triplexes with 30y fixed rate mortgages from 6.5%->7.5%, good CoC return of ~20% on average, cap rates of ~9-12%.

My largest concern is that as we go lower in rate, housing supply will ultimately be unlocked putting downward pressure on rents/asset prices.  The obvious offset to that is that you can re-fi on the way down in order to maintain margins, I plan on doing that.  I also suspect home prices would initially rise on the first 1-1.5% of cuts, but ultimately fall once we get to the 3-4% range as large  pre-pandemic supply comes back online, compounded by boomer land lords selling realizing the top of the market is in the rear view mirror (at least for them).

If you eventually get squeezed on lower rents and valuations as the market normalizes, the ability to BRRR your pandemic era deals will be limited, so how do avoid trapping capital in the deals you already own from this environment? Again I don't think this is a 2024 or even early 2025 type problem, I am more so looking to maintain my current returns, while having the ability to scale further in the 3-5y horizon while tapping into equity built over the previous few years of renovations and property stabilization.

Yes a normalized market is a great opportunity to grow the portfolio, which I certainly plan on doing, I just want to ensure I can tap into the dry gunpowder that has taken a lot of effort to create the past two years.