Multi-family Bubble?

[Sean Brennan]

I just appraised a 48 unit, 6 story building constructed in 1965. It is located in a nice suburb of Boston but not premier location. Value based on current market data: $185,000 per unit, 11 PGIM, 5.5% cap rate.

Is this sustainable? Will multi-family have a major correction when mortgage rates go up and new supply comes online?

Makes me nervous.

[William Bannister]

Hello Sean, The bubble is in Bonds and dollars right now. If I had a steam shovel to handle all the waste the fed is making with quantitative easing I still would not be able to handle the load. No pun intended. Capital in the form of currency and bonds that are burying us right now is the bubble. Normally I would call this financial Armageddon and the dollar is on its way to the bottom but. When the Japs have decided to take the same course the Europeans Chinese follow suit as well its a currency war. Each player wants to get there currency lower to help retain jobs and pay gov spending through inflation, This of course is at the expense of the currency and savers and all of us that hold the paper money.
Have you watched gold and silver the last 2 years its reacted wildly every time QE1 or QE2 or QE3 then you see a commodities jump and thats nothing look at this stock market. There is nothing in this economy to give you this type of growth yet the market keeps going up and up. Unemployment still not low enough to justify it and its not like Xmas showed fantastic retail consumptions.
Im not saying we are heading for a Weimar republic disaster but right now your smart money is in multi family even if QE stops as long as you have fixed rates going forward and are not over leveraged you will be fine.
The only way to stop inflation is to raise interest rates and quit QE. You see here is the thing the only way that this inflation could come to a halt is if they ran interest rates to the moon like to 14% like Reagon did to halt inflation and slow it down after we unhinged ourselves from gold several years earlier.
That will never happen why? Its not like 1980 we had less debt then.
The fed cannot go beyond 5% because they would never be able to pay off the debt;) So because you know they will continue with low rates they might stop QE but they wont go up with rates and destroy there ability to borrow.. not for several years.
You say why does this matter to multi? I view multi as a commodity that is also tied to interest rates after all the apt building can only be financed for what the income produces. Interest goes up cost of apts come down. so rates can only go one way up but we discussed this they cant go up much right?
So the multi will be fine as its still like a form of commodity and will hold value as the global gov forces fight each other, racing there currencies to the bottom. They race to the bottom because printing money reduces the cost of debt since they know there debts are going to be a real problem to pay any other way...raise taxes or budget cuts are limited there too and things like that are always unpopular too politicians. The austerity will come eventually in addition to inflation and higher taxes.
Multi family, Oh the stability there is rock solid. Its like gold and silver with a dividend on top. The key is get this low financing now because it wont last for ever. Or pay cash if you have the money.
I have been buying silver for a decade now, with my apt buildings and I am also making a play on farm land that will produce as I believe food and gas prices are headed much higher. im doing orchards mainly.
Multifamily will thrive for several years to come!
Although my opinion is multi family is a nice place to be even in a down market because I can drive past my money any time. I know there isnt a ceo trying to rip me off with a golden parachute or a crook stealing like Kenneth Lay or Madoff.