All Forum Posts by: Account Closed

@Jeff D. your very own market is not a bad choice. 

I'd definitely make the non-volatility, high cash flow play right now. I don't know how deep real estate prices could go, but if you can manage to buy at a moderate discount due to the panic now (what we're doing) I don't think values would go much deeper than your basis if you're in dealing in working class assets in cities that don't tend to appreciate or depreciate very heavily as the market cycles. My favorite play right now is in midwestern and southern secondary markets where I can get the highest possible cap rates, while enjoying the same level of rental demand the oversaturated neighboring hubs do. I like IN/WI/KY/AL/NC/AR for this. You can get 20% cash on cash in these markets fairly reliably... just maybe not on the 300k down/ 1.5MM property scale because those trade on almost a national cap rate basis. But 4-8 unit properties can be had well above your cash flow criteria. 

I think it's too soon for Florida and Texas. They're overvalued. Not to the degree of CA/NYC are, but I don't measure a bad buy on a relative scale. If this market does end up digging deeper into values in some major and more volatile locations I would shift more of my acquisitions into FL and maybe TX, and other similar markets that have the potential to take a beating. This isn't happening today, though. It takes time for the cities that will suffer devaluation to bottom. 

I'm targeting 2 years out before shifting away from the high yield minimal crash assets into appreciation plays.

Why didn't you mention Buffalo in your search??? 

@Rodger Fore "where do we find more cheap fourplexes with high cash flow" is literally the question my business partner and I spend half of our work hours seeking the answer to. 

We like select secondary markets, usually half and hour to 2 hours outside of major cities, in the following states:

Indiana
Wisconsin
Kentucky
Tennessee
Alabama
Arkansas
North Carolina

We find that it is not difficult to find 10% cap rates at market value in the right regions of these states (not all though), using pro formas with actual expense ratios +15% reserves for vacancy and maintenance. We are able to fill units consistently in less than 30 days and find tenants that often stay for a second and third lease term. 

We currently avoid:

- Major hubs with out of state investor saturation. we tend to kill good deals when too many of us get to the party.
- States with tenant friendly laws and/or dubious court process
- Markets with an oversupply of rentals in working class areas and thus low rental demand and high turn.
- Markets with inherently high taxes and owner paid utilities. Higher rents rarely offset them enough. 

Severely under market rents across most or all units. This usually indicates that the condition of the units and quality of tenants do not warrant market or near market value for the property. 

@Casey Maeda It's important to differentiate the current magnitude unemployment due to the Covid-19 crisis and shelter in place order from the unemployment rates that will be experienced as a result of the financial aftermath of the Covid-19 crisis. Furthermore, inflationary policy by the US government is being directed very heavily at the individual and small business this time around whereas more money went to corporate bailout last time (banks specifically). I strongly believe this real estate correction event will be less severe than the previous real estate market correction.

If it provides any solace, all of my tenants paid in april. We gathered info from all of our property management companies across 6 states in the midwestern and southern US, and by april 15th all management companies reported 80% and 90% of rents collected for the month of april at the halfway mark. This is encouraging information, considering the massive unemployment and stimulus funds that were approved were largely undisbursed at this point in time.

I'm most concerned about the banks sentiment this time around, as an investor who relies on commercial financing to operate my business. 

@Ty Doke there's a reason your financial advisor is a financial advisor, and not a professional investor. Time to outgrow the teacher. Personally, I would never allow a tradesman to influence my investment decisions. Nobody cares about your money as much as you do after all. 

If you trust your own competence, do as you please and don't even run it by those folks. 

Also, why is your money in mutual funds? 

@Nick Troutman I hope it was helpful, thanks for reading!

@Casey Maeda I might be able to dig it up, but FNMA data for multifamily default rate showed sub 1% in mortgage defaults throughout the previous recession. 

If you're a buyer and operator I don't imagine you'd have a difficult time being part of the majority. 

In 2012, my cheap SFR in Sacramento CA :) Rented out every room and never made a mortgage payment on it. Saved like hell and rolled it into many more investments out of state once CA got too expensive.

@Nick Troutman Here's a bit from another conversation I was having on BP yesterday. It speaks to what I've observed as a very regular buyer & seller of rental properties. 

TLDR: Understand market conditions and always seek to invest with those factored into your purchase criteria.'

Long Version:

It's hard to predict the degree of magnitude with which property values will drop. This "recession" should it continue, will not have originated in real estate and prior to the covid-19 crisis real estate had not rallied to the same degree as the stock market has. I don't think real estate is as overvalued this time around than the previous crash. For these reasons I don't think it'll drop as hard (the same way bank stocks have not and I believe will not be thrashed as severely as 08, as well). It does has the potential to drop though!

I would say if you do end up deciding to buy, buy assets (and in markets) that aren't so volatile. Prioritize maximum yield as well. Maybe find something that's a bit undervalued due to the covid 19 lockdown scare so some of the future depreciation is factored into your purchase. If you do all of this you'll be far less exposed to loss of property value, and you'll be cash flowing well even if the market softens. I'm looking for good deals in midwestern and southern markets right now to add to my portfolio.

One last bit- lenders are not at all keen on financing rental property purchases right now. We certainly aren't finding any commercial lenders that want to do this for new clients without extremely stringent criteria that seems designed to push us away. You may have to buy cash or wait until lenders lift suspension on financing.

1. Are you still investing in real estate through the Covid-19 crisis? 2. Why, why not?

There are markets that are certainly going to be more/less affected by this than others. If you pick the right asset in the right place and buy at a discounted "the world is on lockdown" price I think an intelligent investor would be well hedged from significant loss of value. So YES. I will invest in every phase of the market, with an adjusted strategy.

3. What niches are you most focused on and why?

Working class assets in select secondary markets throughout the midwest and some southern states that have high rental demand, and high cap rates. They're less volatile than the boom/bust cities that everyone uses to measure "national real estate values", less subject to increased vacancy losses during tough times, and they cash flow well regardless of the economic phase... if acquired and operated correctly. 

4. Is that the same focus you had before Covid-19 or not?

Basically, yes. Covid is a recessionary event (albeit one we could not easily predict)... but I all people have been talking about on these forums for the last 5 years is "the next recession" and "we're at the peak of the market"... so it wasn't that hard to develop a strategy that would be more likely survive the current and future market conditions. All of my tenants paid rent in April before the 15th. My property managers collectively reported 85% of april rents received by the 15th... which is hardly lower than their usual collection rate by the 15th of a given month.