All Forum Posts by: Account Closed

I think properties with larger amount of units do well during recessions in B and C class areas. A property that has 5 units vs 50 unit will struggle more (all things equal). I second what others have said. Don't over leverage. Just because and appraiser said your property is worth $5M and a bank will give you 80% LTV doesn't mean you should take the leverage. I like to be at 1.5 DSCR or higher while using very conservative numbers. I also look back at historical information. If you see that income and population has grown by 1%/year and rent has grown by 5%/year, then you should look back to see what rent would be at if it only increased at 1%. Same w/vacancy. If the historical vacancy is 8%, then use 8%. Also consider economic vacancy (bad debt from no pay and evictions). I use 5% in C class and 4% in B class.

When a new tenant moves in we show them how to change filters, batteries, light bulbs, tighten the p-traps, unclog drains, turn of water supply lines, etc. We then give them an instruction manual and are in the process of making videos. With that we give them 12 furnace filters, batteries, a zipper (the plastic drain cleaner). We also send out monthly emails in the winter as reminders to change furnace filters and check their detectors. We then stop by at the start of winter and then 3 months after that to check on filters and the house in general. 

 When you are investing other people's money, you have to be. 

Apartments did well during the last recession.  Fannie Mae had less than a 1% default rate on their multifamily products.  Residential lending tightened up and many people became renters...a trend that has continued.  All economic cycles are different though and the next one will hit asset classes differently than the last one.  If you purchase assets in good locations that appeal to the masses, you should be fine in many cycles.  If you add value, that is another way to mitigate risk.  And, as others have mentioned, some investors are increasing their amount of capital allocated to cash flowing assets and they are not as concerned with national market value swings.

 FYI if your occ is 100% its is because your rents are too low. Increase your rent. Feel free to send me a consulting fee with all the money i just made you haha

The housing bubble was great for me.  I became a much bigger landlord because of it.   The great housing crash was more of a mortgage implosion.   Underwriting of loans became so laxed that numerous properties had shaky ownership.   People and investors bought housing that they could not afford.  Once the bubble burst, it curtailed lending, so the situation got worse, creating a foreclosure wave.   

Today's mortgage underwriting is far more healthy than those days.   Certainly there are signs of high pricing.  High pricing doesn't always create a bubble.  Sometimes it can organically correct itself, like a slowdown in transactions or price appreciation for a few years.  I'm watching all of this closely because easier money is entering the market again.

Last, the real estate crash did not pierce the rental market.  It became stronger.  If tenants are having a problem paying rent, then you will see an uptick in the apartment vacancy rates.  The great thing about apartments is that you can easily adjust your rents down $50 or $100 a month if you have to.   If you can't then you're probably over leveraged.  

To your original question, one example I know about is Kevin Bupp.   He purposely headed into the down market with a large portfolio of buy and hold and lost it all anyway

https://www.biggerpockets.com/blogs/4430/53887-les...

"Leading up to the crash, Kevin and the investment group wanted to mitigate their risk, so they committed to purchase SFR rental properties for no more than 65% of market value. When the financial crisis occurred, not only did property values plummet, but the rental market crashed as well. Homebuilders who had built brand new homes were unable to sell, so they were forced to hold on to them and rent them out. Unfortunately, these brand new properties were renting for the same price as the 20 to 30 year old homes Kevin and the investment group owned. As a result, they ended up giving 90% of their properties back to the banks."

I thought it was an interesting lesson, because if you listen to a lot of people they think buy and hold would be relatively immune from a downturn if you just hold through the valley and don't take the paper loss.   But his story proves that rent can go down, which can cause the cash flow to turn negative.   It is an interesting, if singular, data point.