Where are you finding opportunities in multifamily today? I’m reading that deal volume has dropped off a cliff. Clearly the buy sell dynamic has changed. Is it that owners who want to sell are holding properties off the market? Or do sellers still have expectations that buyers will pay for proforma?
Does the property need work to get it to stabilization? You’re looking at bridge loan at 8-9%. You need a highly probable path to meeting NOI targets, and most likely little to no income until then. How sure you are you the market rents are substantially higher? Did you get your information only from Costar and Rentometer? Or did you ask a PM? Conduct your own research? How certain are you that you can get occupancy up? Will you have to lower rents, lower your tenant qualification criteria, give away concessions? And what if rates are not down much in two years and you can’t refi? If you are betting they will be and lose that bet, what happens to your property?
This is the reality check for high interest, low proceed loans. Investors aren’t interested in high risk these days, not when we’re staring down an upcoming recession. Compounding an expected downturn that includes rising unemployment with a property that isn’t stable is not prudent. The old west term “gunslingers” has applied to investors who make short term investments expecting to make a killing. When they go in, they’re all in. Then they get very rich – some of them.
These dates are also a test of your resolve, and how much you believe in what you’ve learned. Specifically, property values over a 10 year period have always risen for as long as records have been kept. Over five years it is almost as reliable. And the Federal Reserve has always followed dramatic rate increases like what we’re seeing today with rate decreases. Maybe one year after rates peak, or possibly two or three years. When rates decline, investors return to the market, prices get bid up, and cap rates decline. These are the likely outcomes but when? Based on historical performance, almost always before five years.
Are you willing to step into a market that is teetering, believing strongly that your worst case outcome is lower growth but not zero or negative growth? Real estate investing is not for everyone, for good reasons.