Today’s multifamily market is tough. The good assets are highly competitive amongst buyers and are bid up to exorbitant numbers that should not make sense from an investment standpoint.
Because investors are chasing real assets, attempting dodge inflation and to get away from volatile stocks, they are now in the multifamily space, looking to get their hands on anything they can find in hot markets. This drives up the price and drives down cap rates, the rate of return investors are willing to receive against the price their investment.
How do wise multifamily investors fare in this market? Well, they stick to their criteria and investment principles. You cannot fix your investment if you overpay. Investors that overpay hope that future investors will pay more. They make the sacrifice today, sucking up the pain of tight cash flows and mediocre partner returns, for a big sell at the end of the hold period. It has worked for many, but at some point it stops.
Other investors are choosing to sit on the sidelines, saying this market makes no sense. While I agree that in general, multifamily assets are overpriced, we believe that there are still great deals to be found. We just have to look where others are not looking. This leads us to emerging markets, special niches such as student housing, or smaller unit sizes. Each of these unique multifamily features limit competition because the larger investors and the masses are looking for mid-to-large multifamily in the typical places: Texas, Florida, Arizona and so on.
As Jim Cramer says of the stock market, there is a bull market everywhere. Good investors know how to take advantage of current events and make opportunities. For this reason, in 2022, I am selling my personal single family rentals in Florida and focusing exclusively on new markets and the multifamily asset class as well as mis-priced and undervalued assets in other classes.
During these dynamic times, be prepared to pivot.
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– How To Use Your 401k To Invest In Real Estate
