“Now is always the hardest time to invest.” — Bernard Baruch
Some multifamily deals are struggling.
What do you do in a situation like this?
Do you sit it out or do you double down and invest it all?
I recently read a book called Thinking Fast and Slow by psychologist Daniel Kahneman.
In the book, Kahneman says the human brain has a crazy bias where it values losses twice as much as it values gains.
He also says there’s a huge bias to avoid any sort of losses.
We can miss a lot of great opportunities because of fear.
Warren Buffett talks about this line of thought as well.
He says the most valuable thing is having a good temperament.
You should be fearful when others are greedy and be greedy when others are fearful.
If you find yourself getting fearful, it might be time to change your mindset.
Today, we’re going to talk about why multifamily could be a great opportunity right now.
Let’s jump into it!
1. Multifamily Now
Rates in multifamily have risen from as low as 3% to upwards of 10-12% for bridge debt.
Those are some rough numbers.
The rising rates have really affected valuations.
However, there is still an incredible demand for the asset.
According to this article, we are short 7.2 million housing units.
Pricing has come down because valuations have come down.
The higher rates also don’t help.
The cost of money has changed as well, which has hurt some of our deals.
We’re seeing real challenges in multifamily, including capital calls.
As we talked about before, when someone has had a loss, they want to resist that loss.
But multifamily is an inflation-hedged asset.
It could be a great time to buy multifamily with the right deal.
2. Investor Sentiment is Down
For those who don’t know, investor sentiment is how investors feel about their investments.
If deals are going great and I have a lot of money coming in, I feel pretty good.
I’m ready to invest in anything.
But currently, investor sentiment is down.
In a multifamily deal, we used to see 30 offers to buy and $1 million non-refundable deposit on day one.
Now, you don’t see that.
Brokers are calling you to pitch deals instead of vice versa.
The tide has shifted.
If you’re averse to loss, these calls might ring alarm bells.
Right now, multifamily equals bad.
However, there could be opportunities there.
It can feel very counterintuitive to give multifamily a chance.
Personally, I like the idea of being a contrarian and trying to find out-of-favor assets.
Multifamily has gone from a hugely in-favor asset to an out-of-favor one.
We’re seeing some deals improving over time.
When things change, start considering what moves you can make.
The market gives you what the market is gonna give you.
Make sure you’re actually looking at your options in a very rational, intellectual way.
When you’re buying in a higher interest rate environment, your buying price is fixed, but the interest rate can be adjusted later if rates come down.
Let’s say you get a situation where there’s cash flow.
Maybe the returns expectations are lower than they were a couple years ago.
Either way, you buy for the longer term and rates start to come down.
That can mean your property is worth a lot more.
This lowering of interest rates will actually helps the valuation as well.
Or maybe you can even refinance to a lower rate.
There are plenty of opportunities there.
But again, the confused mind will always say to wait.
I have calls with investors all the time.
A lot of people are choosing to wait.
I really think that could be a mistake.
You should at least consider that maybe this is a better time to invest.
It’s not just about the asset.
It’s also about what kind of opportunity you’re seeking in a specific deal.
3. Current Opportunities
What are the current opportunities?
Everything is fixed-rate.
A lot of people I know are doing fixed-rate only when they did bridge debt a couple of years ago.
That means the rate used to be a little more variable.
There are a couple of advantages with fixed-rate debt.
The first is that you know what your debt cost will be for the next 5 to 10 years.
If you wanted to sell early, you could sell the debt at a premium.
Someone could also come in and assume your loan if rates go higher.
We’re seeing opportunities to buy a property with a 3% to 4% interest rate that’s also assumable.
That rate will be fixed for the next 7 to 8 years.
I think this is a great opportunity for investors.
We’ll do well with that type of deal.
Everything comes down to whether you sit out the deal or you invest.
A great question to ask yourself when considering your next move is:
“What will I do instead?”
You might put your capital in the bank in a high yield savings account.
Maybe you’re thinking of other storage methods.
The challenge is that inflation will get you.
One of the huge benefits of multifamily is that the investment is an inflation hedge.
Rents and inflation go hand-in-hand.
Cash will lose value.
Stocks typically don’t keep up with the pace of inflation.
Even when they do, they’re so volatile.
Multifamily also comes with a lot of tax benefits.
You have appreciation over time as you increase rents.
In summary, it’s a great time to consider investing in multifamily.
Big money is not made when you follow the herd.
When the herd is doing something together, that’s when you should be cautious.
But when the herd is quiet, that could be your big opportunity to invest.
Your financial future may very well benefit from giving multifamily a second look.
Now I want to hear from you!
Are you investing?
Are you weighing your options first?
Let us know in the comments.
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.
Check out my new bestselling book on Amazon! Fire Yourself: Replace Your Working Income with Passive Income in 3 Years or Less.
Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.