“The study of economy usually shows us that the best time for purchase was last year.” — Woody Allen
You may be wondering where the cash flow is in your multifamily deals.
Recently, we’ve seen interest rates rise.
This has brought new considerations for multifamily deals.
In this blog, we’ll go over how cash flow has been unpredictable lately in multifamily deals.
I’m gonna go into the main reason why and show what you can do about it.
Let’s go!
1. Missing Cash Flow?
We had a deal a couple of years ago in Jacksonville, Florida.
It had a nice cash flow with high rents.
The overall property value increased around 30% by the end of year one.
Then all of a sudden, cash flow slowed down.
This happened for one primary reason.
The cap on the interest rates we purchased was a good deal BUT…
The interest cost rose from where it was on our interest cap.
From what I remember, the interest rate was around 4.5% and then capped at 6.5%.
That’s a 2% increase in the rate! But it is a much higher payment.
Higher interest costs affect the cash flow.
We’ve noticed that the cash flow for multifamily deals can be great for a bit and then can slow down.
Some of our value-add deals take longer to cash flow than our projected 6 to 12 months.
But this hasn’t deterred me from multifamily!
2. Playing the Long Game
Multifamily is great for appreciation.
We’ve had four exits over the last five years.
A couple have had total returns of about 15% per year with a two-year hold.
We had one that was around 26% per year for a two-and-a-half-year hold.
We even had one that was about 80% IRR within 10 months. Wow!
As a whole, multifamily is a phenomenal investment.
It offers an inflation hedge.
There are amazing tax benefits.
You’re gonna have cash flow, but sometimes that can be a little inconsistent.
Flow can be up one quarter and down another quarter.
Expense costs can rise.
If you’re trying to live off your cash flow and you can’t predict how it’s going to behave, that can be a disadvantage.
Despite this, I still love multifamily deals, and I want to talk about why.
3. Why I Still Love Multifamily Deals
I love multifamily for many reasons.
The first reason has to be the inflation hedge I mentioned before.
You also use leverage to buy the property.
If you buy a $10 million property and it goes to $12 million, you only put 20% down.
Your equity has doubled even with a 20% improvement.
Those figures have changed with inflation because you have to put a little more money down.
Another benefit of multifamily is the housing shortage.
We’re short anywhere from three million to eight million apartment units depending on the study you look at.
It’ll be years before they can create more apartment units to keep up with population growth.
In a lot of places, you can’t create more housing because of various limitations.
When you have a housing shortage like this, multifamily can become very lucrative.
Even when cash flow isn’t at its peak, multifamily still has cash flow.
We have definitely seen some ups and downs.
We’re seeing a lot of operators withholding cash to make sure they have enough if interest rates rise.
On the other hand, there are other deals that have very consistent cash flow.
We have an ATM machine fund.
We’ve been involved with a car wash fund.
Most investors I talk to are very interested in cash flow.
That makes sense if you’re trying to cover life expenses with that money.
The sooner you can cover those expenses with cash flow, the sooner you’ll achieve financial freedom.
If you have very little cash flow for a multifamily deal and the deal turns out fine, the challenge actually comes with living off a big lump sum.
How much of that do you spend?
Do you reinvest?
Those are great questions and definitely something to consider when you dip into multifamily.
Now I want to hear from you!
Has your multifamily cash flow been consistent in the last 12 months?
If so, put down what area you’re in.
I’d love to see that in the comments and learn more from you!
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.
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.
