{"id":10902,"date":"2024-02-25T12:56:30","date_gmt":"2024-02-25T12:56:30","guid":{"rendered":"https:\/\/imsfund.com\/?p=10902"},"modified":"2024-02-25T12:56:30","modified_gmt":"2024-02-25T12:56:30","slug":"now-is-a-great-time-to-go-hunting-for-passive-multifamily-deals-regardless-of-the-headlines","status":"publish","type":"post","link":"https:\/\/imsfund.com\/index.php\/2024\/02\/25\/now-is-a-great-time-to-go-hunting-for-passive-multifamily-deals-regardless-of-the-headlines\/","title":{"rendered":"Now Is a Great Time to Go Hunting for Passive Multifamily Deals\u2014Regardless of the Headlines"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div :class=\"{ 'hidden': $store.proContent.showFullPrompt() }\">\n<section class=\"px-4 relative border border-slate-200 mobile-toc lg:hidden\" x-data=\"{open:false}\">\n<button x-on:click=\"open = !open\" class=\"flex items-center gap-4 my-2 border-none w-full\"><br \/>\n<svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"h-6 w-6\" fill=\"none\" viewbox=\"0 0 24 24\" stroke=\"currentColor\" stroke-width=\"2\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" d=\"M4 8h16M4 16h16\"\/><\/svg><\/p>\n<p class=\"font-semibold text-slate-800 text-base m-0 js-toc-ignore\">In this article<\/p>\n<p><\/button><\/p>\n<\/section>\n<p><span data-preserver-spaces=\"true\">In case you missed it, Scott Trench, CEO of BiggerPockets, wrote this thoughtful article:\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/multifamily-crash-to-continue-through-2024?utm_source=Iterable&amp;utm_medium=email&amp;utm_campaign=Newsletter%20%7C%2002\/13\/24%20(Control)%20Free\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Multifamily Is at High Risk of Continuing Its Historic Crash in 2024\u2014Here\u2019s Why<\/span><\/a><span data-preserver-spaces=\"true\">. Scott and I have been discussing this topic offline anyway, so I thought I would take him up on his invitation to debate the subject online. Healthy debate is what BiggerPockets is all about, right?<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">I will start by saying I agree with most of what Scott wrote. I agree with most of his facts, the challenges facing the\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/finding-multifamily-properties\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">multifamily<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0space, and especially the problems with many operators who have run into problems of late.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">However, I disagree with Scott\u2019s conclusion. I think now is a great time to save up your dry powder and pick up properties that may be financially distressed but are otherwise well-located, excellent assets taken over by proven operators.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">I will argue that the multifamily asset class as a whole is fundamentally sound despite some short-term supply issues. Patient investors who wait for the right deals will be rewarded.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The distress in multifamily is not a tidal wave\u2014it\u2019s more like a trickle. But rest assured, it has already started, and there are deals to be had at valuations we haven\u2019t seen in many years.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">As in any market cycle, the time to hunt for great opportunities is not when all is well, euphoria is high, and everyone is chasing the same deals. When asset prices get frothy, it is exactly the time to hit the pause button. And when blood is in the water, it is exactly the right time to go shopping.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">But I defer to the two best investors of all time, Warren Buffett and his recently deceased partner, Charlie Munger\u2014the Batman and Robin of investing:<\/span><\/p>\n<h3 class=\"wp-block-heading\"><em><span data-preserver-spaces=\"true\">\u201cBe fearful when others are greedy, and greedy when others are fearful.\u201d \u2013 Warren Buffett<\/span><\/em><\/h3>\n<h3 class=\"wp-block-heading\"><em><span data-preserver-spaces=\"true\">\u201cThe best thing that happens to us is when a great company gets into temporary trouble\u2026 We want to buy them when they\u2019re on the operating table.\u201d \u2013 Charlie Munger<\/span><\/em><\/h3>\n<p><span data-preserver-spaces=\"true\">That said, no one wants to catch a falling knife, which is where careful analysis and patience are critical.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">I will offer my perspective on \u201cwhat good looks like\u201d later. For now, let\u2019s dive in and unpack Scott\u2019s core thesis.<\/span><\/p>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Scott Says: \u201cIt Just Doesn\u2019t Make Sense to Buy Apartment Complexes at Current Valuations\u201d<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Scott\u2019s arguments:<\/span><\/p>\n<ul>\n<li><span data-preserver-spaces=\"true\">Average cap rates for multifamily are too low (5.06%), making this asset class too expensive. Their sole purpose is\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/rental-property-cash-flow-analysis\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">cash flow<\/span><\/a><span data-preserver-spaces=\"true\">, and they aren\u2019t doing a good enough job producing it.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Right now, interest rates are generally higher than\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/cap-rate-real-estate\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">cap rates<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0(negative leverage), making it hard to make money.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">There are better, lower-risk ways to generate 5% cash returns (Treasuries, commercial debt, etc.).<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">There\u2019s more room for multifamily valuations to fall (even more than the current 30% from peak).<\/span><\/li>\n<\/ul>\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">My response: Yes, but a deal is a deal. And there are some good ones.<\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">Scott makes a compelling argument that average apartment valuations are out of whack with the new reality of higher interest rates and that there are better ways of making a 5% return in today\u2019s market.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">My simple answer is: Don\u2019t invest in those deals. You can do much better. If I\u2019m not confident I can make a 15% to 20% annual return (cash flow plus appreciation) on a multifamily deal, I am not interested.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The issue is that, even though apartment valuations on paper have come down (20% to 30%-ish), there isn\u2019t enough transaction volume yet to reflect the new reality. So, while there are deals that are still trading at 5% cap rates, for example, many more deals are\u00a0<\/span><em><span data-preserver-spaces=\"true\">not\u00a0<\/span><\/em><span data-preserver-spaces=\"true\">being traded at all because most sellers are in denial and would prefer to wait it out.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">That said, I am seeing quality assets being bought at 6.5% and 6.8% cap rates, with interest rates at 5% and below. At some point, sellers won\u2019t be able to hold on any longer, and more of these better deals will be available.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The best apartment acquirers didn\u2019t acquire many properties at all in 2023 for this exact reason. Investors need to be patient, just like these seasoned operators are.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The bigger point is that we, as investors, don\u2019t buy averages. We buy specific properties in specific markets. \u201cAverage\u201d cap rates for single-family homes are terrible right now as well because prices and interest rates are high.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Don\u2019t buy those deals, either. Don\u2019t buy with negative leverage, don\u2019t buy without cash flow, and don\u2019t buy at inflated prices. Find better deals.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">How far will multifamily values drop from their peak? My honest answer is, I don\u2019t know. It\u2019s hard to time the bottom.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">I do know that buying now, at a 30% discount, is better than buying at the top. All else being equal, a 6.5% cap rate is better than a 5% one. If you are buying a good deal with a solid operator and hold it over a long enough period, you have a recipe for success.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Most importantly, the fundamentals of the apartment asset class are strong. And that creates a floor for future valuation declines and prevents an apartment-pocalypse. More on that next.<\/span><\/p>\n<div class=\"justify-center \" x-data=\"{ IabAdad_block_: popAd(['r720x90'], '1') }\" :class=\"IabAdad_block_.linkURL ? 'flex pt-8' : 'hidden'\">\n<a x-show=\"https:\/\/www.biggerpockets.com\/blog\/IabAdad_block_.linkURL\" x-on:click=\"adClicked('https:\/\/www.biggerpockets.com\/blog\/2024-is-a-great-time-to-buy-passive-multifamily-real-estate', IabAdad_block_.sponsor, IabAdad_block_.title, IabAdad_block_.id, 'blockAdClicked', 'blockAd', 'postContent')\" target=\"_blank\" x-init=\"&#10;      analytics.track('blockAdLoaded', {&#10;        referrer: 'https:\/\/www.biggerpockets.com\/blog\/2024-is-a-great-time-to-buy-passive-multifamily-real-estate',&#10;        sponsor: IabAdad_block_.sponsor,&#10;        ad_title: IabAdad_block_.title,&#10;        ad_page_location: 'postContent'&#10;      })&#10;    \" x-intersect:enter.once=\"adViewed('https:\/\/www.biggerpockets.com\/blog\/2024-is-a-great-time-to-buy-passive-multifamily-real-estate', IabAdad_block_.sponsor, IabAdad_block_.title, IabAdad_block_.id, 'blockAdViewed', 'blockAd', 'postContent')\" rel=\"noopener\"><\/p>\n<div class=\" hidden sm:block\">\n<img class=\"m-0\" :src=\"https:\/\/www.biggerpockets.com\/blog\/IabAdad_block_.r720x90\" :alt=\"IabAdad_block_.r720x90Alt\"\/>\n<\/div>\n<div class=\"block sm:hidden\">\n<img class=\"m-0\" :src=\"https:\/\/www.biggerpockets.com\/blog\/IabAdad_block_.r320x50\" :alt=\"IabAdad_block_.r320x50Alt\"\/>\n<\/div>\n<p><\/a>\n<\/div>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Scott Says: \u201cThe Outlook for Rent Growth Is Poor in 2024\u201d<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Scott\u2019s arguments:<\/span><\/p>\n<ul>\n<li><span data-preserver-spaces=\"true\">A record supply of new multifamily units will be delivered in 2024, which will push down rent prices.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Markets like Texas, Florida, North Carolina, Denver, and Phoenix are at high risk due to excessive supply.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Higher rates may drive more people to rent, but they also reduce demand as homeowners with low interest rates stay put.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Renters prefer single-family homes.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">The combination of too much inventory and insufficient population and income growth could hurt apartment owners.<\/span><\/li>\n<\/ul>\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">My response: Agreed, but just wait. Plus, demand is strong.<\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">Scott is 100% correct about the influx of new apartment supply hitting the market in 2024. This will cause rents to stagnate in 2024, and in some markets, rent may even decline. Some markets will get hit harder than others, as Scott points out. This is a mathematical certainty.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">But we, as real estate investors, should have a much longer time horizon than one year. What happens in 2025 and beyond? That\u2019s when things get more bullish.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Take a look at this chart from CBRE\u2019s \u201c2024 Outlook Summary: Historical &amp; Forecast Multifamily Construction Starts.\u201d You can see that the huge spike of new projects that started during the pandemic is being delivered now.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">But then look what happened. Starting in 2022, new projects tanked due to high interest rates and construction costs. That means new deliveries will decrease dramatically in 2025-2026. Supply\/demand should rebalance, and rent growth should accelerate again.<\/span><\/p>\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"800\" height=\"400\" src=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/mfsector.jpeg?twic=v1\/cover=800:400\/max=1000\" alt=\"mfsector\" class=\"wp-image-167875\" title=\"Now Is a Great Time to Go Hunting for Passive Multifamily Deals\u2014Regardless of the Headlines 2\" srcset=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/mfsector.jpeg?twic=v1\/cover=800:400\/resize=800\/max=1000 800w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/mfsector.jpeg?twic=v1\/cover=800:400\/resize=300\/max=1000 300w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/mfsector.jpeg?twic=v1\/cover=800:400\/resize=768\/max=1000 768w, \" sizes=\"auto, (max-width: 800px) 100vw, 800px\"\/><figcaption class=\"wp-element-caption\"><em>Multifamily Starts (2014-2024)<\/em><\/figcaption><\/figure>\n<p><span data-preserver-spaces=\"true\">2024 renters should get a badly needed break from incessant rent spikes. I think that\u2019s a good thing for society. This also supports my thesis: The lack of short-term rent growth will put more pressure on those apartment owners who are already struggling with high interest rates.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The result for investors: More opportunity to pick up discounted properties. Smart investors with a long-term perspective will see over the horizon and past the short-term choppiness.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">However, what about the demand side of the equation?\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.cbre.com\/insights\/books\/us-real-estate-market-outlook-2024\/multifamily\" target=\"_blank\" rel=\"nofollow noopener\"><span data-preserver-spaces=\"true\">CBRE forecasts<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0that although vacancy rates will continue to surpass their pre-pandemic averages in 2024, sufficient demand will maintain the average occupancy rate above 94%. Developers have accurately gauged where demand will most effectively support new supply.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The markets with the most extensive supply pipelines (such as Dallas, Austin, Nashville, and Atlanta) boast the highest job growth projections. So it\u2019s not so much the new supply but the absorption rate that matters the most\u2014and the new supply should be absorbed over time.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Record\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/on-the-market-145\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">unaffordability<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0for home purchases also bolsters demand for renting. Scott points out the other side of this\u2014that homeowners with low interest rates aren\u2019t moving\u2014which reduces rental demand as well. But the vast majority of these locked-in homeowners would be much more likely to buy than rent anyway.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The big picture here is that the U.S. suffers from a\u00a0<\/span><em><span data-preserver-spaces=\"true\">huge\u00a0<\/span><\/em><span data-preserver-spaces=\"true\">undersupply of housing, and that fact ensures strong demand for all residential real estate: single-family, multifamily, affordable housing, etc. The current influx of supply won\u2019t make much of a dent. A significant softening of employment could change that, but otherwise, the long-term supply\/demand equation favors apartments.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">But as always, real estate needs to be analyzed at the\u00a0<\/span><em><span data-preserver-spaces=\"true\">local<\/span><\/em><span data-preserver-spaces=\"true\">\u00a0level. Investors should always evaluate the supply-demand dynamic in their local market and submarket.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">How quickly is new supply being absorbed in your local market? What new projects might be coming onboard near your target property that could cause issues? These are great questions to ask the deal sponsor and require supporting data.<\/span><\/p>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Scott Says: \u201cExpenses Eat into Multifamily Profit\u201d<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Scott\u2019s arguments:<\/span><\/p>\n<ul>\n<li><span data-preserver-spaces=\"true\">Property taxes and insurance costs are surging, with an average 19% increase in 2023.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Insurance premiums have spiked by 100% to 200% in parts of the South and West.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">These cost hikes are uncontrollable and directly impact property valuations.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Rising labor costs are squeezing multifamily operators\u2019 bottom lines.<\/span><\/li>\n<\/ul>\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">My response: OK, Scott wins this round.<\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">Touch\u00e9. Scott wins this one. Increases in property taxes and insurance\u00a0<\/span><em><span data-preserver-spaces=\"true\">are\u00a0<\/span><\/em><span data-preserver-spaces=\"true\">a leech on the bottom line of apartment owners, and there\u2019s no good remedy in sight.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">One would think that property taxes would fall in line with falling property values. But like Scott, I am skeptical. And insurance costs are ridiculous.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">A couple of points to remember, though. First, all these same factors hurt the economics of single-family rentals just as much. For example, I\u2019m selling my SFRs in Texas because property tax spikes alone turned my once-profitable gems into a negative cash flow money pit.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Second, make sure operators are appropriately accounting for these costs in their projections\u2014baked into the cake if you will.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Finally, there are some niche strategies that address the property tax issue. A tactic some operators use is negotiating with local tax authorities to completely eliminate property taxes in exchange for dedicating some units to affordable housing. It\u2019s one of my favorite strategies in high property tax markets like Texas.<\/span><\/p>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Scott Says: \u201cInterest Rates Won\u2019t Come to the Rescue\u201d<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Scott\u2019s arguments:<\/span><\/p>\n<ul>\n<li><span data-preserver-spaces=\"true\">The Fed is likely to cut the federal funds rate by 75 basis points, but no one knows what impact that will have exactly.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Normally, cuts will also lower the 10-year Treasury, which in turn should lower borrowing costs.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">But currently, the yield curve is inverted\u2014meaning short-term rates are normally lower than the 10-year Treasury, but right now, they are higher.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">If the yield curve normalizes, then even a Fed rate cut won\u2019t prevent a higher 10-year Treasury rate (~6%, for example).<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Expecting the 10-year Treasury to decrease is risky. It\u2019s safer to assume it will rise, which would lower apartment valuations.<\/span><\/li>\n<\/ul>\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Response: True. But a good deal works regardless of interest rates.<\/span><\/h3>\n<p><span data-preserver-spaces=\"true\">Scott is clearly a big interest rate nerd! Inverted yield curve prognostications aside, let me try to translate for the rest of us.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Most people think apartment borrowing costs will go down, which would give apartment owners stuck with high variable rates some relief. Scott is the contrarian: He thinks borrowing costs could go up even if the Fed lowers rates.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">What do I think rates will do? I have no idea! The biggest mistake apartment operators made over the last two to three years was assuming rates would stay low when they refinanced their bridge loans. They bet wrong, and they are now getting crushed. If borrowing costs do rise, that creates more stress and, therefore, more deals for the savvy investor to pick up.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">But more importantly, your\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/which-real-estate-investing-strategy-is-best-for-your-goals\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">investment strategy<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0needs to be\u00a0<\/span><em><span data-preserver-spaces=\"true\">interest rate-agnostic<\/span><\/em><span data-preserver-spaces=\"true\">. In other words, it needs to work if rates go up or down. That\u2019s why I favor fixed, long-term debt (five-plus years) on apartment deals and at least a few years longer than the property exit plan.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Rates and market values can go up and down during the hold period, but I want my property to shrug it off, spit out cash flow, and benefit from a value-added plan that will produce equity along the way. And there should always be a sufficient margin of safety built into the deal economics (equity, cash flow, and reserves) to withstand the inevitable bumps\u2014something many new operators failed to do in the last few years. I\u2019m sure Scott would agree.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">But how do you secure long-term, low interest rate debt these days? One way is to assume it. One of the coolest features of multifamily investing is that properties sometimes come with low rates that the seller can pass on to the new owner. These properties will be more expensive, but it can be worth it, given how important the debt structure is today.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Alternatively, operators can buy with more equity to mute high interest rates in the deal. However, I would still want to see positive leverage.<\/span><\/p>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Final Thoughts<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">There are headwinds facing multifamily operators. But those same headwinds create opportunities for the rest of us. The apartment oversupply will work its way through the system, but perhaps not soon enough to save operators who overestimated rent projections in order to goose return projections for investors. Unless there is a recession, demand for apartment rentals should remain robust.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Cap rates have been stubbornly low. But that doesn\u2019t mean\u00a0<\/span><em><span data-preserver-spaces=\"true\">you\u00a0<\/span><\/em><span data-preserver-spaces=\"true\">have to buy at inflated prices or accept deals with high-interest rate risk. Property and insurance costs are a problem that operators need to be realistic about and account for in their budgeting.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">So what does good look like? I agree with Scott Trench about buying opportunistically and only accepting conservative assumptions from operators. Assume flat rent growth in the short term, look very closely at exit cap rates, and don\u2019t buy with negative leverage (Scott\u2019s suggestion of cap rates that are 150 bps above agency debt is a good benchmark).<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">I personally look for deals with a value-added edge that creates a greater buffer or margin of error in case things go sideways. Be cognizant of where your equity sits on the\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/multifamily-capital-stack\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">capital stack<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">I couldn\u2019t agree more with Scott about demanding more operators and capital raisers. His tips there are worth a second look. The most important thing to do is to choose operators with a strong, and ideally long, track record of success. Don\u2019t be anyone\u2019s guinea pig!\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">There needs to be more education about private equity real estate investing. Scott announced that Bigger Pockets is planning a new initiative called PassivePockets that will have expert voices weighing in on what \u201cgood looks like\u201d for multifamily investing. I\u2019m looking forward to it.<\/span><\/p>\n<p><em><span data-preserver-spaces=\"true\">If you want to discuss multifamily investing, feel free to email me at\u00a0<\/span><\/em><a class=\"editor-rtfLink\" href=\"http:\/\/www.biggerpockets.com\/cdn-cgi\/l\/email-protection#5e0a27323b2c131e3d323f2c3f3730283b2d2a333b302a2d703d3133\" target=\"_blank\" rel=\"noopener\"><em><span data-preserver-spaces=\"true\"><span class=\"__cf_email__\" data-cfemail=\"c591bca9a0b78885a6a9a4b7a4acabb3a0b6b1a8a0abb1b6eba6aaa8\">[email\u00a0protected]<\/span><\/span><\/em><\/a><em><span data-preserver-spaces=\"true\">\u00a0or visit\u00a0<\/span><\/em><a class=\"editor-rtfLink\" href=\"https:\/\/clarainvestments.com\/\" target=\"_blank\" rel=\"nofollow noopener\"><em><span data-preserver-spaces=\"true\">ClaraInvestments.com<\/span><\/em><\/a><em><span data-preserver-spaces=\"true\">.<\/span><\/em><\/p>\n<p><em><span data-preserver-spaces=\"true\">Tyler Moynihan is a former executive at Zillow and managing partner at Clara Investment Group. He is an LP and GP and focuses on multifamily investments.\u00a0<\/span><\/em><\/p>\n<div class=\"wp-block-group has-slate-200-background-color has-background is-layout-constrained wp-block-group-is-layout-constrained\">\n<div class=\"wp-block-group__inner-container\">\n<div class=\"wp-block-group__inner-container\">\n<h2 class=\"wp-block-heading has-text-align-center has-theme-slate-dark-color has-text-color\">Take Your Market Research to the Next Level<\/h2>\n<div class=\"wp-block-media-text has-media-on-the-right is-stacked-on-mobile is-vertically-aligned-center\" style=\"grid-template-columns:auto 34%\">\n<div class=\"wp-block-media-text__content\">\n<p class=\"has-theme-slate-dark-color has-text-color\">Need help finding the right market for your next investment? Dave Meyer created our brand new <strong>Picking a Market Worksheet<\/strong> to help investors like you identify and analyze the right locations for their next deals. <\/p>\n<p class=\"has-theme-slate-dark-color has-text-color\">Download our worksheet today for quick and easy analysis when researching your next market.\u00a0<\/p>\n<\/div>\n<figure class=\"wp-block-media-text__media\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"1024\" src=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/Picking-A-Market.jpg?twic=v1\/cover=1024:1024\/max=1000\" alt=\"picking a market worksheet\" class=\"wp-image-165579 size-full\" title=\"Now Is a Great Time to Go Hunting for Passive Multifamily Deals\u2014Regardless of the Headlines 3\"\/><\/figure>\n<\/div>\n<\/div>\n<\/div>\n<p class=\"italic\"><b>Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n<\/div>\n<\/div>\n<p><br \/>\n<br \/><a href=\"https:\/\/www.biggerpockets.com\/blog\/2024-is-a-great-time-to-buy-passive-multifamily-real-estate\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this article In case you missed it, Scott Trench, CEO of BiggerPockets, wrote this thoughtful article:\u00a0Multifamily Is at High Risk of Continuing Its Historic Crash in 2024\u2014Here\u2019s Why. Scott and I have been discussing this topic offline anyway, so I thought I would take him up on his invitation to debate the subject online. [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":10903,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"fifu_image_url":"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/townhomes-1-1024x517.jpg","fifu_image_alt":"","footnotes":""},"categories":[9],"tags":[],"class_list":["post-10902","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/10902","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/comments?post=10902"}],"version-history":[{"count":1,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/10902\/revisions"}],"predecessor-version":[{"id":10904,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/10902\/revisions\/10904"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/media\/10903"}],"wp:attachment":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/media?parent=10902"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/categories?post=10902"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/tags?post=10902"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}