Here’s a quick breakdown of 5 crucial ways you can dominate the multifamily real estate market – even in a recession.
(1) SEE DEBT AS YOUR FRIEND TODAY
Here’s what I’m seeing these days – the debt market is still pretty much frozen up right now.
Debt is very difficult and expensive to get, which could create a vacuum of buyers.
What this means is there could be less competition for great deals in your market.
Another positive thing to note…
Rising interest rates are likely going to apply pressure on your purchase price and push it down without you having to.
I believe debt can STILL be your friend today in spite of rising interest rates.
Remember, my process is simple:
Deal → Debt → Equity
So find a great deal first…
And as you’ll see in a moment, there are plenty of ways to do so even in this economic climate.
Once I have a great deal, here’s how I would go about getting cheap debt:
Partner with more experienced investors.
This means multifamily investors with several deals and thousands of units under their belts.
I would leverage their experience, credit scores, and relationships with lenders, and do bigger deals with them.
Because when you do bigger deals, everything is likely to be cheaper: debt, management fees, legal fees, etc.
(2) EMBRACE THE REALITY OF A DOWN PORTFOLIO
In June 2022, my company wrote down our real estate portfolio’s value.
A write down is when a company reduces the value of its assets on its financial statements.
So why would any company do that?
It’s the ethical thing to do.
It helps paint a true and accurate picture of the company’s financial situation for all investors and stakeholders involved.
In other words, you have nothing to hide.
So we wrote our real estate portfolio value down because we have nothing to hide…
And it doesn’t really mean much to me and my investors anyway, because:
(a) We continued to cash-flow in 2022.
(b) I’m not selling any part of my portfolio any time soon.
So whether my real estate AUM (Assets Under Management) is worth $5 billion or $4 billion, none of it really matters right now… or in the long run.
So if I were you and if I’ve bought deals in the last 2 to 4 years…
It’s just a matter of time before it’s necessary to admit that portfolio values are down.
(3) CREATE A BIG FUNNEL OF LEADS RIGHT NOW
We’re in a different market this year.
If I were you, I would create a massive funnel of deals right now…
And I would keep my pipeline of potential deals FULLER than usual.
This means increasing the number of deals I’m looking at right now.
If I used to look at only 1 deal a day, I would make that 5 deals a day now.
Or if I was already looking at 5 deals a day, I would make that 10 deals a day, starting TODAY.
I would become MORE alert to potential opportunities than I’ve ever been.
Here’s how to keep your pipeline full:
Contact the 3 top commercial brokers in your market, such as:
- ARA Newmark
- Cushman & Wakefield
- Jones Lang LaSalle, Inc. (JLL)
- CBRE Group, Inc.
- Marcus & Millichap
- Global Real Estate Advisors (GREA)
Use third-party resources like:
- Real Capital Analytics
Check other online sources:
Drive by properties and always find out who owns great properties in your market.
- Keep an eye on the Real Estate section of your local newspaper.
- Search local city and county records by unit size.
- Look for deals that are under contract.
- Search for expired listings.
And I would also look at deals more QUICKLY.
I would look at a lot of deals quickly and buy the ones that will likely make me money.
Also, I would decide quickly when to kill a deal, when to make an offer, and when to move on.
Even if a deal doesn’t work out – I would save the deal and track all my “lost” deals…
In case the opportunity presents itself again someday.
(4) LOOK FOR DISTRESSED OR TIRED OWNERS
I would look for deals that were bought in the last 2 to 3 years, with loans that are maturing in 2023…
Because the owners of these deals were counting on exiting their deals in 2023…
And now they likely can’t due to higher interest rates.
So, I would take the deal off their hands. (More on this in a moment.)
By the way, “distressed” does not mean the asset is a problem.
It means the owner or equity behind the deal has issues, such as:
- Their loans are coming due
- They have redemptions they need to meet
- Their partnerships are in dispute
- They desperately want to exit the deal
So I would look for distressed owners that meet these descriptions… and I would NOT look for garbage real estate.
I would also be looking for tired owners who:
- Bought their properties dirt-cheap 15-25 years ago
- Have already paid off their properties
- Make a lot of money each month from their properties at below-market rents
Remember, these older owners have been in real estate a long time.
They probably don’t want to deal with another down cycle.
These folks likely want to travel the world, and they don’t want to be a landlord anymore.
So, I would offer them a fair purchase price even by today’s standards, and take the property off their hands.
Or, I would do a master lease agreement with them.
This is basically creating an agreement to lease an income-producing property from the owner…
Which also gives me the option to eventually purchase the property.
By doing this, I could pay a small down payment (or sometimes, no down payment) to the current owner.
I would receive the privileges and rights that come with owning and operating the property, but the seller still retains the legal title.
I would also receive the option to buy the property from the owner:
- At a fixed price whether or not the property changes in value
- Within a fixed timeline
Then, I could receive positive cash flow each month after:
- Making my monthly lease payments to the seller
- Paying for the property’s operating expenses and property management
- Improving the property and increasing rents
Finally, when the time comes, I can choose to purchase the property and receive legal title to the property at closing.
(5) DON’T EXIT RIGHT NOW
What I DON’T want right now is to be a seller.
This is a terrible time and market to be selling real estate in.
I’m selling nothing.
In fact, I’d be happiest if I never sold anything.
To tell you the truth, the TWO biggest mistakes I’ve ever made in real estate are:
- Not buying enough deals
- Selling anything EVER, because there are better ways to exit a deal
What about refinancing, especially with high interest rates right now?
I don’t know if I would want to get locked into a 7% interest rate right now.
After all, I believe these interest rates are going to be lower in 18 months.
So I would put off refinancing for now if I have better options.
While everyone else in real estate is filled with fear of the recession…
I see fear as the GREATEST indicator to determine which actions will likely provide the greatest return.
So, the actions I would take right now include:
(1) See debt as my friend
(2) Embrace the reality of a down portfolio
(3) Create a big funnel of leads
(4) Look for distressed or tired owners
(5) Don’t exit right now
What about you?
Disclaimer: This content is intended to be used for educational and informational purposes only. Before investing, you should always do your own analysis based on your own financial and personal circumstances before making any investment. Grant Cardone is an industry expert who has been investing for over 30 years and his opinion is based solely on his own personal experience and circumstances. Individual results may vary. You should perform your own due diligence and seek the advice from a professional to verify any information on our website or materials that you are relying upon if you choose to make an investment. Investment involves great risk and there is no guarantee of performance or results.
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