We love seeing articles about downturns in a market, like this recent piece about changes in New York’s multifamily market.
“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.”
– Warren Buffet
This quote from Warren Buffet really highlights what makes real estate – and specifically multifamily real estate – such a perfect investment.
People will always need housing. When the multifamily market in a city loses steam, it’s important to understand that it is not usually the fault of the assets on offer in that market. Many still have great features and amazing management teams.
Market downturns aren’t caused by individual multifamily properties underperforming. In fact; if an asset is competing and surviving in a down market it’s probably because it’s well positioned, has the right amenities and boasts a great management team. In cases like that, you can be pretty confident that it is going to do very well when the market stabilizes again.
“You make most of your money in a bear market, you just don’t realize it at the time.”
– Shelby Cullom Davis
Market corrections and downturns are a time of incredible opportunity, when patient investors can acquire undervalued assets that will blossom when the market returns to full sail!
Think of it like this: do you really want to buy into an asset when it’s at peak value?
You might want to compare this to paying full price for a product at a store. Of course, you can buy the product at full price when necessary, but if you get the same product at a discount your purchasing power increases. If you apply this insight to multifamily investing, you will see that a down market provides an opportunity for you to purchase larger assets or a greater number of smaller assets than you might otherwise be able to.
Just ask yourself “Is this market still in high demand and will it still be in high demand after a decade or two?” If the answer is “yes” – which it should be for most healthy MSAs – then any market downturn is probably going to be temporary.
“The wisest rule in investment is: when others are selling, buy. When others are buying, sell. Usually, of course, we do the opposite. When everyone else is buying, we assume they know something we don’t, so we buy.”
– Jonathan Sacks
Many investors will look at the new regulations in New York and see the market as permanently impaired. A few will delve deeper and seek ways to leverage the resulting downturn into an opportunity.
Here at Spindrift Capital, we see market downturns as potential signals to look more closely at the affected MSAs. We conduct extensive market research before seriously considering an offer and embarking on our exhaustively thorough process of due diligence. Only once we are confident that both the market and the individual asset meet our criteria do we move to capitalize on an opportunity.
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.”
– Howard Marks
