Flat Home Prices “Mirror” 1990s: Small Multifamily Bound for Major Upswing

0:052025 is winding down and so much has changed, but somewhat frustratingly, some things have not changed at all. I'm Dave Meyer, and today I am joined by Brian Burke to wrap up the year, cut through the headlines, and talk about opportunities that are going to exist for investors going into 2026. We'll touch on where the opportunities have opened up, what risks are getting bigger and how to avoid them, and generally just how to position your portfolio for the next 12 months. This is On The Market. Let's get into it. Brian Burke, welcome back to On The Market. Thanks again for letting us drag you back here.

0:43Dave, you know, it's always fun to be here. We always have a fun conversation. I agree. It is always a good time having you here. So thanks for helping us close out the year here. That's kind of where I want to start is maybe just looking back at 2025. How would you describe or characterize this past year? Well, I would call it a bit of a year of some turmoil and chaos, I suppose. And, you know, chaos breeds opportunity. And the more of the former you have, the more of the latter you get. So I think, you know, it's been a year that's going to set people up for some really good things down the line.

1:19But for some, it's been a bit uncomfortable as any tumultuous year would be. So it certainly has been interesting to watch. Would you describe that for both residential and commercial markets or one more than the other? I think it's actually applicable to both. I think residential markets at the beginning of the year, I expected that they would do better than they have. I mean, of course, it's all regional, right? But what I've seen kind of on a macro level has been a little bit of a slow residential market or slower than I would have expected. And commercial was kind of almost non-existent for the first half of the year.

1:54It's starting to pick up a little bit in the second half, but I think that might even be misguided a little bit. And do you attribute that to rates, at least for the residential side? Do you think it's still just the financing climate? I think that's part of it. I think there's an inventory problem in some areas. Especially where I live here in Northern California, we have an inventory problem. There's too many houses on the market for buyers that are in the market. And partly, I think that's because of two things. One is you don't have a lot of move up buyers because anybody who owns a house with a 3 % mortgage isn't selling.

2:31That means they're also not buying something else. So I think that's part of it. And then first time home buyers are struggling with large down payments and higher interest rates and just, you know, overall difficulty in buying. So I think that's that's slowing down buyer traffic for 2025. Was there any bright spots you saw or was it just all ugly in 2025? Well, you know, the only bright spot I found was in senior housing and we made a pivot to senior housing, assisted living, skilled nursing and memory care earlier this year. And that's been a total bright spot. But outside of that, data centers I hear is a really good spot to be, but I think it's dominated by, you know, the major players in the industry.

3:17It's not really an individual investor play. But outside of those two specialties, I haven't seen a lot of extraordinary opportunity or anything to get all that excited about in any real estate sector this year. Well, we appreciate you keeping it real. That's why you're here, because we don't want any fluff. It was an ugly year in 2025. I actually, maybe in the last two months, have noticed better deal flow. I feel like the numbers when I analyze the deal are looking a little bit better on the residential side, not fully like great across the board yet. Have you noticed any of that though? Or are you just sticking to there's no silver lining at all?

4:00This everything's miserable. Well, you know, that's been a good theme for me for the last like two or three years. If you know, you recall my past appearances on this show. We know what we're getting with. Yeah, you do. You know what you're getting. Is there a silver lining? Well, I'm starting to see some threads of a silver lining. Interest rates have fallen a few tenths of a percent, not anything major, but I think that might be helping a little bit. I think pricing is starting to ease in some places because some sellers are just having to come to grips with reality that the property, whether it's a house or whatever it is, isn't worth what they thought it was or isn't worth what it may have even been a few years ago.

4:41And so, you know, they're having to get real with, OK, if we're going to move on, we got to meet the market. And I think some sellers are meeting the market and some buyers are having the ability to step up. And that's creating a little bit of a silver lining, you know, over the last few weeks. But I don't I don't see a major like title shift just yet. No, it's frustrating, especially commercial. I think you're much more of an expert in commercial than I am. But I've keep waiting for this distress to sort of like come to a head. And it feels like it just doesn't. Like, you know, I know it's trickling and prices are down, but we're not seeing what I would think the inventory levels or the transaction volume that I would have expected a year or two ago, given how much stress there is in the multifamily market, for example.

5:29Yeah, well, you know, at first that may seem unusual, but when you really start to dig into the details of why that's happening, I think it makes complete sense. So prices have fallen dramatically in the multifamily side, worse perhaps than even the 2008 Great Recession from peak to trough. And so if you're a lender in that space and you started out with a, you know, call it 80 percent LTV loan that also supplied 100 percent of capital improvement financing, you're dramatically upside down as a lender. I mean, forget about the owner and how upside down they are. The lenders themselves are upside down.

6:08So they've been so-called kicking the can down the road and saying like, hey, I know your loan is due, but we're just going to forget about that for now and give you another year. And the owners are like, great, we got to stay off foreclosure for a year. We'll take it. You guys are wonderful. Thanks for taking care of us. Forgetting completely about the fact that really what the lender is doing is protecting their own balance sheet, right? Oh, you mean the banks aren't just doing it out of the kindness of their hearts? Oh, of course they are, because they always operate that way. That's how banks work.

6:39Yeah, provide me an example of that. I would love to see it. But the banks are waiting for better markets to sell into. And really, they're the ones that are in control. I mean, the owners who think they're in control aren't really the ones in control when there's a loan maturity that's in play. So the lenders will at some point say, enough is enough. We're not giving you another extension. You need to sell now, even if that's a complete loss to you and a small loss to us. That's when the distress is going to hit the market. But it's going to be when prices actually come up a little bit because the lenders don't want to sell at the bottom either.

7:14So that's why you're not seeing this big so-called wave. And that's also why I think, and this is just my opinion, it may be wrong, but we'll see, that the wave is going to be a long, slow wave that you could ride for a really long time, not one that's going to last 20 seconds and it's over. This is going to be a bit of a recovery process that's going to take a period of years, not a period of weeks or months. And when you're saying that wave, obviously that's challenging for existing operators, but does that mean the buying window will be longer for people who want to get into the market? Yes, that's my point exactly.

7:54And that's also why I haven't bought a multifamily asset in what, three and a half years now, I guess, because there's been no reason to. And there's still no reason to, and I'm still not buying. And once the market starts to improve, then maybe I might start buying. But I know that I've got plenty of time. I don't have to be in a rush to say like, I have to exactly time this bottom because I'm going to miss it and it's going to run out without me. That's not the risk. The bigger risk, in my opinion, is that you get into early and you have to sit through this long level period of this, the bottom of the trough for a long time before the value starts to creep up and your time value of money erodes your returns.

8:34I think that's the bigger risk. I think you're talking specifically about multifamily right now. Yeah, large multifamily. Now, we had a conversation on your other show recently about small multifamily and as a wealth building tool for individual investors that are casually buying properties occasionally. I think there's a real opportunity for life transforming wealth over the long term. But for those who are buying commercial multifamily, larger assets, especially those who are doing so with capital they raise from other investors, would find this to be a very tough period to produce the type of outcomes that their investors would be happy with.

9:18The difference being, if you're not trying to satisfy LPs and other people who are raising money, the risk of getting into early is less. Is that kind of the theory there? The theory is, is that if you're a casual investor who might buy one or two properties a year, this might give you the opportunity to buy five or six properties because you can only buy, you know, a few properties a year. For professional investors There's a commercial real estate who, you know, I've bought 19 properties this year so far in the senior housing space. Now, if I did that in multifamily and had 19 assets, that's a lot of real estate that's going to sit there languishing in value for a long period of time with a lot of investor capital that just wouldn't really have that great of an outcome.

10:04It's just two completely different investing strategies. And one thing about investing in real estate is not there's not one strategy. There's different strategies and different strategies require different tactics. We got to take a quick break, but we'll have more with Brian Burke right after this. Stay with us. Do you ever notice how every passive investment somehow turns into a very active lifestyle? Active spreadsheets, active phone calls, active stress. Here's a better question. What if you could buy brand new construction homes, 10 % below market value in the best markets across the country without making real estate your second job?

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12:16Welcome back to On the Market. I'm Dave Beyer here with Brian Burke. Let's jump back in. We have been talking about all year that you still think the buying of small multifamily makes sense. And are you seeing prices go down for those as well? Yeah, pricing is easing, especially when you look at peak to peak to trough pricing, you know, and peak being, I would say, second quarter of 2022 was what I'd consider to be the peak of the multifamily market space. And if you look at pricing today relative to that small window, it's definitely cheaper to get in now than it would have been to get in then and a lot less risky.

12:55The only thing that discourages me a little bit, not in the two to four unit, but in that like four to 20 unit is rent growth just seems really slow right now in most markets. Is that something you you're thinking about and seeing? And does that sort of offset some of the opportunity in the midsize multifamily space that like five to 25 unit range? Yeah, it does if you're momentum playing. If you're arbitrage playing, then maybe not so much. And again, every strategy requires different tactics. So if your strategy is to buy deeply discounted, heavily distressed multifamily, even in a midsize that you can go in and extensively renovate and improve and boost rents and improve the income, then you'll be fine.

13:43The rent growth isn't this big of a deal as long as your entry basis is made with the rent growth prospects in mind. And you're not thinking like, OK, well, I'm going to pay this price because I think I'm going to get 10 percent rent growth. Right. You're not doing that. Then you'll be fine. So I don't see that as quite that big of a risk. But if you're a momentum player where you're buying stuff, basically, you know, turnkey, maybe a class B plus class A newer midsize multifamily with the intent of just riding the wave of multifamily rent growth.

14:17Brian Burke:Yeah. Yeah. You might be disappointed in that strategy or you really are looking at it as a generational wealth play and not as an immediate return play, in which case it may work out fine. But as an immediate return play, I think it would be difficult. Yeah. Yeah. Last year when I was trying to figure out what I was going to do talking about on the show, I was hoping that right now in this point in 2025, we'd start to see the tide turning on rent growth a little bit just because we'd be working our way through the multifamily supply glut. But unfortunately, I just don't see that happening in 2026.

14:49I just think we're still at least a year away from, like you said, the momentum play. That doesn't mean you can't do value add and drive up your rents. But if you're just hoping for the macroeconomic forces to drive up rents, I think it's going to be another slow year for that in 2026. You're right. And the statistics bear that out. So in October of 2025, we saw the largest rent decline of any October over the last 15 years on a national level. So there has actually been rent declines and a lack of rent growth. And that certainly is a factor. And I think, you know, when I'm looking at a sector of real estate to invest in, the momentum does have a lot to do with the decision, right?

15:37And there's a lot of things that are working against multifamily right now, such things as low birth rates. You know, renters, remember, is the younger demographic. So you've got low birth rates, you've got low immigration, and you have high construction. And, you know, to your point a minute ago about construction, construction levels have remained unexpectedly elevated. Everybody thought, okay, 2025, it's all going to taper off, the building is going to be done, but yet it still keeps coming. And that's fighting against these other factors of, you know, low birth rates and low immigration. And and all of that stuff is just creating, you know, lackluster rent growth for the time being.

16:14Now, that won't continue forever. The tide will shift, you know, and it's always darkest before the dawn. So, you know, we'll see what happens. The construction thing sort of confounds me. I started my investing career in Denver, still own property there. And it's it's getting hit pretty hard right now, even in the single family and residential space. Prices are down. Rents are down. And it's one of these classic overbuilt cities. If you look at all of the data, you just see that there's been way too many deliveries. Absorption is low. And then I was reading something that was like, new construction multifamily starts in Denver, second highest in the country.

16:51I'm like, what the hell are people doing? Why are they doing this? And I guess they're just expecting three years when these things are completed that will have worked through this backlog. But man, it is a little confusing why this is still going on. Well, I think there's two reasons at play. One is that construction and development takes an extraordinarily long time. And so from concept to shovels to vertical construction, you're talking about periods of years, not days, weeks or months. And so a lot of these projects were past the point of no return and are just now finally getting to fruition.

17:27And they can't really put the brakes on without losing tons of money. So they're like, well, you know, we'll just hope for the best and maybe our timing will work out. So the projects keep going. That's one reason. And another reason is you still have some developers who are like, hey, the construction glut is going to wane in 2025. So by the time we're done, the timing is going to be perfect. So, you know, then there's too many people thinking that way and you end up with too much product still. And so I think we're I think we're stuck with both of those things happening at the same time. Do you think any of that will spill over into the residential space, either in terms of rent growth or demand for housing?

18:06Because if rent is relatively cheaper than buying a home, like it is in the vast majority of places in the US right now, do you think that's going to sort of hamper or weigh on the residential market? I don't know. I've got a lot of class A apartments in Atlanta still, about 1 ,000 units. And there are two reasons that we experience move outs. One reason is that people have financial difficulties and have to downscale, whether they're moving back in with family or whatever. But the other largest reason is they're buying a home. And so surprisingly, it still seems like the American dream of homeownership is still alive and well.

18:51It may have needed supplemental oxygen for a while, but I think the patient's going to survive. It's still a priority for people. The desire for homeownership certainly hasn't changed, even if the affordability and the challenge of actually accomplishing it has changed a lot of it in the last couple of years. It has. And I think anybody listening to this show especially would, on a personal level, relate to wanting to own your own home and somewhat having control of your own destiny and maybe the prospect of someday owning it free and clear and not having a payment to provide you with long-term financial security into your later years.

19:29I mean, I think a lot of people listening to this show would understand that. So does that mean you're not a fan of the 50-year mortgage? Well, you know, it's interesting. I see some benefit to the 50-year mortgage as it opening the door for people to an extent. But the challenge is it has to be used responsibly. You know, if you could get in with a 50-year mortgage because you can't afford the payment, but as your income increases, you consistently increase how much you're paying on your loan. And then you end up paying it off in, say, 20, 25 years. It could be a remarkable tool for someone that's responsible and disciplined enough to do that.

20:08Totally. I think, you know, there's a segment of the population that maybe doesn't possess that level of discipline. And in that event, they'll be paying interest for 50 years and maybe they benefited from it and maybe they didn't. It's hard for me to say. Yeah, I know. I think as an investor, it's just not worth it. I did the math. I did an episode on it. For an average price home, it just saves you 200 bucks a month. It's like not that significant a savings. And the amount of interest you pay over time is enormous. So if your dream is to own your home free and clear, it just makes it so much harder.

20:41But I do agree that there are some use cases. I would just worry that I think this already happens. This happens in car sales. that happens in home sales that people focus really on their monthly payment and not what they're paying in total for an asset or for anything. And I would just hope people aren't making that decision uninformed. If this even comes to bear, we don't even know if it's going to be a thing at all. Well, I mean, if I look at my own personal situation, when I bought my very first house to live in 35 years ago,$200 a month would have been a big deal to me. And that would have really helped me get in.

21:18But if I look at my income now, that payment would be a rounding error. It would be nearly nothing. So if I continued to increase how much I was paying in connection with how much I was making, I would have paid that loan off far sooner than 50 years, but it would have been really useful to me in years one through five. But it really just depends on how you use it. And I think a lot of people use debt very responsibly, but there are people who use debt irresponsibly and would use it to just buy more than they can really afford. And, you know, they'll end up paying interest for 50 years because they won't increase their principal pay down as their income grows.

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25:18Thanks for sticking with us. Let's continue the conversation with Brian Burke. Let's shift focus a little bit. I want to talk about 2026. And I know you were just negative about 2025, but I want to hear how negative or if you see if there's opportunities in 2026. So I'm going to tell you the name of an asset class or a strategy, a niche in real estate. And why don't you give it a score, A to F, high school grades here for 2026. Single family rentals. B minus. B minus. Okay. What about small multifamily? B plus. Large multifamily. C. All right. That's not as bad as I thought you were going to say.