What We're Buying During The 2026 Multifamily Crash

0:00What the heck are you supposed to do with your real estate portfolio in the summer of 2026? It's a question I'm asking myself. It's a question every real estate investing is asking themselves. Should you be buying? Should you be selling? What should your priorities be in your portfolio? Today on On The Market, me, Henry, Kathy, and James are talking about what we're doing in our portfolio and giving advice about what you should do in yours. This is On The Market. Let's get to it.

0:35Hey, everyone. Welcome to On The Market. I'm here with Kathy, Henry, and James to try and figure out what the heck to do with real estate right now. It is simultaneously exciting and terrifying. I want to buy everything. I also want to sell everything. I don't know if that's how you guys are feeling, but I am all over the place. So I'm looking forward to talking to you all about this. Today on the show, we're going to be talking about what to do with your portfolio. Because I think everyone's wondering, is it a time to buy? Is it a time to sell? What to prioritize? So we're going to go around.

1:12Each of us are going to talk about what we're prioritizing in our own lives and our own portfolios. And we're just going to talk about why you're making these decisions. And hopefully all of you can learn from the decisions we're all making. Because as you know, each of us has a little bit different perspective on real estate. Each of us are at different stages of our investing career. And I think between the four of us, we represent a lot of what people are thinking about and going through in the market today. So I'm just going to pick, Henry, you got to go first. What's your priority right now in real estate?

1:45Dollars. Make it rain. Yeah, I'll give you the 10 ,000 foot view, right? So the market is kind of, I don't know if stagnant's the word, right? Like prices are where they are. Don't see them going up a ton. Don't see them coming down a ton. They may come down a little bit, but it's just going to be kind of flat, if not a little bit of a decline. Rates are probably going to stay where they are, maybe go up, right? And to give some perspective, I've been doing this since 2017, right? So I got in when it was a good time to buy deals. I got to ride the post-COVID wave up with values and bought some stuff around then with lower interest rates.

2:30And then in 2023, as rates started to go up, I bought some deals in 2024, late 2023, 2024, maybe early 2025. Right. And my thought process then was if I can get them and they're making, you know, they're breaking even ish now. At some point, rates come down and there'll be great deals. Right. And then, so what happened? Well, that didn't happen. We saw rents. Rents actually came down. All the expenses went up, not just interest rates went up, but insurance costs went up. And then we also saw taxes went up. And all that leads me to say is what I've been doing with my portfolio is doing an analysis of what's doing well and what's not doing well.

3:15And then of the properties that aren't doing well, do they meet the criteria for something that I want to spend the money on to get it to perform well? And so what that has caused me to do is to take a look at, okay, these properties that I bought post 2023, does it make more sense to sell them now, take any equity we have in them and reposition that equity in other places in our portfolio? Or does it make sense to give them the capital infusion they need to get them to the price point or the value that we want them to get to, to produce the income? And so that's what we've been focused on. And I've sold a lot of properties and all of the properties that I've sold have been the ones that I've purchased post 2023.

4:00And we've been taking that capital and we've been either investing it in other properties that do meet the criteria for ones that we would want to keep that need capital to perform or investing them in paying off some of the properties. Because my goal over the next 10 years is to get a substantial chunk of my rental portfolio paid off. Now, on top of all that, I am still doing deals. I'm doing more flips right now, just because I'm pretty comfortable with the size of my rental portfolio. I'm a deal junkie. Don't get me wrong. If I get a good rental that comes across my desk today, I'd probably buy it and throw it in the portfolio, but it'd have to be an amazing deal.

4:39And because I'm buying, we're buying very conservatively. We're getting great spreads on deals right now. I just closed a deal yesterday. It was a house I bought a month and a half ago. I paid$85 ,000 for it. I spent$3 ,000 cleaning it out. We stuck it on the market as a whole tail, didn't do anything to it and sold it for$175 ,000 to a cash buyer and closed on it yesterday. So I made 70 grand on a quick turnaround flip, right? There's deals out there right now. And now I can take that capital and I can apply it to my portfolio where I see fit either to throw cash at one of the properties that we want to keep in our portfolio that needs an injection or to pay off a property that we know we want to keep for the long term.

5:22So that's the plan. That's what we've been executing. And it's helped because I have. I've gotten rid of some properties that weren't producing cash flow that we had a little bit of equity in and I could take some of that money. I've also been able to get I got rid of a property last week that I took a$20 ,000 loss on, but it's going to it's going to help my portfolio in the long term because I don't I'm not bleeding that money anymore. I don't have the holding costs or the costs associated with feeding that deal anymore, plus the insurance and taxes of it all. So sometimes you got to take a little bit of an L.

5:54If anybody in this business tells you they haven't taken a loss on a property, it either means they haven't done it yet or they're lying. So you're not really changing strategies. Like you're not really changing anything. It's just kind of doing the same thing. Optimization. More flips, less rentals, I guess, but just trying to maximize current rentals. Yes, correct. But more flips like Henry, like when you're going into markets like this, right? Like I'm guessing that your, your buy box on your flip head. I mean, I'll take the 10 of those $70 ,000 ones. If you got it, right. Yeah. Happy to send those line them up.

6:26We got them. Yeah. But like, like on your flips, right? That's the hard part. Like when you're in a volatile market, things shift around, like, what do you do on your buy box? Like what won't you buy on the flip side? You want to do more, but is there flips that you're not buying right now? Absolutely. There's flips that we're not buying right now. I'm not doing singles anymore, right? That deal I just told you about, in my opinion, that's a home run or a grand slam deal, right? Do nothing, make 70 grand. That's amazing. They're not all going to be like that. The deals that I'm doing though are where I am pretty much getting a one-to-one on my renovation to profit, right?

6:59So I am underwriting deals where like I have a property right now that we're going to close on next week. I paid$140 for it. We spent$50 on the renovation. I'm going to make$50 in profit. That's the kind of deal that I'm willing to do right now. I would not do that deal if I had to spend$50 on the renovation and make$25 in profit. Maybe I would have done that when the market was a little more favorable. But right now, it's just so volatile that you can lose$20 ,000 in holding costs like that and not even expect it, right? Even if it's a solid deal, it's very hard to understand what's selling and what's not right now.

7:40Sometimes it doesn't seem to have much rhyme or reason. I've got properties that I think should have sold in a heartbeat that have sat on the market. And I've got properties that I'm like, man, I probably shouldn't have bought this deal. I don't think it'll sell. And it sold in like a couple of days. So all that tells me that I have to be super conservative in my underwriting to give myself enough cushion that even if I lose 20 grand in holding costs, that I'm still going to be profitable. And that means that I have to underwrite conservatively and make lower offers. Now, what that's doing for my business is we're either going to do less deals because I'm getting less no's because not every investor is being conservative like me and they're willing to make 20 grand on a deal that I'm not willing to make 20 grand on.

8:25So it's more about underwriting super conservatively. And then I have to increase my volume of offers, right? If I want to do the same volume of deals, it's not that I can't find deals. It's that I have to underwrite them so conservatively and make lower offers that it's going to take me a whole lot more offers to get to the yes that I'm accustomed to getting to because I'm being so conservative on my offers. That makes a lot of sense. I mean, let them do But let people go. I think that's the hard thing. It's like, you just can't have FOMO in these kinds of markets. You got to let it go and not think about it again.

8:59Move on to the next one. I just think, you know, James is going to disagree with me on this, but I just think like patience is so, well, you're a patient too, James. I just mean, you're always doing such volume. But for me, like where I'm at, it's just like, I would rather just sit and wait. Like I, as someone who works full time, like I don't feel like I need to rush into these things. and you do get FOMO sometimes, but like it's better than doing a bad deal. So like, yeah. Boring. You got to wait. Want some pain in your eye? No, no, no. What you said, Dave, is completely right. If you don't know what you want, don't go buy right now.

9:37That's right. Or you don't see what you want. Yeah, and don't bend your metrics, right? You come up, I mean, everyone should redefine their buy box every quarter in a volatile market, in a more stable market, every six to 12 months, right? What will you buy? What won't you buy? Stick to that. Don't break your rules. It's so hard not to break the rules, though. Every time I break the rules, I regret it, man. Well, not every time. But I would say eight out of 10 times, if I break my rules, I regret it. There's those two times where I will like, eh, I knocked it out of the park. Then you get overconfident and lose money on the next time you break them.

10:09You got to have rules so you don't break them. That's true. Have rules. That's right. That's fair. That's a fair point. You got to have rules. All right. Well, Henry, good luck. Sounds like a good plan. Kathy, let's move on to you. What are you focusing on right now? Oh my gosh, I'm having fun. I'm having fun, you guys. You're the first investor I've heard say that in a while. Oh my gosh. There's a pocket right now and I'm in it and it's just super exciting. Right now, we know that multifamily is crashing hard. We know that it's still hard to get deals because banks are now taking back properties.

10:43The extend and pretend is done and they are foreclosing. I think banks were waiting for rates to come down and that's not happening and they can't just keep playing this game. So foreclosures are way up. We timed it super well because we've got a multifamily fund and we've got the cash ready to deploy. So I just got back from Kansas City yesterday looking at a, it's like a 45 unit. We negotiated hard. They were not coming down on price. And finally, you know, we're like, we're done. We're going to walk away. And then that was enough for them to agree. So we're in contract. I flew out to see it.

11:17Sometimes I just don't understand. This is a new building. This is only two years old and they didn't put gutters in and it rains a lot in Kansas City. So we're going to have to fix some things and fix the drainage because that was dumb. Please guys, just do the basics. Protect. You never want water close to your property. This is so fundamental. This is a rule. Put that on your rule book. You want to keep your property, no matter how well built it is, it doesn't do well with lots of water. So anyway, lots of drainage that we're going to have to deal with, which means we're going back and we're going to negotiate harder again, because we're not going to cover that cost.

11:52You know, they're going to have to cover that cost for their stupidity of building a building without that. And you have the leverage. We've got the leverage. So I know for a lot of people in multifamily, 45 units is not like, you know, Brian Burke kind of joked with me like, oh, we wouldn't even look at something like that. They got to be 200 plus. And I get it. But that's why this pocket is so good for people, for smaller investors, because the bigger investors aren't looking at this kind of thing. It's too small for them. They can't scale it. But for me, it's perfect. So the smaller multifamily, anything under 50, anything really under 100, the institutionals are just not really looking at.

12:30And the smaller units are generally owned by individuals who messed up and this need to move on. Like the owner of this property is in Hawaii. He's over it. He's just done, you know? And it's like such low hanging fruit because he left, because he dabbled in this project and he's done with it. They just didn't manage it properly. And so we brought the lender to the property. We brought the property managers to the property and they're all excited about it. The property manager's like, this is going to be so easy to raise rents. So anyway, low hanging fruit out there, you guys don't, don't be too intimidated by small multifamily because it's truly not that different.

13:07You know, you do your inspections, you talk to lenders, make sure, you know, you've got your due diligence period. Generally it's much longer than on a single family and, um, and, and financing's a bit different, but not, not that different. So lots of opportunity. Don't be depressed. And try to get fixed rate debt. Yes. Get fixed rate debt. Yeah, absolutely. But also like a big, big, we have a, I think it's going to be like 65 % LTV. So plenty of push in there. Yeah. That's the other thing. Don't max leverage and get adjustable rate debt. People were max leveraging. It was like 80, 20 leverage.

13:42And then they would get a bridge load on top of that. You know? Like, oh my gosh, it's too risky. And Kathy, you got pocket aces right now. You pulled the takeaway. They caved in. They went mutual with you. that tells you that you can beat the crap out of them on the inspection. Well, I feel bad saying that on camera. Because they already caved once, they'll cave again. Yeah, I feel bad saying it on camera, but that's exactly, that's it. That's it. You know, I've taken losses, so I don't feel so bad that they're taking losses. This is, you know, you win and you lose. This is going to be my win, their loss, but they're going to win on the next one.

14:17It's okay. But yes. Well, why do you, they don't care if you lose money on it when you buy it. So just give them the number of words. Well, and that's it. You know, we're not trying to screw anyone. It's just this is the number that's going to work. If they had a better deal, they would take that. They don't. They don't. They don't. And, you know, once they're in contract and you're doing your due diligence, they're already cashing out in their head. So, you know, when you come back and you got it like, here's the deal, we got to fix this mistake you made. What are they going to say? Now it's public information.

14:49You know, they have to disclose these things and the next buyer would have the same issue. And they already showed they can't. Stomach negotiating. This is James's dream. All right. Well, good luck, Kathy. Let us know how it goes. Sounds like a really cool opportunity. We got to take a quick break, but we'll be back with James and my priorities right after this. Vacation is expensive. Your empty place doesn't have to be. If you're heading out of town and your home is sitting empty, you could list your space on Airbnb while you're away and turn those unused nights into extra income. And with Airbnb's co-host network, getting started is more straightforward than most people think.

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17:30What sets them apart from a crowdfunding platform? Lightstone co-invests at least 20 % of the equity in every deal. They win when their investors win. Accredited investors only. All investments involve risk. Visit lightstonedirect.com forward slash BP. Welcome back to On the Market. I'm here with Kathy Henry James talking about our portfolio priorities right now. James, what are you, of all the things you do, focusing on right now? Oh, man, there's so many opportunities out there. You have to kind of narrow your buy box. And it's all about working smarter, not harder right now. Over the last 12, 24 months, I think all of us investors, liquidity has been slowly getting locked up, right?

18:16You got to leave a little bit here. You leave a little bit here. You leave a little bit here. And all of a sudden, you're like, oh, I need my cash flow back. And so, you know, for us right now, the focus is on not locking up cash for long term. We want to have it on hand as we go through economic downturns, right? Because as you go through an economic downturn, you catch dips and you get really good buys. And so I'd rather keep the capital on the sidelines and buy stuff that we can make high returns on. One thing we're definitely not doing is building houses anymore. The amount of hours that has to go into that business for the amount of reward is just not there, right?

18:50And at some point you have to go, okay, well, this isn't math, math and out. And so what does math out? So right now what we're trying to do is I'm trying like on the flip side, I have to, there's really two metrics that I'm looking at. If it's an expensive metric, I want to be buying this well below replacement cost. If you're in a good neighborhood, good location, and I'm buying it for less than you can build it for that will always sell expensive deals in a bad market can be scary, but that's why I put that metrics in front of me. Is this a good buy? There's a house we just locked up for$2.8 million in Clyde Hill, great area of Bellevue.

19:24$2.8 million right now is not really what I want to be in because I got a lot of inventory. But we're buying this house for like$500 a foot. I mean, you cannot build this house and get the land for$500 a foot, period. And not only that, it's a cosmetic fixer. There's nicer appliances in this house than my house right now. So it's a quicker deal, and we're buying below replacement, right? So the two things for Dispo, I want to be in and out quick with less roadblocks and construction. Or if they're longer projects, I want to buy deep. And deep means where we can buy it and we have an option to also we can refi it and still stomach it.

20:05Because I am trying to bring down that middle kind of acquisitions because I don't want to buy a flip where there's not multiple exit strategies. And so I'm kind of trying to focus on deals that, okay, you know, like me and Dave looked at a house. this really charming house with red rooms, might have been a massage parlor at one point. Tasted like mold. I am shocked you called that charming. The reason I like this deal is because, you know, we can go through the whole flip process and I can carve it up a couple of different ways. And if the market keeps going bad, I can refinance that and disposition that to a different asset class and still break even, right?

20:39And so it's about mitigating risk. And then also, if you are taking on risk, increasing your returns. So flipping, we are trying to get at least 10 % more return right now. I don't want, I'm not interested otherwise. Which is what, 45 %? Because you're at 35 normally, right? Yeah, 35 for six month basis. You know, so I'm trying to get around 70%. Right now I want to be at minimum 45 % on a six month basis. I'll go a little bit lower on a cosmetic deal if I can also refi it and break even or just leave a little bit of cash in. But I don't want to be stuck in the middle right now. And so other things that I don't want to buy, whether it's multifamily, flipping, anything with unknown timelines and weird permitting, no way.

21:23I'm not touching it. Like I'm not going to wait for the city to dictate my timelines because what is beating up people's profits right now is the debt. The debt is eroding deals. Multifamily, flipping single family, short-term rentals, we're getting beat up by debt. So you want to reduce that exposure by not buying the unknown. and you know those are the ways we're really just trying to work smarter right we're chasing bigger deals more profitable deals there's less of them so we're doing less volume so we're focusing on the good ones and then if we are going to get out there how do we if we have multiple exit strategies i really like that play right now like if i you know if i can break even and create value it will be worth that money later so i'm good with those but just trying to reduce risk and work smarter and harder because we have way too many projects and it is time to unload.

22:11So you're changing a lot tactically, like what you're looking at, but you're not really changing the priority of the business, right? Like you're still just trying to generate high cash on cash returns through flipping as much as possible. Well, but the principle goes in both, right? We don't want to like multi, we will buy multifamily right now. We're looking at three deals on our plate. We've actually bought more multifamily the last 12 months than we bought, or 24 months than we bought in the last four years. And so we're still buying that. That's working for us. But we just have to be very, very selective.

22:45So what does that mean? Well, we don't want to lock up capital. If I got to leave capital there, I'm out. If we can create the value and get most of our capital back out, then I'll look at that deal. We have to create a minimum 20 % equity because I'm not doing this to buy a property to get steady rent growth and appreciation. I don't see a whole lot of that going on or it's not going to move the needle for me. So it's got to have a big impact. Those BRRRR style properties, I would rather buy a BRRRR single family rental right now over any other type of rental because you can trade them later.

23:15And the other big strategy I got right now, load up on dispo timeframe. If I can sell it in the spring, I'm going to be way more aggressive. If it's not hitting the spring now, the seasonal slowdowns are huge. I'm backing those things way down. I want a better margin because I know if I miss that spring market, numbers are off by at least 5%. All right. Well, great advice and interesting adjustments here that you're making, James. We got to take one more quick break, but we'll be back right after this. People love to call real estate passive income, which is interesting because most of the investors I know are very busy, busy finding deals, busy managing teams, busy worrying they picked the wrong market.

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