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As with most things, the economy goes through different seasons. And prior to the pandemic, it was red-hot summer in the real estate market.

COVID caused a quick Arctic freeze, but things warmed up again and multifamily prices peaked in March 2022.

Then we skipped fall and landed right in winter.

And while it’s hard to predict how long this season might last, there are things we can do to endure the cold and put ourselves in a position to thrive in the coming spring.

Drew Kniffin serves as Partner at Nighthawk Equity where he manages all aspects of our $300M portfolio, including acquisitions, asset management and raising capital.

Prior to joining Nighthawk, Drew enjoyed a successful career in corporate finance and grew a portfolio of 400 of his own residential units.

On this episode of Financial Freedom with Real Estate Investing, Drew sits down with Garrett and me to discuss the economic trends we’re monitoring closely at Nighthawk and how the team has adjusted to the changing multifamily market.

We explain how rising interest rates are squeezing your average operator and why we expect a flood of opportunities to buy in the next 12 to 18 months.

Listen in to understand why apartments are an excellent investment in an economic winter and get our multifamily market outlook for 2023!

Key Takeaways

Why I believe we’re in a recession right now

  • Falling housing prices
  • Record high credit card debt
  • Record low savings rate
  • People taking on second jobs
  • Companies laying people off

The trends we’re monitoring at Nighthawk Equity

  • Year-over-year rent increases
  • Occupancy
  • Cost of labor and materials
  • Population movement
  • Job creation
  • Household formation

What’s changed since March of 2022

  • Interest rate volatility in debt markets
  • Increased fear and uncertainty
  • Price collapse

How rising interest rates impact average operators

  • Rising interest rates squeeze cashflow
  • Interest rate escrows 10X
  • Expiring caps require cash
  • Need to sell if go cashflow negative

How Nighthawk adjusted to the changing market

  • Doubled down on operational capabilities
  • Increase headcount by 400%

What problems below-average operators face

  • Won’t have cashflow or liquidity to survive
  • Forced to sell for pennies on dollar
  • Creates flood of deals in next 18 months

Why the fundamentals of multifamily remain strong

  • Demand for affordable housing still high
  • Inflation driving up rents (at slower pace)
  • People always need place to live
  • Buyer FEAR is only thing that changed

What to invest in during an economic winter

  • Temporarily underpriced assets
  • Real assets with risk-adjusted return
  • Cashflow producing assets
  • Tax advantaged investments

Why the illiquidity of multifamily is a good thing

  • Can’t buy and sell based on emotion
  • Forces us to have long-term perspective

Our outlook for multifamily moving into 2023

  • Interest rates rise 1%, then flatten
  • Debt markets and prices normalize
  • Rents normalize in line with inflation
  • Opportunities to buy distressed assets

Related Articles

Is it Getting Harder to Earn Passive Income?

How Inflation Can Make You a Real Estate Millionaire in 12 Months

What is Inflation and How Does it Relate to Real Estate?

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Financial Freedom with Real Estate Investing by Michael Blank

Podcast Show Notes

‘Rising Interest Rates Hit Landlords Who Can’t Afford Hedging Costs’ in The Wall Street Journal

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