A debt coverage ratio of 1.25 or lower makes Class A apartments vulnerable in a recession. One investor built hundreds of units in Class B and C housing first, creating cash flow stability that lets them absorb losses on a smaller Class A property when downturns hit.
Chapters
So how does a recession fit A's? And I doubt I'm buying an A tomorrow, but how does a recession affect you?
Sure, it's going to hurt. Debt coverage is everything. This is the same thing I talked about for math yesterday. If you're at 1.25, probably shouldn't do Class A. Not a great idea. I have some at that debt coverage ratio right now. I'm also 26. Like, I'm trying my best, right, to upgrade. You can't have everything all at once. It's going to take time. But as time progresses, And I don't keep levering those up. Those actually start to get paid down, get 'em to the 1.5. Like if they go from 1.5 to 1.1 or down to 1.2, like not ideal, but I'm not going to lose it, right? Those will get hit the hardest. I also didn't get it into Class A until my wife and I became the largest private landlord in the county. But, you know, we built a massive business of Class C and B. So even if we take a big hit on this, which we have the workforce housing in the Class C and B, We've got hundreds of apartments like that and you cash flow a couple hundred a door on hundreds of apartments. You can take a hit on a little 56-unit Class A building.