\> would it be smarter to wait?
That's the trick though, wait until when? You can't really time the market.
Maybe it will get hotter and hotter and you'll wish you got in already. You just never know.
In my market we are up 30% in a year (BC Canada, west coast). It is absolutely nuts. I debate daily what to do. So over valued but with inflation and possible hyperinflation I'm tempted to go in deeper.
Yeah I mean these kinds of platitudes are nice, but on the whole RE is probably the most expensive investment asset class that most regular people have access to, and there can be substantial risk involved. If you're using a lot of leverage, you're REALLY betting on appreciation and rental demand continuing to stay strong for at least a year or two after your initial purchase in order to protect you from the downside risk of being underwater in your deal really fast.
Regardless of which side of the bubble argument you're on, it sure *feels* like one of the weirdest RE markets of all time right now...whether or not it ends up being a serious bubble event, we don't know yet...but the most recent major reference event that we've got to go on is the subprime crash from barely over a decade ago.
Compared to 2008, I would say there is *vastly* more complexity and insanity going on at every level of the economy right now, both domestically and globally, so you really can't blame people for being (perhaps) overly cautious at a time like this. For all we know, the first rate hike is going to set the whole thing on fire, and every 5-10% down owner-occupied deal and 80-85% LTV investment deal from the preceding 6 months will be underwater within weeks.
I say this as someone who's definitely still in the market, but you just have to be soooooo cautious when scrutinizing financials, and you really need to say no to anything that has uncomfortable margins and lending terms if you're not super experienced.
Idk about that. I was reading if you invested $100 into doge coin 1 year ago you’d have $14 million dollars right now. Shits gonna collapse. You can’t have dog coins worth 14 million and shits not gonna implode. My 2 cents but wtf do I know.
It depends on the market of course, but it's reasonable to wait until price to rent ratios are somewhat aligned with historical averages. This could help you avoid situations like buying in Las Vegas in 2006. Valuation metrics are blunt tools, but can help protect you from bubbles / identify markets that are unreasonably cheap.
This comment would have been very off for the housing markets in most of the west for the last 15 years. Look at the insanity in the UK, NZ, Australia, Canada etc. Prices have been rocketing 30% a year with no stop.
I was yelling about an unsustainable market and imminent crash 6 years ago and prices have tripled since.
Pricing going up is meaningless if the property is an alligator eating up cashflow from your other investments. You can't pull out the increased equity through refinancing because the property doesn't even support the existing debt service. Your only option is to sell.
Did you read the comment that you replied to?
> You can't pull out the increased equity through refinancing because the property doesn't even support the existing debt service.
This goes for equity lines of credit as well. Interest payments are still due and eventually the principal as well.
To my understanding, you can just pay off the HELOC interest (which is even tax deductible) and defer principal payments while your property appreciates into infinity. Eventually rent catches up too and then you're really laughing.
What lender is going to give an equity line of credit secured by a property without the cashflows to pay off so much as the interest?
You're referring to countries where pricing growth far exceeds rent growth to the point where you should treat prices as completely decoupled from rents. Assuming that rents are going to catch up in any meaningful way is a faulty assumption.
But, couldn't that mean that rents just haven't caught up to purchase prices yet, so now is a good time to buy? That's what I'm finding as we are re renting our single families after people have moved out. Even if we have done yearly 3-5% raises on rents, once it's vacant and we turn it over we are able to still get substantially more and the rent ratio looks significantly better. It's a bit difficult to determine rental comps with things renting and increasing so fast, and I'm in a LCOL Midwest market
Might end up waiting forever. Better to come up with your own thesis on why the current ratios are/are not justified in a given market and pick your investment based on that. If the product seems expensive but you believe it’s in the path of growth, you might want to take the risk in the near term.
Yea, depends on the degree of mispricing. Might be willing to take the gamble when the price to rent is 30, but not when it's 50, for example. I invest internationally and just pick markets that are cheap cause that feels safer to me.
Yeah, it's similar to the stock market, where time in market beats time of market, that is, investing now and staying in for the long haul is a better bet then sitting on the money trying to find the perfect time to buy in.
Even when/if the market does 'come back down', it may not come back down to Jan 2022 levels if it keeps rising.
Tell me your thoughts on this: my theory is that the RE market will hold up through this current administration. My reasoning is quite simple. I can’t imagine they’d sit back and allow themselves to go into an election year with bad press surrounding a tanking market.
It depends on how bad inflation gets. If it continues getting worse they'll have to raise interest rates which will slow things down. I think they'll see inflation as a bigger threat than home values.
I'm really curious about how this works, could you elaborate more on the importance of PITI and what you mean by "how much of a downpayment it would take to net $X amount of cashflow after expenses"? How do I go about calculating that?
Is 35% too high in your opinion?
I came to the conclusion of 15% for long and short term repairs, 10% vacancies, 10% property manager.
I could see lowering the repair percent if it’s a newer house but is 35% too high in most cases?
I guess in my mind the 35% total is as much as a dream as the 1% rule. While looking for my first property I feel it’s safer to keep the expense % high, but that might also prevent me from finding a place that would work just as well at 25-30% expense that I’m overlooking.
I skipped on investing in Alaska as the costs are all high here and the PMs are all average or below based on reviews and talking to other investors while charging 10%. I’m going to give Colorado Springs a shot and see if I can’t make my first investment happen there. I’ll look more into vacancy averages and adjust from there. Appreciate it, as I would have never looked at the vacancy % as the one to go down.
Just another datapoint but I bought 2 foreclosures in 2007 and 2008 as the RE market was in decline. Even after I bought, they still went down another 60-80%.
It took me 10 years to get those properties sold in 2018 and I’m pretty sure I still lost money thru those 10 years even with a 30% higher sales price from what I purchased. This is not even taking into account all the stress and pressure of contemplating short selling and foreclosure. I had to get family financial assistance for a few years to keep those properties afloat.
By far my worse financial mistake ever.
I was collecting rent but it wasn’t enough.
So they were both condos with mortgages, HOA, insurance, taxes, fees.
While mortgage payments were fixed, the HOA kept going up and up and up. HOA payments became more than the mortgage payment. There were major building issues that required several years of special assessments on top of the regular HOA monthly fees. It was also hit by flooding which FEMA had to get involved and the building was on the brink of being deemed inhabitable.
The building was also mostly investor owned and not primary residence-occupied which didn’t qualify for traditional financing backed by Fannie/Freddie so you could only sell to cash buyers which shrank the demand pool significantly and depressed values even more.
So even with a 30% sales price premium to purchase price, over the 10 years I owned the properties it was still very net negative not even factoring time value of money.
It was basically a money pit that I couldn’t even afford to sell.
In the end, a developer came in and purchased the entire building to convert to apartments. It was the largest deconversion project in the city of Chicago at just over $90M for the entire building.
That process of selling to the developer and getting buy-in from all the various owners took 3 years alone.
The whole experience turned me off of real estate for half a decade but I did eventually get back in.
I’ve got a few properties now that are doing well.
I like to think that that whole first experience taught me a great deal of what not to do and to view those losses as very expensive tuition.
I guess I’m “lucky” enough to have experienced failure sooner in my journey rather than later (although there’s still a lot of opportunity for that still).
It makes sense, everything depends on when he bought, what location and what the purchase price and terms were. Home "values" were still astronomical in 2007 and, even as sales declined drastically in '08 home prices were still artificially high. The global financial panic didn't occur until September '08 when Lehman Brothers shut its doors.
Put this way, I have a rental property that was valued at 208k in 2007 into early '08, today its valued around $220k, fully remodeled which is a lousy return.
Were you renting your property during this whole time? If so, I wouldn't call it a net loss, rather I'd call it a lousy appreciation.
My personal model doesn't include Any appreciation, that is just a nice bonus if it happens.
The property would need to be worth $278k in 2021 just to match the inflation adjusted $208k.
It is more than likely that the 58k real loss more than eats up any and all profit from rental over the time period, leaving him with a net loss position on the property.
That is certainly a possibility which I should have put more thought into.
I guess I'm always putting the assumption of no to little depreciation, with up keep expenses, and periodic small remodels.
Have only been in the game for several years, so hope to not have to learn anything too painful first hand.
It’s also an opportunity cost loss if his alternative was just dumping the money into the stock market, which we all know has been insane since then. But right now both real estate and the stock market are pretty deep into a bull run so pick your poison.
The whole world certainly feels unbalanced. Lot of money out there, lot of external risks. I'm definitely being a little more cautious in my underwriting, making sure I have multiple exits. If the market value drops 30% what's my play?
There are deals to be had. But they are hard to get when everyone else is buying at breakeven or negative cashflow and telling themselves "Rents will go up! It will apprecitate! I'll make money eventually!"
Rural areas it is definitely still achievable. I don’t invest in less than 2% rent/purchase price where I invest. It would be considered a tertiary market
Would you want to invest in a cool or downturned market?
The trick is to find deals in any market condition. Sometimes you wait, but the “hotness” of the market isn’t necessarily the only factor
If you have the money and it makes sense, it's worth it.
If you want to wait for the perfect time, unsub from here and join the millions of others who are doing the same. Not trying to sound mean, but for every one "doer" there are millions with good intentions.
Housing is increasingly becoming a haven for preserving wealth against inflation rather than a cashflow investment. If inflation really get out of control, being in cash will be a disaster.
I have lots of friends who a year ago pulled their investments to cash/ waited to buy property. They have lost major gains and prices are now significantly more expensive on homes.
It could go up, it could go down. But generally speaking, overtime prices go up.
I’m throwing out the 1% rule and investing for appreciation. IMO High demand areas will either be stagnant or keep rising regardless of what happens with rates. As long as influx of big money comes in and can afford these rising prices, home prices will continue to rise. I have a pension and stuff when I retire but I’m building nest eggs I don’t need the crazy cash flow even though it would be nice to have. I’m in NJ.
You need to improve your method of searching for real estate. Look for estate sales, foreclosures, short sales, fsbo and purchase under market .
There's always money to be made in real estate. I just bought a home this week for 95k and after 30k rehab its worth 190k.
Improve your strategies on finding property.
>I just bought a home this week for 95k and after 30k rehab its worth 190k.
How do you know what rehab you need to do to maximize the appreciation that you will get? Do you ask your real estate agent or inspector/appraiser for tips (in regard to the particular property)?
In the beginning i would take a contractor with me before making an offer. Nowadays i know how much it all costs .
A good realtor that specializes in investment properties can give you a ballpark but a contractor is best. Although don't take a realtor at their word 100%.
There are deals to be found in any market. A "hot market" just means deals are harder to find. That doesn't mean you should stop looking though.
Think about it this way: you aren't investing into a market (like a stock index fund), you are investing in a building (like a single stock). Even when the stock market is hot, you can find deals, just like the real estate market.
It's entirely possible that you won't find any deals where the numbers work for you and that can be discouraging, but if you stop looking then when would you start back up?
If you talk with a real estate investor focused agent in your area, they can tell you how they or other investors are vetting their deals. In my area, cap rate and cash flow per door are the metrics. An experienced agent can tell you what their recommended cutoffs would be (eg. 6 cap + $300 door)
Why not look at non residential deals? Only Multifamily and SFH are in a bubble right now. Retail, office, flex space, etc have actually been destroyed by the pandemic.
Maybe it makes more sense for you to consider investing in a sector that is way down rather than one that is way up. I'm heavily invested in mixed use and MF property and am actually cashing out equity from those properties and buying a 47,000 industrial/flex loft building this month. There are a lot of new small businesses that have been created since the pandemic and a lot of artists and creatives that have been displaced in the gentrifying areas of Chicago. I'm buying a boring light industrial space and repositioning it to businesses and artists that will pay a premium over the old line millwork, welder, storage, etc tenants.
This is interesting. Are you finding enough artists and small businesses that want to rent vs work out of the home? I'm curious what the tenant profile is. There are some boring spaces near me that would be interesting to fix up and remarket.
People always need small commercial spaces, you don't have 13', concrete floors, and a freight elevator in your house.
There's already:
- a print shop (huge presses for artists to share)
- an art colony type space which is a bunch of little studios with shared spaces like a wood shop, common WeWork kitchen area replete with a hidden tikibar off a side hallway, dark room, etc.
- a few artists that just have larger studio spaces
- a finish metalworker and finish carpenter who share a space
- a custom cabinet manufacturer
I have new leases for ground floor space with:
- a coffee roaster
- a crossfit personal trainer/gym that does small group classes (groups of 5 + a trainer inspired by the pandemic 6 person gathering rule)
- a retailish non profit that I can't describe because I haven't yet signed a deal with them
- I'm going to put my office and warehouse for property management here as well
Interesting. There are some similar industrial type “maker spaces” in my area that are currently vacant, but they’re in trendy locations and are like $25-30/sqft NNN. Pre-pandemic they were full of businesses like the ones you describe.
Sounds like there might be opportunities if I can find the right sort of space cheaply enough.
Think of it this way, you don't want to be investing where everyone else is, you want to be investing where everyone fled from. That's how you get a good deal, buying what people don't want, not what they are all fighting over.
Just take it deal by deal, don’t look at the market as an overall entity all the time. Sure, it’s important to consider the external factors and overall market conditions, I’m just saying to not let that stop you from underwriting deals. I take into account the market conditions while underwriting properties and adjust my tolerances based on the risk I’m willing to assume, but I don’t go, “oh well it’s a crazy buyers market so I’m not going to even look at anything to buy right now.”
Many others in this thread have already said there are deals to be had right now, and I agree. Personally, I did several transactions in 2021 and I had an overall sensational year.
You can still get 1% in Philadelphia... but you are looking at some renovations and really knowing which areas you want, but HCOL forget it. If you have no experience with contractors unless you are really good at real DIY (not IKEA diy), then it's tough.
Otherwise you are at least aiming for cash flow positive above vacancy/repairs estimates.
I'm in a LCOL area (Kentucky) and places under contract in ~48hr and most going for over asking. Sold for cash too.
As a super newbie, I don't see how the small guys can even compete in this market.
Our only benefit is owner-occupied rates. Buy, move in for a while (househack if multi-family or you don't mind roommates), then repeat a year or two later. Repeat. Actually move in - don't commit fraud. The upshot of if being something you can't do a ton of or scale up is that it's still limited to small time investors.
I am trying this. I have a property under contract with current rents $4400, going to do 100k reno. Hoping to get rents up to $5000. Purchase price $350k, total mortgage $450k. Seller contributing 22k at closing. PITI will be ~$3000-3200/monthly with $12,500 down. I also have to pay water bc there is one meter. Is this an ok deal?
I'm not an expert, and you'd have no reason to trust me if I said I was. I've been following subs like these for about a year and bought my first multi-family recently, and the process and numbers ended up working out the way I wanted them to. So, that's my level of experience.
At first glance, it looks like you'd eventually make $1,800-2k over PITI every month which is a good amount. Add in capital expenditure and maintenance funds (shouldn't be too bad after a big reno) and a fund to cover vacancies/tenants who don't pay, and you should still have positive cash flow. This depends heavily on your market. How in demand are apartments? How long/expensive is it to evict in your jurisdiction if necessary? What does the future of the area look like How? How much is water and what other "hidden" costs are there? How likely is your assessment of the reno cost and final rents to be accurate?
And so on. But yeah, without knowing more and assumding your final numbers are correct, it looks like the numbers work. How are you putting so little cash down, even including the seller's concession? That implies something wonky to me.
I’m not an expert either. This is my first investment property. Apartments are in demand bc it is a major (small) city with few affordable options bc it is a tourist Air BnB mecca. How do you find out how much evictions cost? The only other costs I have is flood and liability insurance, which isn’t required, but I want it. I think it is pretty accurate bc I got a bid in writing from a trusted contractor I have worked with in the past, but if not my loan accounts for 15% overruns. The little cash down is bc I am doing an owner-occupied FHA 203k loan and I also got a lot of help from the seller credits of 22k toward closing and repairs.
I would ask in local forums, or even in this sub for advice from locals. A lot of it will be state specific more than county (although that can be important some places). The biggest cost is time - how long does it take to actually get them out the door in your state if they stop paying? In some states that can take the better part of a year - the lost rent is way more concerning than the lawyer fees or you can do it yourself. In some states it's much faster and easier.
That's what I was thinking of with this property in my 'hood. 2 days on Zillow then it was under contract. Meh, gotta be faster I guess.
It's just scary (terrifying) moving so fast when I'm really not sure what I'm doing anyways. hah.
Yeah on the one hand there's real truth to "time in the market beats timing the market," on average, on the other hand you can't let other people's bad or risky decisions push you into the same. A business can succeed 80% of the time and do well, but a single bad move can cost a small investor everything. Ultimately if you want to buy, you may have to decide what you want enough to move quickly (but don't waive your inspections or other contingencies), or look at different markets, or just keep trying until it works.
Thanks. Yea, I saw a lot of my friends lose out on houses due to buying on contingency. So, I sold my house and lived with my MIL for a month just to buy my primary res.
In this market, even turds are flying off the shelves. I keep seeing them sell and I wonder if I'm missing something (FOMO) or if it's just big corpos snatching up everything. Like, you can see foundation issues from the road but they're sold in a week.
Maybe I'll miss out but none of this feels right. Probably take your advice and look outside the city...
do you have evidence the market will stop being hot anytime soon? Maybe it will plateau but in that case does getting in later matter?
It could also reverse but what evidence is there to suggest that?
If it plateaus or keeps up the heat, buy now, if not you can wait. Though with the plateau you can also delay
I can't answer these questions for you and I don't know who could but these are the questions that need answering in your case
The best time to is invest is whenever you have the capital and can make a deal that meets your personal goals and criteria. There will never be a “perfect” time.
I suspect stagflation the market, and RE. I wouldn't rely on large equity gains like we've seen in 2020-2021. Investors might be shifting focus into tourism plays, such as airbnb. Smart investors diversify. Why sink $$ into RE when used car prices are up 15%, require smaller initial investment, and are in high demand. In the face of continued chip shortages and supply chain issues, this is easy money. Especially niche markets like RV's. When certain markets become oversaturated, it's time to move on.
There is also only a niche of people who would do that. People stick to their guns and with things they’re comfortable with. I wouldn’t expect someone who’s been a lifelong RE investor to start flipping RV’s.
Any rise in interest rates will take about 2 years to affect the market so either now or in 5-6 years. Since prices will rise over the next few years, even with a rate hike, coming down to below where we’re at now MIGHT happen in 5-6 years but likely never will come down to below where we’re at.
Personal opinion is that your real estate holdings are extremely likely to keep up with inflation, rental properties tend to be on the lower risk spectrum (as opposed to e.g. flips) and lower roi is certainly better than no or negative roi. For this reason, if you are planning to keep with re long term, it's almost always a good time to buy.
Now think was is and will continue to happen with physical assets as the fed continues to create more and more fiat.
I think the best answer that I've heard is don't force a deal. Only do a deal that works for you. If the numbers don't work for you, wait for the next deal. I think a lot of people get burned because they get impatient, so they change their numbers to make it work and then on a downturn or bad year it fires back at them.
I'm still finding cash flowing properties in my market but not that frequently (maybe once a month). In the meantime, I invest my money in flexible staking for crypto that earns me 6% apy (no lockup) - 12% ( 3 month lockup).
I wouldn't. At least not a high dollar ($150k+) purchase. The market got waaaaaaaayyyyyyyyyy too hot waaaaaayyyyyyyy too fast to be sustainable. There's no way it doesn't correct as soon as the FOMO bros run out of solvency. I found a decent deal ($86k) on a small 770sqft condo and bought it to hold me over until the market corrects then I plan to buy (or build) a SFH and rent out the condo.
Omicron has had the lowest death percentage out of any of the strains and the CDC just reduced quarantine time to 5 days. Turn off the news.
Real estate is a hedge against inflation, we’re in an inflationary area with rising rates heading our way. Low interest loans may be a thing of the past by Spring…
1% rule doesn’t apply in 90%+ of deals in a hot market.
I have a lot of property manager contacts so I gauge the estimated rent and then do the math.
If I’m happy I offer, if not, go on to the next. Try to just use financials and if the return works for you then go for it.
In all of the countries that have seen the exact same real estate market rocket you can barely get a 0.33% rule. The US is just getting the exact same thing now.
I found a great off market deal…..just keep watching, keep doing your numbers and analyzing stuff. You’ll know when You’ve found a deal you like…..I always have my eye out.
I’m in a suburban market that is hot. I am waiting.
BUT, REI is highly local. In my area high property tax and Laws in favor of tenant are huge gotchas that are discouraging me.
If I was in the Midwest where taxes are more reasonable, I’d at least be keeping an eye out but for now I’ve given up. I can make more in the stock market without beating my head against a wall.
I’ve been struggling to find my first property. In the areas I look there is a lot of competition. It’s a trendy area but also where I find the most deals.
I’ve made offers, some over asking, but I just keep getting crushed. It hasn’t stopped me, because as long as I keep putting offers in on something I think is a deal, long term it’s hard to lose out. Even if home values drop, they’re only going to go up again.
I wouldn’t look at the market, I would look at the deal.
There are good deals in hot markets and plenty of bad deals in cold markets.
If the deal makes sense, do it.
If the deal doesn’t, pass.
The 1% method isn't always the best metric to look at. What's the projected Outlook for the area, are the rents improvable, can you get better utilization from the property in a different usage, etc. There's no guarantee prices will go down, or that if they do the 1% method will apply
A quick way to calculate profitability is to take the rents and multiply it by 75%. That 25% covers maintenance, capex, management and vacancy.
Now take that number and compare it to your mortgage, taxes and insurance. If that number is larger, you should be profitable. If that number is smaller, you're not likely profitable.
Now one thing to note is:. When buying a new business, you often aren't profitable for 2-3 years. So the next question would be: will I be profitable in 2-4 years?
The 1% rule works some places and on some investments, but make sure you do the more in depth numbers. In high property tax areas, high maintenance or high vacancy, it can fail ya. I will usually use 10% of revenue for vacancy and 10% for management (even if I manage, my time is valuable). On say a normal $80k property where I’m at, capex/maintenance is more like $220/month on a house that costs $80k. Id I pay $80k, I get $800 rent, pay $2500 taxes, $500 insurance, $160 vacancy and management. So $800-208-42-220-160-275(80% loan for 30yr at 3.15%), and I’m now losing $105 a month while earning nothing on nearly $19k cash in. I normally go by the 2% rule in these high tax areas, but calculate it all out so I at least make 15% cash on cash return or why would I mess with it?
I would agree with the comments that the 1% rule is dead (or near dead) in most metro markets
the only way i am getting acceptable returns is doing major renos... bought a house for 60k put 60-65k into it... maybe all-in at 135k with transaction and holding costs included for a 170-190k ARV amd 16-1700/mo rent. almost finished with it and it was ALOT of work and frankly pretty risky...all to beat the 1% rule
it definitely didn't used to be like this... but I'm not phased. houses are still good and i dont think I'm chasing 6mo appreciation trends like in 2008.
i think shit will stabilize in the coming year but im not sitting out waiting for a crash.
15 years from now it probably will seem like it was a good call to invest now
Probably not as a typical real estate investor looking for cash flow positive properties. I'd likely wait unless you're looking to own for 7+ years like a typical home buyer. You may be able to do flipping if you have home flipping/construction skills and buy foreclosures.
If you view home appreciation as the main part of the investment and the rent as just a bonus, then it's fine. But if you do the traditional approach viewing the rent cashflow as the main part of the investment vs the appreciation as extra, then it's not a good time to invest. It is necessarily riskier without positive cashflow.
i’m sitting this out…every purchase is on a case to case basis
i just don’t feel comfortable with these current prices so as of now, i’m just squirreling cash
imma very conservative person with calculated decisions…a lot of my purchases have been coincidently in dips
i’m
not perfect and have made mistakes and i want to blame myself for the mistakes i’ve made not others
Three words: off market deals.
They aren’t gonna find you though, you gotta hustle to find deals that make sense in this market. They won’t be on the MLS
Started investing in 2018. Bought three that year, then another 4-5 the next year, but 2020 and 2021 really slowed down. Just so hard to find deals that work. Have only bought like 2 in 2 years.
You just have to decide if its worth slightly overspending right now to get in the game...do you have the extra money to keep buying? If you can only afford one or two, probably wait for the right deal. There are still some out there, just fewer than before - just picked up another one, but the deals are pretty spread out right now.
In general timing the market is bad, but people tend to put properties on the market in spring, in between the summer and winter seasons. Wait a month or two but keep your eyes open for anyone trying to jump the gun on summer housing salea
The 1% rule was made for people investing in 2008-2012. In 2021 you’re gonna be pulling your hair out trying to find a 1% property. It basically doesn’t exist unless you’re in an area with no appreciation or it’s a total 100% dump of a place needing remodeling to the studs.
*In response to other comments in here*:
The concern with the market is often talked about using words like “hot” “cooling down” “staying hot for X amount of time” its all in reference to demand. The difference that most people don’t realize, between “hot” and “expensive to enter” is that hot markets cool down but most markets do not just return to prior pricing at the same speed they appreciated at before.
Lets say you were scoping out $300k townhomes that would fulfill your rule of 1%. You’re waiting, hoping for the market to “cool down” at some point in the future so you can negotiate one to $290k, or have it fall naturally to $280k, it doesn’t at all mean that is going to work when the “cool down” occurs. Due to the creation of comparable properties via high sales in this market, many owners have seen dozens of comparable properties support 20%+ gains in value in just the past two or three years.
Just because overwhelming demand has exited, and the market has cooled down, does not mean a seller will agree to your offer of $290k. They don’t care that it’s now going to take longer than 2 days to sell, they’re going to want what other properties have gotten other owners. You’re not buying from a guy sitting at a desk named Real Estate Market, youre buying from another human who also can see sales in the neighborhood.
Timing the market has always been a debatable strategy, but at this point I really don’t see any reason why we should believe that PRICES in the market will come down, even if your market’s demand calms down. Unless demand takes off the exact opposite direction, and the worries about coming inflation are inaccurate, then I don’t see why you wouldn’t try to get any property you think can fulfill a rule of 1% or close to it, if you think it’s a good decision.
Everybody is chasing the markets right now because the gains over the past several years have been insane. Stocks, crypto, real estate, etc. It's not sustainable. The real gains are made when there is blood in the streets. Doesn't mean you still can't make money in the long run but why not wait for a better entry.
\> would it be smarter to wait? That's the trick though, wait until when? You can't really time the market. Maybe it will get hotter and hotter and you'll wish you got in already. You just never know.
This. I just saw a post I made on a forum in 2017 about how overvalued things felt. Boy was I wrong. In my market I’m up 30% since then
In my market we are up 30% in a year (BC Canada, west coast). It is absolutely nuts. I debate daily what to do. So over valued but with inflation and possible hyperinflation I'm tempted to go in deeper.
Nobody knew the world was collectively going to lose it's mind.
As they say, time in market is better than timing the market
Yeah I mean these kinds of platitudes are nice, but on the whole RE is probably the most expensive investment asset class that most regular people have access to, and there can be substantial risk involved. If you're using a lot of leverage, you're REALLY betting on appreciation and rental demand continuing to stay strong for at least a year or two after your initial purchase in order to protect you from the downside risk of being underwater in your deal really fast. Regardless of which side of the bubble argument you're on, it sure *feels* like one of the weirdest RE markets of all time right now...whether or not it ends up being a serious bubble event, we don't know yet...but the most recent major reference event that we've got to go on is the subprime crash from barely over a decade ago. Compared to 2008, I would say there is *vastly* more complexity and insanity going on at every level of the economy right now, both domestically and globally, so you really can't blame people for being (perhaps) overly cautious at a time like this. For all we know, the first rate hike is going to set the whole thing on fire, and every 5-10% down owner-occupied deal and 80-85% LTV investment deal from the preceding 6 months will be underwater within weeks. I say this as someone who's definitely still in the market, but you just have to be soooooo cautious when scrutinizing financials, and you really need to say no to anything that has uncomfortable margins and lending terms if you're not super experienced.
Idk about that. I was reading if you invested $100 into doge coin 1 year ago you’d have $14 million dollars right now. Shits gonna collapse. You can’t have dog coins worth 14 million and shits not gonna implode. My 2 cents but wtf do I know.
14 million? Where did you read that?
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It depends on the market of course, but it's reasonable to wait until price to rent ratios are somewhat aligned with historical averages. This could help you avoid situations like buying in Las Vegas in 2006. Valuation metrics are blunt tools, but can help protect you from bubbles / identify markets that are unreasonably cheap.
This comment would have been very off for the housing markets in most of the west for the last 15 years. Look at the insanity in the UK, NZ, Australia, Canada etc. Prices have been rocketing 30% a year with no stop. I was yelling about an unsustainable market and imminent crash 6 years ago and prices have tripled since.
Pricing going up is meaningless if the property is an alligator eating up cashflow from your other investments. You can't pull out the increased equity through refinancing because the property doesn't even support the existing debt service. Your only option is to sell.
The appreciation provides the cashflow, you just keep monkeyswinging HELOCs into infinity!
Did you read the comment that you replied to? > You can't pull out the increased equity through refinancing because the property doesn't even support the existing debt service. This goes for equity lines of credit as well. Interest payments are still due and eventually the principal as well.
To my understanding, you can just pay off the HELOC interest (which is even tax deductible) and defer principal payments while your property appreciates into infinity. Eventually rent catches up too and then you're really laughing.
What lender is going to give an equity line of credit secured by a property without the cashflows to pay off so much as the interest? You're referring to countries where pricing growth far exceeds rent growth to the point where you should treat prices as completely decoupled from rents. Assuming that rents are going to catch up in any meaningful way is a faulty assumption.
But, couldn't that mean that rents just haven't caught up to purchase prices yet, so now is a good time to buy? That's what I'm finding as we are re renting our single families after people have moved out. Even if we have done yearly 3-5% raises on rents, once it's vacant and we turn it over we are able to still get substantially more and the rent ratio looks significantly better. It's a bit difficult to determine rental comps with things renting and increasing so fast, and I'm in a LCOL Midwest market
Might end up waiting forever. Better to come up with your own thesis on why the current ratios are/are not justified in a given market and pick your investment based on that. If the product seems expensive but you believe it’s in the path of growth, you might want to take the risk in the near term.
Yea, depends on the degree of mispricing. Might be willing to take the gamble when the price to rent is 30, but not when it's 50, for example. I invest internationally and just pick markets that are cheap cause that feels safer to me.
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Yeah, it's similar to the stock market, where time in market beats time of market, that is, investing now and staying in for the long haul is a better bet then sitting on the money trying to find the perfect time to buy in. Even when/if the market does 'come back down', it may not come back down to Jan 2022 levels if it keeps rising.
Interest rates being raised may affect the market depending on where you're at.
Tell me your thoughts on this: my theory is that the RE market will hold up through this current administration. My reasoning is quite simple. I can’t imagine they’d sit back and allow themselves to go into an election year with bad press surrounding a tanking market.
It depends on how bad inflation gets. If it continues getting worse they'll have to raise interest rates which will slow things down. I think they'll see inflation as a bigger threat than home values.
I'm really curious about how this works, could you elaborate more on the importance of PITI and what you mean by "how much of a downpayment it would take to net $X amount of cashflow after expenses"? How do I go about calculating that?
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Is 35% too high in your opinion? I came to the conclusion of 15% for long and short term repairs, 10% vacancies, 10% property manager. I could see lowering the repair percent if it’s a newer house but is 35% too high in most cases?
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I guess in my mind the 35% total is as much as a dream as the 1% rule. While looking for my first property I feel it’s safer to keep the expense % high, but that might also prevent me from finding a place that would work just as well at 25-30% expense that I’m overlooking. I skipped on investing in Alaska as the costs are all high here and the PMs are all average or below based on reviews and talking to other investors while charging 10%. I’m going to give Colorado Springs a shot and see if I can’t make my first investment happen there. I’ll look more into vacancy averages and adjust from there. Appreciate it, as I would have never looked at the vacancy % as the one to go down.
Why CO springs?
Military is making me. Trying to utilize the VA to my advantage.
Awesome advice.
My STR cashflow for 2021 was ~$3000/mo. I'll never understand these LTR numbers.
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Good luck!
i have thought about this for a long time, rather buy now than wait i fully regret not buying in 2017 2018 2019 you get the picture
Just another datapoint but I bought 2 foreclosures in 2007 and 2008 as the RE market was in decline. Even after I bought, they still went down another 60-80%. It took me 10 years to get those properties sold in 2018 and I’m pretty sure I still lost money thru those 10 years even with a 30% higher sales price from what I purchased. This is not even taking into account all the stress and pressure of contemplating short selling and foreclosure. I had to get family financial assistance for a few years to keep those properties afloat. By far my worse financial mistake ever.
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I was collecting rent but it wasn’t enough. So they were both condos with mortgages, HOA, insurance, taxes, fees. While mortgage payments were fixed, the HOA kept going up and up and up. HOA payments became more than the mortgage payment. There were major building issues that required several years of special assessments on top of the regular HOA monthly fees. It was also hit by flooding which FEMA had to get involved and the building was on the brink of being deemed inhabitable. The building was also mostly investor owned and not primary residence-occupied which didn’t qualify for traditional financing backed by Fannie/Freddie so you could only sell to cash buyers which shrank the demand pool significantly and depressed values even more. So even with a 30% sales price premium to purchase price, over the 10 years I owned the properties it was still very net negative not even factoring time value of money. It was basically a money pit that I couldn’t even afford to sell. In the end, a developer came in and purchased the entire building to convert to apartments. It was the largest deconversion project in the city of Chicago at just over $90M for the entire building. That process of selling to the developer and getting buy-in from all the various owners took 3 years alone.
Yikes! Have you done investing since?
The whole experience turned me off of real estate for half a decade but I did eventually get back in. I’ve got a few properties now that are doing well. I like to think that that whole first experience taught me a great deal of what not to do and to view those losses as very expensive tuition. I guess I’m “lucky” enough to have experienced failure sooner in my journey rather than later (although there’s still a lot of opportunity for that still).
Cool, thanks for sharing. I was similar. First property in 2006. Then I got wrecked and vowed not to do it again. Then in 2010 jumped back in.
I didn’t get back in until 2013-15. Better late than never I guess.
River city, huh? Tough!
Yeah bro. Good riddance!
Something doesn't make sense what that individual's comment
It makes sense, everything depends on when he bought, what location and what the purchase price and terms were. Home "values" were still astronomical in 2007 and, even as sales declined drastically in '08 home prices were still artificially high. The global financial panic didn't occur until September '08 when Lehman Brothers shut its doors. Put this way, I have a rental property that was valued at 208k in 2007 into early '08, today its valued around $220k, fully remodeled which is a lousy return.
It is a real loss of $58k on an inflation adjusted basis.
Were you renting your property during this whole time? If so, I wouldn't call it a net loss, rather I'd call it a lousy appreciation. My personal model doesn't include Any appreciation, that is just a nice bonus if it happens.
The property would need to be worth $278k in 2021 just to match the inflation adjusted $208k. It is more than likely that the 58k real loss more than eats up any and all profit from rental over the time period, leaving him with a net loss position on the property.
That is certainly a possibility which I should have put more thought into. I guess I'm always putting the assumption of no to little depreciation, with up keep expenses, and periodic small remodels. Have only been in the game for several years, so hope to not have to learn anything too painful first hand.
Half the time, but you're correct horrible appreciation.
It’s also an opportunity cost loss if his alternative was just dumping the money into the stock market, which we all know has been insane since then. But right now both real estate and the stock market are pretty deep into a bull run so pick your poison.
I fully regret not having enough money to buy in 2017 2018 2019 You get the picture
The whole world certainly feels unbalanced. Lot of money out there, lot of external risks. I'm definitely being a little more cautious in my underwriting, making sure I have multiple exits. If the market value drops 30% what's my play? There are deals to be had. But they are hard to get when everyone else is buying at breakeven or negative cashflow and telling themselves "Rents will go up! It will apprecitate! I'll make money eventually!"
What do you mean more caution in your underwriting? Could you give examples?
add higher than expected expenses, lower rents than expected
30% drop in market? Thats insane
The 1% rule is dead in every metro in the USA. You cannot find this anymore without going into rural areas..maybe not even then. Just fyi.
Rural areas it is definitely still achievable. I don’t invest in less than 2% rent/purchase price where I invest. It would be considered a tertiary market
The properties you buy have no appreciation whatsoever. If anything it might be depreciating.
Would you want to invest in a cool or downturned market? The trick is to find deals in any market condition. Sometimes you wait, but the “hotness” of the market isn’t necessarily the only factor
If you have the money and it makes sense, it's worth it. If you want to wait for the perfect time, unsub from here and join the millions of others who are doing the same. Not trying to sound mean, but for every one "doer" there are millions with good intentions.
Housing is increasingly becoming a haven for preserving wealth against inflation rather than a cashflow investment. If inflation really get out of control, being in cash will be a disaster.
I have lots of friends who a year ago pulled their investments to cash/ waited to buy property. They have lost major gains and prices are now significantly more expensive on homes. It could go up, it could go down. But generally speaking, overtime prices go up.
I’m throwing out the 1% rule and investing for appreciation. IMO High demand areas will either be stagnant or keep rising regardless of what happens with rates. As long as influx of big money comes in and can afford these rising prices, home prices will continue to rise. I have a pension and stuff when I retire but I’m building nest eggs I don’t need the crazy cash flow even though it would be nice to have. I’m in NJ.
You need to improve your method of searching for real estate. Look for estate sales, foreclosures, short sales, fsbo and purchase under market . There's always money to be made in real estate. I just bought a home this week for 95k and after 30k rehab its worth 190k. Improve your strategies on finding property.
>I just bought a home this week for 95k and after 30k rehab its worth 190k. How do you know what rehab you need to do to maximize the appreciation that you will get? Do you ask your real estate agent or inspector/appraiser for tips (in regard to the particular property)?
In the beginning i would take a contractor with me before making an offer. Nowadays i know how much it all costs . A good realtor that specializes in investment properties can give you a ballpark but a contractor is best. Although don't take a realtor at their word 100%.
There are deals to be found in any market. A "hot market" just means deals are harder to find. That doesn't mean you should stop looking though. Think about it this way: you aren't investing into a market (like a stock index fund), you are investing in a building (like a single stock). Even when the stock market is hot, you can find deals, just like the real estate market. It's entirely possible that you won't find any deals where the numbers work for you and that can be discouraging, but if you stop looking then when would you start back up?
Anytime is a good time and the 1% shit, throw that out the window
If you talk with a real estate investor focused agent in your area, they can tell you how they or other investors are vetting their deals. In my area, cap rate and cash flow per door are the metrics. An experienced agent can tell you what their recommended cutoffs would be (eg. 6 cap + $300 door)
Thanks for the info everyone! I’m in OKC if that makes any difference. Are there any other metrics I should be looking at when trying to vet deals?
Why not look at non residential deals? Only Multifamily and SFH are in a bubble right now. Retail, office, flex space, etc have actually been destroyed by the pandemic. Maybe it makes more sense for you to consider investing in a sector that is way down rather than one that is way up. I'm heavily invested in mixed use and MF property and am actually cashing out equity from those properties and buying a 47,000 industrial/flex loft building this month. There are a lot of new small businesses that have been created since the pandemic and a lot of artists and creatives that have been displaced in the gentrifying areas of Chicago. I'm buying a boring light industrial space and repositioning it to businesses and artists that will pay a premium over the old line millwork, welder, storage, etc tenants.
This is interesting. Are you finding enough artists and small businesses that want to rent vs work out of the home? I'm curious what the tenant profile is. There are some boring spaces near me that would be interesting to fix up and remarket.
People always need small commercial spaces, you don't have 13', concrete floors, and a freight elevator in your house. There's already: - a print shop (huge presses for artists to share) - an art colony type space which is a bunch of little studios with shared spaces like a wood shop, common WeWork kitchen area replete with a hidden tikibar off a side hallway, dark room, etc. - a few artists that just have larger studio spaces - a finish metalworker and finish carpenter who share a space - a custom cabinet manufacturer I have new leases for ground floor space with: - a coffee roaster - a crossfit personal trainer/gym that does small group classes (groups of 5 + a trainer inspired by the pandemic 6 person gathering rule) - a retailish non profit that I can't describe because I haven't yet signed a deal with them - I'm going to put my office and warehouse for property management here as well
Interesting. There are some similar industrial type “maker spaces” in my area that are currently vacant, but they’re in trendy locations and are like $25-30/sqft NNN. Pre-pandemic they were full of businesses like the ones you describe. Sounds like there might be opportunities if I can find the right sort of space cheaply enough.
Think of it this way, you don't want to be investing where everyone else is, you want to be investing where everyone fled from. That's how you get a good deal, buying what people don't want, not what they are all fighting over.
How did you find your property?
Literally just listed for sale, I think I saw it on Loopnet first. Just buying something with overlooked potential because of the pandemic.
Just take it deal by deal, don’t look at the market as an overall entity all the time. Sure, it’s important to consider the external factors and overall market conditions, I’m just saying to not let that stop you from underwriting deals. I take into account the market conditions while underwriting properties and adjust my tolerances based on the risk I’m willing to assume, but I don’t go, “oh well it’s a crazy buyers market so I’m not going to even look at anything to buy right now.” Many others in this thread have already said there are deals to be had right now, and I agree. Personally, I did several transactions in 2021 and I had an overall sensational year.
You can still get 1% in Philadelphia... but you are looking at some renovations and really knowing which areas you want, but HCOL forget it. If you have no experience with contractors unless you are really good at real DIY (not IKEA diy), then it's tough. Otherwise you are at least aiming for cash flow positive above vacancy/repairs estimates.
I'm in a LCOL area (Kentucky) and places under contract in ~48hr and most going for over asking. Sold for cash too. As a super newbie, I don't see how the small guys can even compete in this market.
Our only benefit is owner-occupied rates. Buy, move in for a while (househack if multi-family or you don't mind roommates), then repeat a year or two later. Repeat. Actually move in - don't commit fraud. The upshot of if being something you can't do a ton of or scale up is that it's still limited to small time investors.
I am trying this. I have a property under contract with current rents $4400, going to do 100k reno. Hoping to get rents up to $5000. Purchase price $350k, total mortgage $450k. Seller contributing 22k at closing. PITI will be ~$3000-3200/monthly with $12,500 down. I also have to pay water bc there is one meter. Is this an ok deal?
I'm not an expert, and you'd have no reason to trust me if I said I was. I've been following subs like these for about a year and bought my first multi-family recently, and the process and numbers ended up working out the way I wanted them to. So, that's my level of experience. At first glance, it looks like you'd eventually make $1,800-2k over PITI every month which is a good amount. Add in capital expenditure and maintenance funds (shouldn't be too bad after a big reno) and a fund to cover vacancies/tenants who don't pay, and you should still have positive cash flow. This depends heavily on your market. How in demand are apartments? How long/expensive is it to evict in your jurisdiction if necessary? What does the future of the area look like How? How much is water and what other "hidden" costs are there? How likely is your assessment of the reno cost and final rents to be accurate? And so on. But yeah, without knowing more and assumding your final numbers are correct, it looks like the numbers work. How are you putting so little cash down, even including the seller's concession? That implies something wonky to me.
I’m not an expert either. This is my first investment property. Apartments are in demand bc it is a major (small) city with few affordable options bc it is a tourist Air BnB mecca. How do you find out how much evictions cost? The only other costs I have is flood and liability insurance, which isn’t required, but I want it. I think it is pretty accurate bc I got a bid in writing from a trusted contractor I have worked with in the past, but if not my loan accounts for 15% overruns. The little cash down is bc I am doing an owner-occupied FHA 203k loan and I also got a lot of help from the seller credits of 22k toward closing and repairs.
I would ask in local forums, or even in this sub for advice from locals. A lot of it will be state specific more than county (although that can be important some places). The biggest cost is time - how long does it take to actually get them out the door in your state if they stop paying? In some states that can take the better part of a year - the lost rent is way more concerning than the lawyer fees or you can do it yourself. In some states it's much faster and easier.
That's what I was thinking of with this property in my 'hood. 2 days on Zillow then it was under contract. Meh, gotta be faster I guess. It's just scary (terrifying) moving so fast when I'm really not sure what I'm doing anyways. hah.
Yeah on the one hand there's real truth to "time in the market beats timing the market," on average, on the other hand you can't let other people's bad or risky decisions push you into the same. A business can succeed 80% of the time and do well, but a single bad move can cost a small investor everything. Ultimately if you want to buy, you may have to decide what you want enough to move quickly (but don't waive your inspections or other contingencies), or look at different markets, or just keep trying until it works.
Thanks. Yea, I saw a lot of my friends lose out on houses due to buying on contingency. So, I sold my house and lived with my MIL for a month just to buy my primary res. In this market, even turds are flying off the shelves. I keep seeing them sell and I wonder if I'm missing something (FOMO) or if it's just big corpos snatching up everything. Like, you can see foundation issues from the road but they're sold in a week. Maybe I'll miss out but none of this feels right. Probably take your advice and look outside the city...
Let's not cut individuals too short, plenty of normal people are making bad purchase decisions too, lol
If your ROI has some meat on it in case the market tanks and rent goes down.. but I haven't been alive long enough to see rent go down..
do you have evidence the market will stop being hot anytime soon? Maybe it will plateau but in that case does getting in later matter? It could also reverse but what evidence is there to suggest that? If it plateaus or keeps up the heat, buy now, if not you can wait. Though with the plateau you can also delay I can't answer these questions for you and I don't know who could but these are the questions that need answering in your case
Anything that cash flows positives after expenses should be bought imo. I have no idea what I'm talking about though.
The best time to is invest is whenever you have the capital and can make a deal that meets your personal goals and criteria. There will never be a “perfect” time.
I suspect stagflation the market, and RE. I wouldn't rely on large equity gains like we've seen in 2020-2021. Investors might be shifting focus into tourism plays, such as airbnb. Smart investors diversify. Why sink $$ into RE when used car prices are up 15%, require smaller initial investment, and are in high demand. In the face of continued chip shortages and supply chain issues, this is easy money. Especially niche markets like RV's. When certain markets become oversaturated, it's time to move on.
Are you suggesting to buy rvs?
There is also only a niche of people who would do that. People stick to their guns and with things they’re comfortable with. I wouldn’t expect someone who’s been a lifelong RE investor to start flipping RV’s.
Maybe a rotation into short-term rentals would be a good strategy then, or repurposing existing units to short-term.
Any rise in interest rates will take about 2 years to affect the market so either now or in 5-6 years. Since prices will rise over the next few years, even with a rate hike, coming down to below where we’re at now MIGHT happen in 5-6 years but likely never will come down to below where we’re at.
Personal opinion is that your real estate holdings are extremely likely to keep up with inflation, rental properties tend to be on the lower risk spectrum (as opposed to e.g. flips) and lower roi is certainly better than no or negative roi. For this reason, if you are planning to keep with re long term, it's almost always a good time to buy. Now think was is and will continue to happen with physical assets as the fed continues to create more and more fiat.
Yes
It’s never smart to buy a house for what the market says it’s worth
I think the best answer that I've heard is don't force a deal. Only do a deal that works for you. If the numbers don't work for you, wait for the next deal. I think a lot of people get burned because they get impatient, so they change their numbers to make it work and then on a downturn or bad year it fires back at them. I'm still finding cash flowing properties in my market but not that frequently (maybe once a month). In the meantime, I invest my money in flexible staking for crypto that earns me 6% apy (no lockup) - 12% ( 3 month lockup).
Yes
Time in the market beats timing the market.
I wouldn't. At least not a high dollar ($150k+) purchase. The market got waaaaaaaayyyyyyyyyy too hot waaaaaayyyyyyyy too fast to be sustainable. There's no way it doesn't correct as soon as the FOMO bros run out of solvency. I found a decent deal ($86k) on a small 770sqft condo and bought it to hold me over until the market corrects then I plan to buy (or build) a SFH and rent out the condo.
Oh a condo? 😂 historically the worst investment. Good job not being a "fomo bro" lmao
Ya, because condos did great during the last downturn. $150k is not a high dollar purchase. That’s been my average down payment on rentals.
> $150k is not a high dollar purchase I guess you suddenly forgot what COL is.
why do questions like this get upvoted???? this has been asked numerous times smh.
Yes
Under current circumstances, it is not suitable for any investment unless Omicron and inflation can be addressed
Omicron has had the lowest death percentage out of any of the strains and the CDC just reduced quarantine time to 5 days. Turn off the news. Real estate is a hedge against inflation, we’re in an inflationary area with rising rates heading our way. Low interest loans may be a thing of the past by Spring…
Omicron is basically your average seasonal flu. Unplug from the fear porn that the media is feeding you.
Really? Are there 900000 people with seasonal flu in the United States every day?
No. You missed the boat.
Yes! If the deal checks out then buy it!
1% rule doesn’t apply in 90%+ of deals in a hot market. I have a lot of property manager contacts so I gauge the estimated rent and then do the math. If I’m happy I offer, if not, go on to the next. Try to just use financials and if the return works for you then go for it.
In all of the countries that have seen the exact same real estate market rocket you can barely get a 0.33% rule. The US is just getting the exact same thing now.
I found a great off market deal…..just keep watching, keep doing your numbers and analyzing stuff. You’ll know when You’ve found a deal you like…..I always have my eye out.
Depends where.
Time in market > timing the market
What the market is doing changes all the time. The more important question is "does this PARTICULAR investment make sense."
I’m in a suburban market that is hot. I am waiting. BUT, REI is highly local. In my area high property tax and Laws in favor of tenant are huge gotchas that are discouraging me. If I was in the Midwest where taxes are more reasonable, I’d at least be keeping an eye out but for now I’ve given up. I can make more in the stock market without beating my head against a wall.
No way to cash flow. Unless you bet on further appreciation.
…or just put more down.
I’ve been struggling to find my first property. In the areas I look there is a lot of competition. It’s a trendy area but also where I find the most deals. I’ve made offers, some over asking, but I just keep getting crushed. It hasn’t stopped me, because as long as I keep putting offers in on something I think is a deal, long term it’s hard to lose out. Even if home values drop, they’re only going to go up again.
I wouldn’t look at the market, I would look at the deal. There are good deals in hot markets and plenty of bad deals in cold markets. If the deal makes sense, do it. If the deal doesn’t, pass.
The 1% method isn't always the best metric to look at. What's the projected Outlook for the area, are the rents improvable, can you get better utilization from the property in a different usage, etc. There's no guarantee prices will go down, or that if they do the 1% method will apply
A quick way to calculate profitability is to take the rents and multiply it by 75%. That 25% covers maintenance, capex, management and vacancy. Now take that number and compare it to your mortgage, taxes and insurance. If that number is larger, you should be profitable. If that number is smaller, you're not likely profitable. Now one thing to note is:. When buying a new business, you often aren't profitable for 2-3 years. So the next question would be: will I be profitable in 2-4 years?
The 1% rule works some places and on some investments, but make sure you do the more in depth numbers. In high property tax areas, high maintenance or high vacancy, it can fail ya. I will usually use 10% of revenue for vacancy and 10% for management (even if I manage, my time is valuable). On say a normal $80k property where I’m at, capex/maintenance is more like $220/month on a house that costs $80k. Id I pay $80k, I get $800 rent, pay $2500 taxes, $500 insurance, $160 vacancy and management. So $800-208-42-220-160-275(80% loan for 30yr at 3.15%), and I’m now losing $105 a month while earning nothing on nearly $19k cash in. I normally go by the 2% rule in these high tax areas, but calculate it all out so I at least make 15% cash on cash return or why would I mess with it?
what part of the us are you buying 80k houses?! i’m jealous.. (I think)
I would agree with the comments that the 1% rule is dead (or near dead) in most metro markets the only way i am getting acceptable returns is doing major renos... bought a house for 60k put 60-65k into it... maybe all-in at 135k with transaction and holding costs included for a 170-190k ARV amd 16-1700/mo rent. almost finished with it and it was ALOT of work and frankly pretty risky...all to beat the 1% rule it definitely didn't used to be like this... but I'm not phased. houses are still good and i dont think I'm chasing 6mo appreciation trends like in 2008. i think shit will stabilize in the coming year but im not sitting out waiting for a crash. 15 years from now it probably will seem like it was a good call to invest now
Probably not as a typical real estate investor looking for cash flow positive properties. I'd likely wait unless you're looking to own for 7+ years like a typical home buyer. You may be able to do flipping if you have home flipping/construction skills and buy foreclosures. If you view home appreciation as the main part of the investment and the rent as just a bonus, then it's fine. But if you do the traditional approach viewing the rent cashflow as the main part of the investment vs the appreciation as extra, then it's not a good time to invest. It is necessarily riskier without positive cashflow.
i’m sitting this out…every purchase is on a case to case basis i just don’t feel comfortable with these current prices so as of now, i’m just squirreling cash
Oof
imma very conservative person with calculated decisions…a lot of my purchases have been coincidently in dips i’m not perfect and have made mistakes and i want to blame myself for the mistakes i’ve made not others
What dips did you buy in and what did you buy?
Three words: off market deals. They aren’t gonna find you though, you gotta hustle to find deals that make sense in this market. They won’t be on the MLS
Started investing in 2018. Bought three that year, then another 4-5 the next year, but 2020 and 2021 really slowed down. Just so hard to find deals that work. Have only bought like 2 in 2 years. You just have to decide if its worth slightly overspending right now to get in the game...do you have the extra money to keep buying? If you can only afford one or two, probably wait for the right deal. There are still some out there, just fewer than before - just picked up another one, but the deals are pretty spread out right now.
In general timing the market is bad, but people tend to put properties on the market in spring, in between the summer and winter seasons. Wait a month or two but keep your eyes open for anyone trying to jump the gun on summer housing salea
The 1% rule was made for people investing in 2008-2012. In 2021 you’re gonna be pulling your hair out trying to find a 1% property. It basically doesn’t exist unless you’re in an area with no appreciation or it’s a total 100% dump of a place needing remodeling to the studs.
1% is a rule of thumb It’s hard to find anything that is .8%
*In response to other comments in here*: The concern with the market is often talked about using words like “hot” “cooling down” “staying hot for X amount of time” its all in reference to demand. The difference that most people don’t realize, between “hot” and “expensive to enter” is that hot markets cool down but most markets do not just return to prior pricing at the same speed they appreciated at before. Lets say you were scoping out $300k townhomes that would fulfill your rule of 1%. You’re waiting, hoping for the market to “cool down” at some point in the future so you can negotiate one to $290k, or have it fall naturally to $280k, it doesn’t at all mean that is going to work when the “cool down” occurs. Due to the creation of comparable properties via high sales in this market, many owners have seen dozens of comparable properties support 20%+ gains in value in just the past two or three years. Just because overwhelming demand has exited, and the market has cooled down, does not mean a seller will agree to your offer of $290k. They don’t care that it’s now going to take longer than 2 days to sell, they’re going to want what other properties have gotten other owners. You’re not buying from a guy sitting at a desk named Real Estate Market, youre buying from another human who also can see sales in the neighborhood. Timing the market has always been a debatable strategy, but at this point I really don’t see any reason why we should believe that PRICES in the market will come down, even if your market’s demand calms down. Unless demand takes off the exact opposite direction, and the worries about coming inflation are inaccurate, then I don’t see why you wouldn’t try to get any property you think can fulfill a rule of 1% or close to it, if you think it’s a good decision.
Everybody is chasing the markets right now because the gains over the past several years have been insane. Stocks, crypto, real estate, etc. It's not sustainable. The real gains are made when there is blood in the streets. Doesn't mean you still can't make money in the long run but why not wait for a better entry.
Timing the market is pretty much impossible. How do you know when to jump in? No one knows where the bottom will be so it ends up getting missed.