Is it still a good time to purchase an investment property?

[Brian McGuire]

I have not used my HELOC yet, but I'm nervous to invest as it seems like times are making people shy away from buying investment properties. Is the multi family niche failing? What is the best niche to get into?

Thanks

[Scott Trench]

Brian - great question and my personal belief is that it is always a good time to invest, IF your personal financial position is strong and conducive to investing. 

For me, a strong personal financial position is one where you: 

- Have great credit and a strong income stream

- Have tens of thousands of dollars in cash, accumulated, ready for the down payment, any projected rehab, and closing costs, with a $10,000-$15,000 cash buffer after this to protect you from unplanned expenses. 

From there, we get into the right strategy to the current market conditions. A few years ago, the move was pretty traditional - buying single family, duplex, triplex, or quadplex rentals with traditional 30-year financing resulted in large rent and valuation growth and easy money. 

Now, that strategy is really hard. Rising rates make it hard to cash flow. There's much less reason to believe in appreciation over the next 3-5 years than the last 3-5 years. 

So.. what to do? 

1) Consider lending: Interest rates are high, so why not earn 7-12% returns with private lending? 

2) Buy all cash

3) Consider creative financing - can you assume a mortgage, buy a property subject to the existing financing, or negotiate seller financing. If you are able to pull off these relatively little used, but increasingly popular strategies in today's environment, you might be able to buy property today, with yesterday's low interest debt financing. 

One thing - I really don't personally endorse the use of a HELOC for a down payment on a long-term buy and hold rental property, second home, vacation rental, or other long-term investment. A $60,000 HELOC, for example, will come with 6-7% interest, AND has to be paid back. If you pay it back over 5 years, that's $1,000 PER MONTH, in principal alone, before interest, every month for the next 5 years. That will absolutely crush the cash flow in almost any real estate deal in today's market, unless you are exceptionally creative.

I'd save the HELOC for a rehab project, or other short-term investment that you can exit and use the proceeds to repay the loan.