Is it still a good time to purchase an investment property?
Member since 2022 · 14 posts · 6 votes
Is it still a good time to purchase an investment property?
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Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votesBrian - 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.
5 Replies
- 3yScott TrenchPro MemberRental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
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.
- Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes3y
Brian, I can guarantee that if you continue down this course, in ten years you'll be kicking yourself for not investing earlier.
There is almost never a "best niche" to go into. There is a "best niche for you." Eventually, you will likely find it. But to start with, no matter who tells you what, there is always an element of groping in the dark to buying your first investment property.
@Scott Trench has laid out some good alternatives, as well as a priceless warning about HELOCs in the current economic environment. Consider this a small light in the dark. Nobody else can take the first step for you. - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
Quote from @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?
If all you ever do, is what everyone else is doing, all you will ever get, is what everyone else is leaving behind....
You have to do YOU, what works for you. It's your world, were all just living in it. Following a herd is a fast-pass to meet the butcher, and guess who's on the menu.
- Property Manager · Charlotte, NC · Member since 2022 · 269 posts · 135 votes3y
I think you'll eventually find a niche for yourself.
I believe right now is the best time to invest!
- Member since 2023 · 216 posts · 133 votes3y
What I have found good about multifamily projects compared to single family is if your single family has a vacant unit your vacancy rate is 100%, if you have a duplex with a vacant unit your vacancy rate is 50%, at first I never looked at it that way and then another investor pointed that out to me and I actually felt kind of dumb but it's been my motto ever since. I will not pass up a good deal on a single family but my main focus is multifamily properties. But like anytime, the deal has to be right and the numbers have to work.
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