Worst time to buy investment Property??

Question

Hey Guys, I've been studying for months now on bigger pockets, reading books, podcasts, grant cardone listening to everything i can get my hands on. I'm 22 years old managed to save $50,000 and i'm really wanting to get involved in investment properties, specifically multi family, and would eventually like to work my way up to apartment complexes.

Here is my question, this is the highest the real estate market has been and not only that but interest rates are rising up to 5% sometimes even 6% in my area. Ive been analyzing deals  and with the prices in Utah being so high and interest going up it seems is this a bad time to buy to actually cashflow. In your experience am i better off waiting for the market to come down so i can get more "bang for my buck". I understand there is always a good deal and i will continue looking but overall they seem very difficult to come by and with my lack of experience it scares me a lot more getting into real estate at such a high point. Thoughts? Advice for a newbie? Anything is appreciated.

William Hochstedler · Answer

I don't want to be Debbie Downer here but there are such things as market cycles and we are at the top of one (or just past) right now.  I know a lot of people who got into this industry in 2006-2007 that are out of the business.  I also know folks who got started in 2009-2010 and haven't seen a bad day in their investing careers.

We are definitely seeing the market soften.  Days on market are increasing.  We're actually seeing "For Rent" signs meaning vacancies are increasing.  And there's a huge affordability problem which is exacerbated by every uptick in interest rates.  The market is starting to say "no" to ever increasing prices especially at higher price points.

Unlike previous market cycles, Utah is no longer a trailing market.  We don't have the luxury of watching California to give us a 2-3 year barometer.

The good news is the Mountain West's fundamentals are very good in terms of job and population growth.  But we still have a good chunk of the population who hasn't been able to get in on the fun in the last 5 years because of affordability.  There are entire communities purchased with high LTV loans with maxed out income ratios.  And there aren't very many places in the state where zoning density gives builders any reason to put small (affordable) units online.

The take away is, if you don't own your own residence start there.  Interest rates are still quite good historically.  Look at the median income in your market and buy something that is attainable for the bottom half.  There is still a vast inventory shortage at lower price points.  Take advantage of high LTV with the owner occupant loan and keep your cash ready for a great deal as the market loosens up.

Welcome to BP!

Joe Villeneuve · Answer

@Jackson Pontsler Everything you mentioned I agree with except this statement:

"- ...Save up more money to make the investment cashflow..."

I assume you mean put down a larger DP...and that would be wrong.  All that does is give you the illusion you are:

A - suddenly making money (if you are attempting to correct negative CF), or...

B - making more money (if already CF positive...just not high enough).

In the case of "A", all you're doing is paying all your negative CF upfront.

In the case of "B", all you're doing is delaying the timetable to make a profit.  Remember, you don't start to make a profit until AFTER you have recovered all the cash you put in at the start.  If you put in more cash, it will take you longer to recover it all, and that money could be better spent elsewhere.

Jackson Pontsler · Answer

@Kaden Murdock that same arguement isn't exclusive to Real Estate but to the Stock Market and any investing asset.  Your job as a real estate investor is buy properties that make sense!  No one has a crystal ball.  You never know when the market will peak or hit rock bottom.  If the market was to hit rock bottom ever 15 years then you wasted 15 years of finding deals that will work now.

I saw people 5 years ago make the same mistake.  Waiting for the market to correct.  We may be starting a correction maybe 20% however the people that invested 5 years ago made more than 30% ROI becuase they bought deals that worked then.

The advice I've given every rental investor is to find a deal that will cashflow strongly enough to weather storms.  If you can't find something then you have 2 options.

- Invest somewhere else

- Save up more money to make the investment cashflow.

On a side note I know that In Utah and particularly Salt Lake City right now things are hard to come by but because something doesn't meet the 1% rule doesn't mean you shouldn't invest.  Personally I have only seen the 1% rule met once cause it was a quadplex in West Valley.  But there are deals that will cashflow with a strong enough margin to weather storms.

Keep your head up, keep learning, and decide which path you want to take but if you are waiting for the market to correct and you aren't an expert at every single indicator you might as well learn how to count cards and go to Vegas.  I hope my message was more empowering rather than belittling because that wasn't my intention.  I only want to echo that the time to act is now before interest rates and appreciate are higher than they are today. If this was helpful please let me know.

Joe Villeneuve · Answer

There is no good time or bad time to start in REI.  Either the deal makes "sense" or it makes "dollars".  There are no dates on calendars that include dollar signs.

Anthony Hurlburt · Answer

Do not purchase a bad deal just to "start somewhere in real estate" that is terrible advice. Find a deal and if the numbers make sense then buy. Otherwise wait until you do find a deal or invest in a market that a good deal can be found. If you can't find a good deal, a larger down payment is not the answer, it will give the illusion of cash flow but your return on your money will be poor.

Jackson Pontsler · Answer

@Joe Villeneuve I completely agree with you that saving up the money to make the investment cashflow is not an ideal option.  I only mentioned it because the more money you put down the less your mortage is and it will be easier to cashflow.  Yes you are paying it upfront but if someone wants in invest in a certain market that isn't great for cashflow then that would be an option.  Not an attractive one but if you believe the market in your area is strong it may be worth the buy in especially if you are oppose to look at other markets.

Joe Villeneuve · Answer

"I regret that I have but one vote to give to this answer".

Cassandra Burton · Answer

Hi Kaden, I'm a newbie as well but I've still been able to find a decent deal in Utah. I just bought a turnkey property so I can do owner occupied for a year or so. I found a property that comped at $10k more than the asking price, we settled for $25k less (they wanted 215K, we agreed on 205k, comps at 230k). So I'm purchasing this with equity already in the property. While I won't cash-flow at the 1% rule, I still think it's important to start somewhere. It is definitely a difficult market right now but there are deals still to be had. Good luck!

Kevin Dean · Answer

Kaden, I think you may be in a better position than you think. The fact that you have been able to save up a sizable chunk of money at a young age is great. Balancing sitting in cash, vs. chasing average opportunities is a tough battle, especially when there is no Real Estate Crystal Ball.

There are a ton of people who have been sitting on there hands for the last 5 years thinking the market is overheated and is prime for a big dip. Eventually they will be right, but who knows when? Those people can attest that the opportunity cost of sitting on the sidelines has been costly.

Yes, there are still deals to be had, keep doing your research, be consistent and try to get in the game with a deal that meets YOUR desired risk/return criteria, while diligently protecting the downside through adequate cash reserves, conservative underwriting and the ability to hold long term.

In the mean time, keep putting yourself in a position to take advantage of a deal that meets your investment criteria, when it hits your radar, you'll be ready to go.

Becca Summers · Answer

@Kaden Murdock I would start with house hacking your own property. Buy something with little or no money down then turn it into a rental next year and repeat. Keeping your cash ready to jump when you can. Saving that much by 22 is great! Keep up the good work.

Buying cash flowing property does happen just get really good at analyzing so you can jump on one when it comes up. I got cash flowing property off the MLS a few months ago because it had fallen out of contract. I was able to get it that same day.

Worst time to buy investment Property??

Most Popular Reply