Buy first LTR now, or wait 6 months?

Question

We are looking to purchase a long-term rental, and found a great one which was just flipped and is ready to go. Asking is about $180k and we’d get someone in there for a rental rate between $1650-$1500/month, netting $600ish per month after expenses. It sounds like a great opportunity; however, the market is hot and properties are flying off MLS like hot cakes. I’m wondering if we should pass on this property, and wait 6 months and see if the market dips at all. We are concerned with overpaying because the market is moving so fast and inventory is so low. Thoughts and suggestions please!

Twana Rasoul · Answer

@Christina L. Those who try to time the market or try to knock it out of the park on their first one usually have a tough time ever crossing the starting line. Buy what makes sense, in a decent area and rinse/repeat as often as you can whether every year or every 3-5 years.

Good luck!

Antonio Cucciniello · Answer

@Christina L. If its a long term rental, why does it matter if things dip in a few months? (Which none of us can actually predict 100%). If it cash flows today, it will cash flow then, and chances are it will be gone. I would act quick and get it under contract.

Instead of trying to get the most optimal deal, focus on getting really good ones over the long term.  Timing the market is always something that tries to bog me down and constantly have to remind myself of this.

Andrew Syrios · Answer

Timing the market is something close to a fool's errand. I was convinced it would dip back in April and have been thinking a dip is around the corner for the last three years. But nothing yet. It likely will go down soon, but that "soon" could be two years from now.

I would certainly be more cautious now. Demand better deals than you would otherwise. But if this one really hits your numbers, I would probably go ahead and pull the trigger. Long term rentals ride out the upswings and downswings (other than in local areas that get hammered a la Detroit). So you should be fine even if the market dips assuming you plan to hold for a long time.

Bonnie Low · Answer

@Christina L. - I know it's the million dollar question to be asking what the market is going to do in the next 3, 6, 12 months but I'm not seeing anyone who thinks it's going to tank. We're living in unprecedented times where it's getting harder to project the future based on historic performance. But to my way of thinking a) real estate is not in a bubble like it was in 2007-8  b) housing stock is still not keeping pace with demand and that won't change quickly c) rents don't typically crash as sharply as appreciation adjusts downward - in fact, there can be a higher demand for rentals if home buying contracts and d) it looks like you've got a cash flow cushion to cover your expenses on this property. Like @SarahBrown suggested, it could (and probably will) keep going up. If you have the money and the deal makes sense, I'd buy now!

Sarah Brown · Answer

The market could just as easily continue to increase over the next 6 months, and then you are in the same exact situation as right now.  What is your long term plan?  Generally when you buy and hold a property, it is going to be for an extended period of time.  Markets will ebb and flow.  If you are holding long term then appreciation tends to be consistent.