Doubting Buying Anything Right Now?

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If you are buying for cash flow, having a market that is climbing doesn't say don't invest...the property itself might though. What I'm saying is if you listen to the market to make decisions on if you should invest, you're listening to the wrong thing. Markets tell you where to invest, not if. Once you are in the right market, the properties in the market...each property on its own...will tell you whether or not you should buy THAT property.

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At the end of the day it doesn't really matter whether prices have gone up or down or sideways. All that you should care about is working backwards on your deals so you're investing in the kind of model that you're comfortable investing in.So what is your financing model? Are you putting down 25% and paying rehab out of pocket? Using hard money to pay for 90% of the purchase and rehab? 100% of the purchase and rehab?What kind of return on your capital do you need?Based on your financing model, what kind of LTV's do you need to be all in on your deals for?What kind of cash flow are you comfortable with as your minimum to accept the deal?Those are some of the key questions. Then work backwards from there and see if you can't find deals that fit into your model. Given things have picked up in many markets, that likely isn't going to be easy. But that doesn't mean it isn't possible. At the end of the day, its truly a numbers game. The tougher your criteria (i.e. its easier to find deals at 75% LTV then 65%, etc). the harder it will be to find deals. But that doesn't mean it isn't possible if your criteria are somewhat reasonable.My guess is if you have a target of say $100/door on multifamily or $250/door for SFH and you need to be all in at 75% ARV, then you can probably find a deal. It may take some significant legwork or maybe not. But you should be able to find something in any area if you're patient enough and keep at it - and maybe are willing to take on a bigger rehab to do it.I just don't see how median prices going up should be an absolute Stop sign from investing. The median price is not the price you're going to pay if you're buying it right. And ultimately, you shouldn't care what the price of the property is if the rental income can support your PITI and leave you with a decent net income.As most on here have pointed out. Prices may have returned to 2004 levels. But I would venture to guess that rents are up 20 to 30% from that level as well. Is that enough to make your numbers work? Only you can answer that. But median price levels shouldn't be a sign that you can't buy.

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What leads you to the conclusion that 2004 prices in 2016 are bad? That *was* twelve years ago, right? Are rents the same as they were in 2004? Are interest rates the same as they were in 2004? Is inventory the same as it was in 2004? Are lending guidelines the same as they were in 2004? If everything is different except for the nominal prices, what gives you reason to reach the conclusion that the same thing will happen to the market again?

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I think we are still talking about apples and oranges. In Fitchburg, a two bedroom apartment can rent for $750. In Everett or Chelsea, the same apartments are $1600. A full analysis is required on each deal to know which is the better investment.

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I guess thats what I'm saying though. It shouldn't matter what rent prices were in 2004.Run the numbers on what they are today.What you want to do is take a house on the market and figure out what its ARV (after repair value) is. Then figure out what your mortgage (PITI) will be if you were to buy it and fix it up. Then deduct that from the rent that you think you can get from that house and see what kind of profit that actually is.Then determine if that profit is acceptable based on what you had to put down. And if it isn't, then figure out what you have to get that house for to make the profit numbers acceptable to you.Here's an example right:1) House is on the market for 100k and you guesstimate it will need 20k in rehab. So your all in price is 120k. Your model is to put down 25% for a down payment or 25k and pay the 20k rehab out of pocket. Thats 45k out of pocket and will leave you with a loan of 75k on the property.Once its fixed up, you determine that the house will be worth 150k.You also determine that once the house is fixed up, you should be able to rent it for 1,400/mo.And you can see that taxes and insurance would be 300/mo.If you leave all your money (45k) into the deal and have a 75k loan, your PITI will be roughly 750/mo. Subtract that from the rent (1400 minus 750) and that would give you a gross profit (i.e. before repairs, vacancy, etc) of 650 per month.Maybe figure 200/mo for repairs, vacancy, etc and you're left with an actual net profit of 450/mo or 5400/yr on 45k investment. Is that good enough for you?Or figure that after 6 months, you will do a cash out refi at 70% of the ARV which will allow you to get a loan of 105k. That gives you 30k of your 45k back.Now, your investment is 15k on that property. Your loan amount is now 105k so your PITI is now roughly 950. Your gross profit drops down 450/mo and your net profit to 250/mo.You are now making 3k a year on a 15k investment. Is that good enough? Now add in the principal paydown of 100/mo or so which is another 1,200/yr. Plus add in some appreciation too of 3% or 4,500/yr. Now how is that 15k investment looking? 15k to make 3k in rental profits, 1,200 in principal paydown and 4,500 in appreciation. Thats almost a 50% return on your money.The only way you're going to know if investing in real estate today makes sense is:1) Look at the numbers if you buy today. There isn't a single number from 2004 that will help tell you whether you're going to make money or not.2) Understand that the ability to make money in buy and hold typically comes down to being able to buy the house right so you can leverage the use of OPM (Other people's money) - i.e. the bank's loan.Paying all cash for a rental is typically not going to give you the kind of return that makes sense. The less money you can put into a deal, , typically the better your returns. The only way to put in "less" money though is if you can truly find a deal.And, for me, a deal is anything that I can be all in at (i.e. purchase plus rehab) for 70% of the ARV (after repair value) and that will have a gross monthly cash flow as a rental based on 0 money into the deal is 400/mo or better.I figure if I'm all in at 0 and my gross monthly profit is 400/month or more, I'm going to make money between net profit, principal paydown and appreciation.And don't forget, even if your return is only 20 or 30 percent today. Rents go up - assuming you're in a decent area of course and you're not buying 30k houses in bad areas.

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Can't disagree with @Mike H. analysis...My personal posoition was reinterated by @Russell Brazil "but the earlier you buy, is also the earlier you start paying down the mortgage. Time is the greatest ally of the investor."Determine your investment model and when you find a deal that meets, "BUY"!!

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Great quote :)

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@Mike H.Thanks for your thoughtful reply to my post. Financial model.... well that is hard for me to define. Basically I am a newbie investor. I have 50,000 sitting in a bank account doing nothing. I want to buy an asset that makes that money work for me. I do not know what type of cash on cash return I should be looking for. Some investors say it needs to be 8%-10%. After reading everyone's replies it appears even though 2016 has 2004 prices, 2016 has cheap money to borrow which 2004 did not. Also rent prices now could be higher than 2004 which would be another indicator it is good to buy. Only problem is I do not know how to find out historic rental prices. I guess I would have to speak to someone who knew the rental market before the crash in the respective city I was interested in purchasing.

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If you buy now and in 2 years the tails of those graphs are higher then they showed that buying today was a good idea, if in 2 years they are lower then they showed that buying today wasn't a good idea. However if the later becomes the case, what if in 9 years the tale end of those graphs is higher...Unless you plan on selling in the short-term the market direction isn't really that important.

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@Rich Hupper,In my opinion if you're looking for a buy-and-hold rental investment, sales prices matter little. What you want to find out are rental price trends, and although I can't speak for outside the city, I can say with confidence that rent prices in many neighborhoods in the city have been increasing at least since 2007 when I was first introduced to the rental market as a college student.I'd highly recommend speaking with a manager at local rental brokerages. Unless you know a specific sales agent that specializes in buy-and-hold rental properties, I'd talk to rental experts. The brokerage I used to work for had rental price data since the early 2000s. We didn't have nice and neat graphs, but we could feasibly track a particular set of properties and show you whether or not prices have increased or decreased over the years. It's just very important that you find someone that you can trust and get along with, AND that's been in the business for several years. There's a ton of college students just trying to make a quick-buck in this particular industry, so you may have to do some sifting to get to the real experts.