Would you wait until the market comes down for a first purchase ?

Question

My wife and I are almost in a position to purchase our first investment property. We could buy now and get started with a high market and afford maybe a “C/C+” class property, if we wait another year or two we could afford more of a “B/B+” class property.

Should we just jump into the game or wait it out a little longer?

Thanks in advance.

Should we just jump into the game or wait it out a little longer?

Thanks in advance.

Anthony Wick · Answer

@Brian Nance

I don’t know. When’s the market gonna come down? When’s the stock market going to “correct”? Point being, the best time to start investing was yesterday. The next best time is today.

Bill Plymouth · Answer

@Brian Nance just like everyone has already said, you don’t know when the market will correct.  It could correct tomorrow it could correct in 10 years.  We just don’t know.

I hold the philosophy that the point of the market you’re in doesn’t matter.  As an investor, you shouldn’t be paying market value for properties.  That’s how you get hurt when there is a recession, crash, or just a regular cyclical downturn.

Warren Buffet practices value investing.  We can follow that model in real estate.  What Buffet does, is find companies that are underpriced compared to their competitors in the same sector, and invests in them.  He’s very rarely paying full price!  He’s the 3rd richest man on the world.  Let’s learn from him.

You might be asking, “Bill, how do you value invest in real estate?”.  The answer to that is if you can solve a problem, you can find a deal.  Real estate investing is all about solving people’s problems.  For example, John Homeowner owes 10k in taxes to the city.  His house is about to go up for auction.  He would rather sell for cash and line his pockets than have the city take his property from him.  The property is in a C class area.  In it’s current condition it’s worth about 75k, with an ARV of 150k.  The property needs 50k worth of work.  You offer 50k and the owner accepts. After purchase, closing costs, and rehab your overall cost of acquisition Is about 115k.  The home appraises for 150.  You have 35k in equity and you can mown rent the property’s for 800-1100/month.

You’ve created a cash flow machine, you have equity, and you purchased at a decent discount. Meanwhile the homeowner gets to walk away with about 30k. You’ve solved a problem and created a deal. Even if the market were to dip 15% the next day, you would still have a little over 12k worth in equity and rents will still be at a high enough amount to cash flow. That is value investing for real estate. The market has little say because you’re purchasing below market value anyway.

John Casmon · Answer

I glossed over the part about B asset vs. C asset. Ignoring market cycles and simply using your available funds for the decision , if you have ample time and the background to handle a more management intensive Class C property then do that (assuming you are self managing). If not, it’s certainly easier to manage a B property and it may be worth waiting. I would strongly consider the lifestyle you want from RE and not solely look at the returns when weighing your options.

Greg Scott · Answer

Are you thinking you can you afford a better property in a year or two because your savings grows or because you "hope" the market will come down?  One is a strategic decision and the other is speculative.

If you buy a property with strong cash-flow you can completely avoid the concerns about speculative returns.  If it cash-flows, who cares if the value goes down; you can hold it forever.   Simply wait until the property appreciates before selling.

Properties with strong cash-flow are harder to find today because the market is strong.  But that doesn't mean the market will crash next year, or the year after, or maybe even for the next decade.  How long are you willing to wait in hopes of a downturn?

Dennis M. · Answer

buy the c class anyway . You’ll get higher cash flow regardless . Sitting around waiting is a lousy strategy

Joe Splitrock · Answer

I passed on deals two years ago that would be a steal today. Nobody can predict what the future holds. No doubt the economy has had a long expansion period, but it was also a deep recession.

The biggest advantage in real estate is time, so buying sooner has value. As long as you are buying in a good location with cash flow, the risk should be low. Good location for me is an area with stable employment base, steady population growth and I like houses near schools or parks.

Sean Ridlon · Answer

The difference between the haves and have nots is having.

Sounds like fear talking! Find something where the worst case scenario still makes money and buy it.

Jay Hinrichs · Answer

What happens if it does not go down maybe it just stays neutral for a few years.. CA saw that Oregon has seen that .. then a run up later.

the big dips on the west were CA  89 to 92   little dip Y2K 911  and the mother of them all the GFC.. which was nation wide..

Also I think rates are historic great deals and if the market dips most first timers are going to be pretty shocked if they don't have cash or a ton of it that investor loans are tough to non existent..  this is a little pearl many miss.  Markets come down means economy is not doing well which means credit gets tight and is usually only available to those that are highly experienced or well cashed up .. or like 08 to 2011 non existent.

Caleb Heimsoth · Answer

@Brian Nance no I wouldn’t wait.  Everyone is waiting for a crash to come like the last one.  That’s likely not happening.  Do you know when the last recession was before 2008 was?

2001.  Do you know how long it lasted? 9 months.  If you didn’t lose your job or have some other major life event you probably didn’t even notice it. The market tanked because of 9/11. It took less than 9 months to get back to where it was before that.  Then it went on a 7 year bull run.

In late 2007 to 2009, the market tanked and it took around 4 YEARS to get back to even.  Then it was up and up ever since then. The last one was so bad, everyone thinks the next one will be that bad.  History dictates this is unlikely.

I started in 2016.  Everyone thought the market was crazy then.  In a lot of places since 2016 you would have seen appreciation.

Anyways long story short, start now if you can.  A recession is likely 2 years away at least (in my somewhat educated opinion)

Jay Hinrichs · Answer

if you live and work in the same area you can buy C class then its a calculated risk you wont know if you like it until you try it..

nicer properties are easier to manage generally speaking..

only way prices drop for rentals is usually loss of job in the area and high vacancy or tough to manage tenant base investor suffers landlord burn out and dumps them.. or rents decrease..

Would you wait until the market comes down for a first purchase ?

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