Advice to New Investors Struggling to Get Started

[Nathan H.]

I see a lot of posts on here from new investors who want to do their first deal but have questions about the minutia: where the housing market will go in 2021, how Biden will effect housing prices, where to invest, type of property to start with, appreciation vs. cash flow, type of loan to get ect..  My answer to all of these questions, with a few asterisks, is good news for those suffering from analysis paralysis... I’d say that it doesn’t matter!

There are very few economic indicators that always hold true. Over the last few months for example, the economy has made zero sense judging by traditional metrics. Pair that with the complexity and infinite moving parts of a global economy, no one really knows what they’re talking about. Even if a few unicorns do exist that can consistently predict the housing market, how do you pick the right expert out of the pool of people to claim to know it all? 

In my opinion are really just three things that matter for the long haul:

1. Inflation happens over time

2. The population grows over time

3. People will continue to live in real property. 

That is all. Don’t over complicate it. Keep moving forward and be patient while population growth creates new demand and long term fixed rate debt makes you a killing during periods of high inflation. 

What this all boils down to is that the best property you can buy is the one that you have the ability to buy right now!

Now for the disclaimers:

- I would adjust this opinion for an older person. Since most of the people on here are in their 20’s and 30’s, what you buy now doesn’t matter so much, as long as you buy something. You have time to recover, you have time for these long term trends to average out to where they are advantageous over the long-term, because as we know they don’t always hold true if we’re looking at the short term. Older folks don’t have the luxury of waiting it out. 

- Long-term fixed rate debt in an inflationary economy is a powerful thing. You want to avoid buying something that lenders will consider a liability. My advice is to be reasonably certain that 75% of your rent is equal to or higher than your PITI payment. This is something that could slow you down. Also, when times are tough you want to have something that you can be reasonably certain can at least break even. Obviously this doesn't always happen and sometimes investors lose their shirts. It's just a risk that has be accepted.

My final advice is to go look at what things were selling for 30 years ago. Then look at what that property was worth 20 years ago, 10 years ago and today. Ask yourself if you would care (or even remember) paying 75k for that house when it was worth 50k, that is worth 300k today. It’s all about taking action rather than taking the best action and remembering that your biggest asset is not your real estate portfolio, it’s the fact that you know how to build one.