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Updated about 6 years ago, 10/18/2018
Thinking through the Math...does it make sense
- Investor
- Santa Rosa, CA
- 6,847
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If you search through the forum threads you'll find hundreds if not thousands of posts going back 5 years from people wondering if they can wait a year or two for the market to crash so they can get a better deal. Market is up, still no deal. Worse, if the market crashes now their best case scenario is they buy now for the same price they could have bought for then, but they missed out on the investment return and tax benefits in the mean time.
The overall economy at large is pretty strong right now in many areas. So even if rising interest rates and fear of a market drop cause cap rates to rise, the economy and wage growth are likely to push rents higher...two competing forces that when netted out could result in no drop in value.
So to wait or not to wait? Usually those who try to time the market don't see the highest returns. But tell that to people who bought in 2005.
There is no correct answer until after the fact. From where I sit I see signs for caution but not signs of running into a bunker. Your risk/reward tolerance might differ.
My experience has taught me that it is extremely difficult to time the market. If the deal meets your criteria today, do it. If not, keep looking. The value of the same deal in two years is an unknown despite what the pundits say.
- Rental Property Investor
- SE Michigan
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The common phrase I've heard over the years is the best time to buy real estate "was 10 years ago".
If you buy with cash flow and have financing that doesn't have a short-term balloon, you should be able to ride out any storm and be positive on the other side.
A deal that produces healthy returns with long term debt in this market shouldn't give you valuation trouble in the future. Stay conservative with your underwriting and act when it makes sense. Inflation will play in your favor over the long run.
The most simple proxy for profitability in the real estate market is the spread between valuations (cap rates) and borrowing rates. The current spread is at all time lows, so finding deals is very tough.
If you find a deal, hedge your long-term risk by keeping your loan to purchase low and using long term (10+ year) debt.
Is this in Austin? I don't see property losing almost 2 percent of its value in 2 years in that area.
@Sanjoy V. on an asset that size you also may be able to get 10-12 year terms with 30 year amortization.
Buy for cashflow with long term debt and you'll most likely be in good shape.
- Jordan Moorhead
- [email protected]
- 512-888-9122
There are way too many assumptions made in your numbers. Don't buy based on what you think the market might do in the future, buy based on your own investment criteria and long term personal goals. Deals will come and go based on the market and your sources, but as long as you understand your market and don't change your criteria because there "aren't any deals," you will be fine.
- Corby Goade