Has your investment strategy changed in today&#x27;s market?

OP

Rental Property Investor · Austin, TX · Member since 2018 · 27 posts · 5 votes

3y

Quote from @Eliott Elias:

I am hitting seller finance as hard as possible. If not cash for 65%-repairs

Have you seen any success going down this route? I have been considering seller financing but don't have too much knowledge or experience in this area. Can we connect by phone? (847) 770-5407. I would love to see where your head is at.

OP

Rental Property Investor · Austin, TX · Member since 2018 · 27 posts · 5 votes

3y

Quote from @Steve Vaughan:

Quote from @Edgar Garnys:

Hey y'all, if you have cash to invest right now, how are you looking at deals?

Are you trying to negotiate the lowest price possible to ensure that it produces cash flow today? Are you then thinking to refinance in the future when interest rates go down to get cash out, reduce your monthly payment, and increase your monthly cash flow? Or, are you using creative finance strategies to purchase homes in today's environment? I am curious to know how more experienced investors are taking advantage of today's market!

Are there any other types of strategies that I should consider? I am trying to stick with buy-and-hold vs STR since I am currently working a W2 job, so I don't have too much time for day-to-day management.

I'm on the sidelines right now but I sure have seen a massive uptick in creative financing strategy inquiries. Haven't seen this much interest in sub2, wraps and SF since the GRC.

Without much time for active management, I might stick to paper securities. It was when I turned over half my portfolio to management for a while that I threw my hands up and sold into the froth earlier this year. Tenant quality dropped along with my cf.

I definitely understand. It is a tough market for buyers right now if you plan to go with conventional financing. At least you sold your properties at an optimal time.

[email protected]832-776-9582 Podcast Guest on Show #469

Jon Puente

Lender · Charlotte, NC · Member since 2020 · 224 posts · 221 votes

3y

Hey Edgar,

Seller Finance is probably the most viable option right now to get the best terms on a rental. If you choose to go the traditinoal route with a bank loan, I would advise keeping your numbers VERY conservative, meaning:

1) Cap Ex, Property Manager, Vacancy, and Repairs at 10% of Gross Rents.

2) I would raise the interest rate .5% to 1% higher than what you could qualify for, just make room for market adjustments.

3) I would be cautious to think that refinancing is a "way out" of a poorly underwritten deal. It should be considered a bonus.

Great topic of discussion!

3 Reply

Wale LawalBusiness Member

Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes

3y

@Edgar Garnys

Need to have clear investment goals.

Understand the local market and potential growth aspects.

Also factoring in the rising interest rates and inflation.

Good luck!

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2 Reply

OP

Rental Property Investor · Austin, TX · Member since 2018 · 27 posts · 5 votes

3y

Quote from @Wale Lawal:

@Edgar Garnys

Need to have clear investment goals.

Understand the local market and potential growth aspects.

Also factoring in the rising interest rates and inflation.

Good luck!

Thanks for the feedback Wale - I agree with each of your points. Cash flow is a main priority for me which is why I am exploring creative strategies to minimize my monthly payments and put less money down such that I can spread my money across multiple properties. Also, I would consider areas with higher potential for appreciation while breaking even from a cash flow perspective. I am slightly less inclined to go down the second route as housing prices are declining, so it is hard to tell how long I would have to hold onto such a property to make a profit.

OP

Rental Property Investor · Austin, TX · Member since 2018 · 27 posts · 5 votes

3y

Quote from @Jon Puente:

Hey Edgar,

Seller Finance is probably the most viable option right now to get the best terms on a rental. If you choose to go the traditinoal route with a bank loan, I would advise keeping your numbers VERY conservative, meaning:

1) Cap Ex, Property Manager, Vacancy, and Repairs at 10% of Gross Rents.

2) I would raise the interest rate .5% to 1% higher than what you could qualify for, just make room for market adjustments.

3) I would be cautious to think that refinancing is a "way out" of a poorly underwritten deal. It should be considered a bonus.

Great topic of discussion!

Great advice Jon. I think being conservative is key in today's market. The challenge is finding properties that match your investment criteria after making the adjustments that you mentioned.

Allan C.

Rental Property Investor · Member since 2018 · 826 posts · 810 votes

3y

@Edgar Garnys getting I/O loans to defray the cash flow burden - targeting 7/1 or 10/1 products to create sufficient time buffer.

OP

Rental Property Investor · Austin, TX · Member since 2018 · 27 posts · 5 votes

3y

Quote from @Allan C.:

@Edgar Garnys getting I/O loans to defray the cash flow burden - targeting 7/1 or 10/1 products to create sufficient time buffer.

Thanks Allan. I never considered this. I know there is a lot of potential downsides, but I could see how it might make sense if you have the funds to support the higher monthly payments down the road. Can you explain the 7/1 and 10/1 products? Also, can you refinance before the interest-only period expires (hopefully to a lower interest rate if timing works out in your favor)?

Allan C.

Rental Property Investor · Member since 2018 · 826 posts · 810 votes

3y

Quote from @Edgar Garnys:

Quote from @Allan C.:

@Edgar Garnys getting I/O loans to defray the cash flow burden - targeting 7/1 or 10/1 products to create sufficient time buffer.

Thanks Allan. I never considered this. I know there is a lot of potential downsides, but I could see how it might make sense if you have the funds to support the higher monthly payments down the road. Can you explain the 7/1 and 10/1 products? Also, can you refinance before the interest-only period expires (hopefully to a lower interest rate if timing works out in your favor)?

7/1 means you get fixed interest for 7 years and then it adjusts annually after based on a spread to then-market interest rates. 10/1 and 5/1 are same concepts. Yes you can refi anytime, though many lenders have a penalty if you refi before 18 moths.

[email protected]832-776-9582 Podcast Guest on Show #469

Wale LawalBusiness Member

Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes

3y

Quote from @Edgar Garnys:

Quote from @Wale Lawal:

@Edgar Garnys

Need to have clear investment goals.

Understand the local market and potential growth aspects.

Also factoring in the rising interest rates and inflation.

Good luck!

Thanks for the feedback Wale - I agree with each of your points. Cash flow is a main priority for me which is why I am exploring creative strategies to minimize my monthly payments and put less money down such that I can spread my money across multiple properties. Also, I would consider areas with higher potential for appreciation while breaking even from a cash flow perspective. I am slightly less inclined to go down the second route as housing prices are declining, so it is hard to tell how long I would have to hold onto such a property to make a profit.

Great plan.

Keep learning and growing.

All the best!

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Bob S.

Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes

3y

Nope not at all, still getting them at about 65% all in , of the ARV with never less then 15- 25% net caps. Up or down , 5- 10 % is irrelevant

All the best

OP

Rental Property Investor · Austin, TX · Member since 2018 · 27 posts · 5 votes

3y

Quote from @Bob S.:

Nope not at all, still getting them at about 65% all in , of the ARV with never less then 15- 25% net caps. Up or down , 5- 10 % is irrelevant

All the best

Thanks for sharing Bob. How do you get the seller to agree to 65% ARV? Are you just making a ton of offers until someone accepts? Do you focus on off-market or on-market deals?

Bob S.

Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes

3y

Quote from @Edgar Garnys:

Quote from @Bob S.:

Nope not at all, still getting them at about 65% all in , of the ARV with never less then 15- 25% net caps. Up or down , 5- 10 % is irrelevant

All the best

Thanks for sharing Bob. How do you get the seller to agree to 65% ARV? Are you just making a ton of offers until someone accepts? Do you focus on off-market or on-market deals?

Hi, deals just come to me I can get as many as I want. I never do mass marketing or mail outs. I have a large network as I have been doing business out there for about 10 years. NEVER listed properties,

OP

Rental Property Investor · Austin, TX · Member since 2018 · 27 posts · 5 votes

3y

Quote from @Bob S.:

Quote from @Edgar Garnys:

Quote from @Bob S.:

Nope not at all, still getting them at about 65% all in , of the ARV with never less then 15- 25% net caps. Up or down , 5- 10 % is irrelevant

All the best

Thanks for sharing Bob. How do you get the seller to agree to 65% ARV? Are you just making a ton of offers until someone accepts? Do you focus on off-market or on-market deals?

Hi, deals just come to me I can get as many as I want. I never do mass marketing or mail outs. I have a large network as I have been doing business out there for about 10 years. NEVER listed properties,

That is incredible. Do you make any downward adjustments to ARV in order to account for potential reductions in market values (given how some markets are trending today)?

Bob S.

Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes

3y

Quote from @Edgar Garnys:

Quote from @Bob S.:

Quote from @Edgar Garnys:

Quote from @Bob S.:

Nope not at all, still getting them at about 65% all in , of the ARV with never less then 15- 25% net caps. Up or down , 5- 10 % is irrelevant

All the best

Thanks for sharing Bob. How do you get the seller to agree to 65% ARV? Are you just making a ton of offers until someone accepts? Do you focus on off-market or on-market deals?

Hi, deals just come to me I can get as many as I want. I never do mass marketing or mail outs. I have a large network as I have been doing business out there for about 10 years. NEVER listed properties,

That is incredible. Do you make any downward adjustments to ARV in order to account for potential reductions in market values (given how some markets are trending today)?

Again when all in 60 -65% I really do not worry about much. Also these are rentals with 15- 25% net caps, so I do not care about value going down 5- 10 15% ,