Thoughts on My Strategy for Current Market Conditions

[Dylan Brown]

Hello everyone! It's no secret that the recent nature of the real estate market has been wavering and confusing for many with the United States rocky economic position, high interest rates, and (in many markets) stagnating real estate prices. With that being said, I have been entering the idea of a new strategy (new for me that is), and I'm looking to get some opinions/critiques as I am still a relatively new investor. The strategy consists of purchasing "fixer upper" single family and multifamily properties for cash within the markets that meet my requirements, flipping and holding as LTRs for a minimum of 5 years, then entertaining the idea of selling for a 1031 exchange or pulling financing for more purchases. Below I'll go more in depth on each aspect of this strategy.

MARKET REQUIREMENTS:

1. Job Growth: Positive short-term (1 year) and medium term (5 year)

2. Wage Growth: Positive short-term (1 year) and medium term (5 year)

3. Population Growth: Positive short-term (1 year) and medium term (5 year)

4. Presence of Fortune 500 companies or large tech industries

5. Easily accessible broadband internet

6. In the 75th percentile of cost-of-living affordability 

7. Low supply of developable land

I feel these metrics will ensure not only a high probability of occupancy, but also the continued growth of rental values and overall appreciation.

WHY CASH? WHY NOT LEVERAGE?

Pros:

- Ability to make offers at a significantly reduced price point

- Significant reduction of monthly expenses (larger monthly cash flow)

- Larger equity position (can be used for potential future financing)

Cons:

- Larger upfront cost

- Lower ROI/COC return

With these pros and cons in mind, and as much as I love the idea of leveraging real estate, I am not comfortable with neither the economic state of the US nor the current position and uncertainty of banks. For that reason, I'll be leaning more towards cash purchases.

LONG TERM FIX AND FLIP

It's not really a secret that one of the best ways to make money in real estate is to add value to a property, increase the monthly rent, and allow it to appreciate for years to come. With that being said, running under the assumption these will be cash purchases at 80% of ARV minus estimated renovation costs, there will be large opportunity to add value. Holding these properties for a minimum of 5 years would allow for an adequate buildup of cash flow, and (assuming the market performs as expected) appreciation. After 5 years of ownership the property would be reevaluated and either sold as a 1031 exchange into a larger property, or the equity itself will be used to finance the purchase of more properties.

I would appreciate any opinions/critiques on this strategy as I know there are individuals more experienced than me who may have tried something similar. Thank you to all and I wish you all the best of luck!

[Bob Stevens]

You are overthinking, just see where others are getting 10% ++ net caps based on cash purchases. I just picked up 7 more SF all are about 85k all in, rents are from 1100- 1400. Heck 3 month ago, I go two 4 brs all in 60k, my rents are 1300 each, values about 110k. STAY OFF the internet its usually a waste of time. I have been working in areas where the internet said to run away from for the last 10 years. Well pricing doubled, tripled or more.  YES CASH is king, All 500 or so of my transactions have been cash purchases. 

BTW you live in MI, well look how well parts of Detroit have done over the last 10 years, but the internet said run. :) 

All the best