Newbie-Good or Bad Time?

[Steve Barrett]

I’m new here and to the R/E game. But, I’m watching, reading and learning. I plan on buying my first in about a year.

But, I am concerned about the quickly rising costs of homes and building costs and the lag of incomes ability to keep up in rental rates. Is it a bubble....likely not, I think. But the near future doesn’t seem to be a buyers market.

What do you seasoned guys think?

I am in the rural NE Texas area and plan on investing locally in single tenant properties once I feel educated and ready enough. 

[Henry Clark]

We are in the Self Storage business.  Different product but same concerns.

Quotes we have this year are 25% higher than Costs last year to build due to Steel and concrete costs.

It will be harder to hit your numbers on new investments, which is also true for New home builds.

If there are less Self Storage locations built, then rental rates will tend to rise "generally", location specific.  Same true for home rentals.

"doesn't seem to be a buyers market".  We are definitely in a Sellers market.  But this is probably the best time for a "Buyer" to buy.  

1.  Material inflation, will lead to interest hikes.

2.  Material inflation, will lead to Asset value increases.

3. Interest rates have not significantly adjusted yet. Run the numbers. Change to your situation. Determine what will be the impact to your decision. SFH unit price increase or interest rate increase.

Say $120,000 NE Texas home; Tyler or Longview.  Keep doing $10,000 price increase and see what the impact is to your decision.  Keep the price at $120,000 and keep doing 1% point interest rate increases.  When do you decide to not enter the market?  Lets say your rental rates stay the same in both scenarios.  Then adjust your rental rate up $xxx per month, that you think the market will allow in Tyler or Longview.

Examples: 

Interest Rate-  Lets say interest rate is 4% by the time you buy.  I slow down investing at 7% and will probably stop at 9% unless I was a Fix/Flip type investor.

Rental Rate- don't think you have much upside in a Tyler or Longview market, no matter how well you rehab the house.  Maybe in Dallas with a bigger pool of renters.

Cost- $120,000 to $130,000 hike.  Given a rental rate of $1,000.  Lets do this the easy  way and not pull in all of the costs and taxes.  Payback $120,000 / $1,000= 120 months.  $130,000 = 130 months.   10 months longer payback; not true with all costs considered, but you get the point.  A $10,000 price increase results in about a year extra in pay off.

I would say your Rental rate will probably stay about the same.  Interest rate will increase.  Purchase cost will have  a tendency to increase due to slow down in Building new houses.  We are continuing to build Self Storage, even though our material cost has increased 25%; we don't expect it to get better for a while.

Summary-  Don't know that it is going to get any better, if not worse.  As always run your numbers.