Reprocussions of a Cooling Market

[Kent M.]

Hello All, 

I'm still very new to to investing so excuse my lack of proper education. 

I live in Orlando where prices have sky rocketed in the past year. All my friends are telling me it's a bad time to buy a house but I know, as long as a I run the numbers and run them conservatively it'll be okay, right? But it did get me thinking, what kinds of things should I look out for when the market calms down?  

I'm assuming the amount I can rent the unit for (mostly looking at SFR and multi family) will go down? How much could it go down? Could the value of the property plumment? So should I lean towards putting more money down? or keep more in reserves? And at what point would a lender try to foreclose a house? When the LTV gets too bad? or just if I can't make the payments?

Anything else to take into consideration in my calculations before pulling the trigger on a house?

Thanks in advanced!

Kento

[Jaron Walling]

@Kent M. I would ignore the comments from friends unless they have experience with REI. I got push back from friends and family when I bought my first property in a cheaper, less desirable neighborhood. Now I'm sitting on a few properties, some cash-flow, and tons of equity.

"but I know, as long as a I run the numbers and run them conservatively it'll be okay, right?" - This is everything. Do not push the numbers to make a deal look good on a spreadsheet. If the deal isn't working out, doesn't cash-flow, or has major rehab issues it's probably time to walk. The more experience you have the more challenges and risk you can afford. Doesn't mean you want too just means you can survive when things go sideways. 

If the market slides or worse case c r a s h e s rents will go a little and the property value will drop, but you're smart so you do nothing. If you bought right, ran conservative numbers, and have reserves you'll survive and keep renting every year. It's a cycle that savoy investor master. That's why it's not a get rich quick game. Equity is imaginary money. It builds wealth but doesn't put money in your wallet.

A lender is only concerned with the LTV on the front and back end of an investment. Everything in between doesn't matter unless you ReFi or stop making payments.