Real estate investing in 2023

[Denzel Faulken]

Hey everyone,

So I am buying my second rental property,  and having trouble finding deals that can cashflow at least cashflow 250-300 a month due to the high interest rates I am looking at (SFRS). I wanted to see what other investors are doing..? are you all waiting until interest rates go down? are you still buying?  waiting to see if more inventory hit the market? 

I was told recently just to wait and keep saving to see what happens after the feds raise rates again and what for the pivot. I just feel lost on what to do. any advice?
 

[Nick Robinson]

@Denzel Faulken

Right now I am stacking cash and have put it mainly in 6mo T-Bills making 4.25-4.9%. That way at least I can get something for waiting. 3mo is at 4.62% so may start moving new money there. The bond market has said for the last 6mo have said the probabilities were high that Dec was their last rate hike. Now the Fed pivoting if we look back in history is historically a bad sign for assets with most the damage coming after they cut rates. When we see rate cuts and the probability of a recession very high that is going tighten lending standards and it may be harder to get a loan.

I am looking to buy sometime this year depending on the situation. Since I am looking for 10+ units I will have the money all together this April. For me I am waiting for some of these smaller operators/syndicators to have to refinance their bridge debt with lower valuations and higher rates. I think a lot of them had lofty projections and will be very aggressive sellers this year, we will see. If not, I will buy during any cycle where I can buy a quality property for a good value that I can make more valuable.

In terms of SFR the national market has dropped off since June, like every economic indicator. Median home sales price has dropped over 10% and inventory is up 67% nationwide. This is different for every market with the west and south inventories increasing 110.2% and 103.9% respectively while the Midwest and northeast is only up 28% and 16.8%. Should make sense that the areas that saw the fastest growth ie Bosie, PHX, Austin will see the most volatility and the most downward pressure. As far as waiting for prices to come down in most markets you need 20% more drop in price and rates in the mid 4s to get back to Dec 2019 pricing. Lumber has also been crashing since June which is never positive for housing.

It is very hard to predict price that's why I always state that the probability indicates or more pressure in one way or another. No one knows for sure what will happen, but you have to make calls based on probabilities like in Blackjack. My advice would be to buy 3mo T-bills and save money. Keep looking for deals and be very conservative with your numbers. If you find a deal that works, and you have the money to buy it buy it. If something cash flows and can pay its bills and you no matter what happens over the next 1-2 years in 5-10 years, it will be worth more. DO NOT BUY ANYTHING WITH NEGATIVE CF.