Rental property investor weary of current market

[Alexander Churchill]

Hey BP,

I’m a Rental property investor from a small town/city in in central PA of about 30k Ppl (100k metro). I’m 26 and started investing when I was 23.

My goal is generate enough passive income to retire early from my wage paying full-time job.

I own 2 residential Rentals (both doubles)

I most recently closed on a home for my family in May.

Residential Rental home prices (1-4 units) in my area generally range from 60-200k

I’m looking at a potential 3 unit that needs a little work, but could produce an additional 1k/month in cash flow but I’m getting cold feet ...

From my perspective it seems like the rental property market is very weird right now with a lot of investors or potential sellers kind of “paused” due to COVID and rent moratoriums and all the uncertainty about the future with those two things sort of hovering at the moment. At the same time, it seems like home prices haven’t really been affected, at least not in my area and even seem to continue to rise. Our moratorium is supposedly set to end July 10th, at which point landlords can begin to file for evictions. My tenants have been relatively consistent but I know a lot of investors who have been given the cold shoulder by tenants during all of this. Obviously with the flu season looming I think I speak for a lot of landlords that another rent moratorium is probably our worst nightmare right now. In my opinion that’s the only leverage we as landlords hold, if you don’t pay rent, you leave, if you don’t leave, we file.

I also don’t want to jump the gun and buy something if the Rental home market has a price drop in a few months due to less demand.

I’m looking for any advice/opinions or perspectives from other rental property investors. Are you guys still investing? What’s your take on moratoriums and how to navigate these times? What do you think the future holds? Invest now or wait it out?

[Jeff Copeland]

A lot of people are in your exact shoes. These are strange and unprecedented times, and nobody has all the answers. 

There is an inventory shortage that is propping up prices in many real estate markets, and there is also a ton of economic uncertainly that should be dragging prices down...But when? And by how much?  You only have to look at the stock market to confirm that none of it really makes sense!

How you navigate these waters will depend heavily on your financial position and experience. If you have plenty of cash reserves, can weather a downturn in prices and/or rents, and are in it for the long haul, and a great deal comes along, by all means, snap it up. 

On the other hand, if you are over-leveraged, inexperienced, and/or strapped for cash, now is probably not the time to further overextend yourself. This is already being reflected in tightening underwriting guidelines for financing.