Have your parameters for new purchases changed in 2023?

[David Gogs]

In the last two years, home prices have gone up 30-40% in my area and rates are at 7-8%+. It seems like the only options are to either sit on cash and wait, or buy using different parameters than in the past.

I used to only consider a purchase worth it if the numbers worked as an LTR, imagining they can ban STRs tomorrow. Are you still following this rule yourselves, or has that changed? I live in a state that has outlawed local municipalities from regulating STRs, so it's pretty safe, but who knows if state laws change one day.

Next is the numbers. I used to find cap rates of 10% or higher. Now, it's more like 3-5% at best. Cash flow is still solid and Gross Yield is 12%. Should I change my standards to continue to make things happen? Is this just the new normal and new risk we have to take on?

I used to follow a "15% rule" where I wouldn't buy unless the gross revenue was at least 15% of the purchase price (e.g. Gross Yield). Now it's lucky to find something that hits 11/12%.

Lastly, the vacation market, while still strong in my area, has cooled off and numbers are down 20% this year compared to last. Still, even adjusting for this, the cash flow is solid and the yield is 11-12%.

I'd love to hear from people still buying in this new market and to learn if you have changed things to keep it moving.