Should I wait to invest due to economy?

Question

Hi Everyone,

I'm looking for people's takes on the market and investing at this time. With a recession creeping in soon, should I wait to invest in a duplex? I've been looking for months but I've been told by some people that it's wise to wait right now, build more cash reserves, then make my play after seeing how the market plays out within the next year. Obviously a deal is a deal, and I'm not going to completely stop looking. However, with interest rates very high, is it wise to ease up a little bit and wait?

Brian M Sweeney · Answer

I've always based my investment decisions only on the deal itself, not on the economy. The reason being is that we truly have no control over economic factors nor can we predict them accurately (economists will tell you differently). If its a truly a good investment, it will be a good investment in good or bad times. Try to value a deal exclusive of other factors.

Scott E. · Answer

As Bruce says, there is money to be made in any market. Underwrite the deal following the same principles and criteria that you always would. If the location and numbers make sense, go for it.

You can't fixate on rates too much. If you buy today and lock in at a 6% but then rates drop back down to 4.5% in a couple of years, just refinance your loan.

Justin Fox · Answer

@Lara IshtayehThe goal is to always find deals that make money and cashflow on the buy.  So if you find a deal that works and you have adequate reserves, pull the trigger.  I would not suggest floating any negative cashflow hoping for a refinance anytime soon.

Benjamin Aaker · Answer

As interest rates rise, there will be less buyers willing to pay what the mortgage requires. Sellers will have to drop their prices to sell. It's not a quick process, but it is already happening. Take a drive in your community and you'll see more for-sale signs than you have in the past 2 years. Those sellers are going to be competing with each other for buyers and a big way to do that is to drop the price. You'll be paying more to the bank now but less to the seller. As long as the deal works with the price paid and the expenses (including mortgage) now is a great time to buy. Keep looking, just do your diligence, like at any other time.

Nathan Grabau · Answer

Even if there is a recession, it will be hard for me to see a situation where monthly payments goes down in future, so you are not that much better off waiting.

My base case scenario is actually that fear of a recession or a recession drops oil prices enough to stall inflation later this year, which will lead to rates cooling off and could lead to another appreciation window. I am looking for and encouraging people to buy now or in the next few months with the goal of taking advantage of the slowing market, with the potential upside of being able to refi at a lower rate 8-10 months from now.

Bruce Woodruff · Answer

Interest rates are still pretty low, so if the right deal comes along it is always good to go for it. There may be less opportunities out there and there may be more risk, but there are always deals, especially in the fixer-upper arena....

My .02.....

Lien Vuong · Answer

You can look at ARM options in the mid 3%'s for lending as well as underwrite opportunities at a reasonable discount. Sellers are more nervous in this moment so there's opportunities out there.

Luka Milicevic · Answer

@Lara Ishtayeh

I don't think there will ever be a "right time" to invest. There will always be SOMETHING!

I've been in real estate now for 8 years and have consistently heard the same thing for 8 straight years "market is too hot"

Robert Wilson · Answer

There's a lot of competition in the market right now, and if this is your first deal, then it might not be a bad idea to wait a little longer. As you mentioned in your post, you're not going to stop looking completely and if the right deal comes along then it sounds like you're going to pull the trigger on it. I think that is a great strategy. What you don't want to do, is buy the wrong deal in the wrong location. Wait for the right deal to come along that fits most of your criteria, and I say go for it!

Elbert O. · Answer

Yeah just to add to @Benjamin Aaker's comment, here are the rest of the Fed scheduled meetings for 2022:July 26-27September 20-21*November 1-2December 13-14

They've already signaled that it will be extremely likely that they will be raising the fund rate again (they predict it will be 3.4% by year end; it's about 1.5 - 1.75% now).  Each time they raise has a ripple effect on the rest of the economy, including the real estate market, which can translate into buying opportunities if you look hard enough.