What we must do in this Changing Market.
We have all seen the market shifting the past few months. Rates are up, retail buyers are less motivated. Inventory is still low as many sellers do not want to sell right now for various reasons. Days on market are rising, sellers are slowly coming to terms with price reductions, concessions, and more buyer leverage.
Yet, I find this to be the best investing market since I have been in real estate. I have been buying rentals since 2017, and it was a bull run of competition, and highest and best bidders. I believe the next 24 months will create the best opportunities that many of us have seen. If you were not old enough, or in a position to buy real estate after the Great Recession, this will be your opportunity.
Here is what we MUST do in this changing market.
- Be Prepared:
Have your capital, access to capital, lines of credit, partnerships, private lenders, and conventional lenders ready to go. Being ready to pull the trigger on the right deal at any moment, will always be critical to investing success. If you are not ready on these fronts, you need to be.
- Be Educated:
If you are brand new to real estate or trying to reach the next level, now is the time to read the books, listen to the podcasts, YouTube videos, or join the networking groups. To execute the right deals, you have to be confident, to be confident, you have to be educated.
- Be Specific:
You must have very specific goals, and a well defined path to achieve them. Only then can you set specific investing goals. You need these to define your asset types, and how you will invest into them. If you do not have this planned, do it today. It is okay if things change as you go, but you need a path to start down.
- Be Aggressively Patient:
This may sound like an oxymoron. I define this as having items 1-3 complete, and ready to aggressively put deals under contract, while being patient for the right deals. What are the right deals? You should have already defined that, you should know exactly what that looks like. You should underwrite 100+ deals that might fit your buy right criteria, and find the diamond in the rough that does. The bottom line being, when a deal makes sense buy it. Do not overthink it, do not wait for prices or rates to drop, if it fits your model, buy it.
- Be Aware:
As buyers we are in new territory where we can no longer safely assume values, or rents will continue rising. In fact, we should be underwriting values and rents potentially dropping. Of course this will vary drastically depending on your local market, so you must understand your market. As a buy and hold investor, I am not overly concerned about values dropping in the short term. I buy and hold long term, I care what values will be in 10, 20, 30+ years. I buy in areas I believe in for the long hold. If you are a flipper, I believe this is the most dangerous market since 2007 for you. The rising tide will no longer help you out of bad deals. You 100% lock in your profit (or likely losses) when you buy, with rates climbing quickly, a 3-6 month rehab could result in massive price declines. You are trying to hit a rapidly moving target, most likely falling down. In my opinion, flipping is too much risk in most markets in the volatile environment that we see today. There are exceptions of course, and some markets are slower to react and still have incredible buyer demand, but in many markets, you will need a home run deal to win at flipping. The same concerns and principles apply to BRRRR deals. If you need a deal to appraise at a certain ARV after a 3-6 month rehab, understand you again are chasing a moving target. Have contingency plans and cash reserves. Things may not work out the way your underwriting told you before you purchased. Understand that with rates climbing, and rent growth potentially slowing, deals may not cash flow as well as they do on paper. Have multiple exit strategies for your deals, do they make sense as a flip, a BRRRR, a long term rental, a mid term rental, a STR? The more potential uses or exits, the safer you are!
Conclusion:
In conclusion, I am still buying rental properties, and I think it makes sense in many markets across the country. I think this changing market will create opportunities that most of us have never experienced. I believe a lot of the hype and fad that has surrounded real estate the last 10 years will subside, and leave behind the true professional investors who are in it for the long term wealth. I believe if you live by these 5 tips as I have, you will find massive success in the next few years as we wait to see how this market ultimately unfolds. Be prepared, be educated, be specific in your goals and criteria, be aggressive while patient, and be aware of the pitfalls I see in this market.
I would love to hear your thoughts, what are you seeing change, do you agree or disagree? Comment below!
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Joe Cornwell
Realty One Stop
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