Anywhere I can buy property still for cheap
Possible good investment?
Iowa? Nebraska?
I have not been keeping up lately although now i am.
I live in NYC.
As Sam pointed out, cheap is subjective. For people who live in coastal California or NYC, buying a $450,000 to $500,000 is "cheap" compared to buying a $1+ million property but to someone in less expensive state, that might not be cheap. I would say $500,000 for a SFH or duplex, I think is reasonable if I were to spend it on an appreciating city/state (e.g. California, Nevada, Arizona, Florida, Texas, Nashville Tennessee) but those would be negative cash flow right now as long term rentals unless I'm doing MTR or STR - I'm buying off the MLS or using an agent, no wholesalers, no tax liens, etc..
I wouldn't call $500,000 cheap - I use sub $200,000 as my parameter for "cheap" and if I'm not in a severely negative cash flow (-$100 to -$150 at most for first 2 years at current interest rates) but it's hard to tell since I can't predict precisely how many tenant turnovers, capital expenses, how much my property taxes/insurance will go up, repairs I would have on a renovated Class C Midwest property that's 100 years old over 10 year time span. My recent 2 Indy purchases were a renovated $130,000 SFH (rented out for 6 months now) and $132,600 (still needs repairs before being rented out). And I'm hoping these Class C will become Class B and appreciate as there's more development. I'm considering 1031 exchanging 3 Indy properties in the future back to one California or Nevada property. Will cheap cost me more in the long run?
Not sure where that map is from but wouldn't Miami or Orlando areas and parts of Colorado (Denver, Boulder) and Utah (Salt Lake City, Park City) be considered "not cheap" so would be in red? What was the cutoff purchase price or current market values used to establish "cheap"?
Kyle welcome to Nashville! Always up for a beer and chatting real estate. Lemme know if you are around!
Hi all, another weekly installment of my brief, hopefully insightful, dive into real estate and/or financial markets.
Today I'm talkin:
Rates continue their slow move downward after the elevator drop last week. But what will this do to home prices? Well 2023 is ending up 4.8% YoY, the strongest annual gain seen in 2023, according to Case-Shiller. Higher mortgage rates, while they certainly had their effect last year, were outweighed by strong demand and extremely low supply.
2024Building on my thoughts last week, what’s in store for 2024? Likely up, as more demand enters the market. But don’t take my word for it. Let’s take a look at what sources around the industry are saying...
Redfin - Homebuyer Demand Index spiked up 5% from last month, a leading indicator of strong demand and a good sign since the winter months usually bring the reverse. Home tours are also up from last year, although still not to 2020 levels.
NAR - November existing-home sales climbed .8% after a 5 month drop. Home prices should keep marching higher form here. "Only a dramatic rise in supply will dampen price appreciation."
Home Construction - Homebuilders broke ground on a heightened number of homes in November (Census Bureau). Housing starts rose 9% from a year ago, primarily because of an 18% increase in starts on single-family houses. This is significant, but not overboard. At the November clip, companies would have built about 1.1 million single-family homes and (1.56 million homes overall). We are 4 million homes underbuilt today. Homebuilders are anticipating even stronger demand for homes in 2024, riding lower interest rate tailwinds.
Outliers - There will be some markets that lag, like Dallas, which has some real estate industry leaders calling for continued pressure on home prices, potentially dropping 8% YoY and sales volume down nearly 13%. Really? Even I think this is overly conservative. But bears mention (no pun untended).
My Thoughts: The next 30-90 daysI feel confident in saying, the hard landing / recession for housing is behind us. In 2022 we saw home prices down 6 - 20% of the year, bottoming in December 2022 / January 2023. The last time home prices acutely decreased was the great financial crisis, before then, 1992 (and then it was mild, a couple % for a few months) . That’s it, in the last 30 years, 3 times. In my home market of Nashville we were down 12% almost exactly 1 year ago. We bottomed in January are up from there.
Inflation has / is receding in a meaningful way, without a stark increase in unemployment, as historically observed during this point in the cycle. The labor market remains strong and wage growth, while moderating, remains so as well. Still, wage growth is above what the Fed would likely like to be seeing at this time in the cycle. The Fed could slow its anticipated 2024 rate cuts to put more pressure on wages, if needed. Watch out for this.
Consumer Confidence
US consumer confidence rose in December by the most since early 2021 (Conference Board). Folks are upbeat about job availability and the inflation outlook, ending 2023 with positive momentum.
Gains in consumer optimism were largest among those aged 35-54 (a key indicator of good vibes). The survey’s top issue affecting consumers remains rising prices in general, but, importantly, politics, interest rates, and global conflicts all saw downticks as top concerns. Consumers’ Perceived Likelihood of a US Recession over the Next 12 Months abated in December as well, to the lowest level this year. “Consumer expectations for the next six months also increased in December, reflecting improved confidence about future business conditions, job availability, and incomes.”
There is a saying, I don’t know to whom to best attribute it: “Strong opinions, loosely held.” In the face of new / changing information one is ‘obligated’ to change one’s mind. And that’s what I’m doing. For the next 30 - 90 days, count me Bullish. For now.
IMO: 2024 will bring an almost 2021 bull market feeling. This aided by consumer confidence as 1) inflation recedes, 2) the Fed cuts rates 3—6 times and 3) bitcoin skyrockets due to a slew of ETFs beginning trading in the next 30-90 days. It’s going to be a banner year.
Still. I would urge vigilance over the market and cautious of what’s to come. Some investors may be getting a bit over their skies, assuming rates will slam back down to 3%. I do not think this will happen, frankly ever again, in my lifetime. Case in point: the bond market is starting to price in 7 interest rate cuts (.25% each) in 2024, according to the CME watch tool! There's even a 10% chance of 8 rate cuts into 2024 with roughly a 1% chance of 9 rate cuts. Now that’s pretty bullish. I’m percolating on this possibility…
I do remain ‘default skeptic,’ which has always served me well. I’m always trying to - as the great, late Charlie Munger was fond of saying - “be consistently not stupid, instead of trying to be very intelligent.” Protect your downside. In short: several rate cuts will come in 2024, and housing demand will follow. But be careful of building into your numbers / debt service / mortgage rates that are too bullish / low. You don’t want to high-side and face-plant.
Most Interesting Tweet of the WeekToyota caught tampering with safety data 🫣. Frankly, Tesla appears to be emerging as the safest and most popular car company.
That’s it for this week. If you are interested in digging deeper into these ideas or talkin’ real estate investing - which I always love doing - don’t hesitate to reach out. You can email me directly, send me a direct message on Bigger Pockets!
Until next time.
Herzliche Grüße
-Andreas
* The preceding has been my opinion only, the views are my own, and are intended for educational and entertainment purposes only and does not constitute financial advice.
Where are you buying a house for $400k in Nashville and getting a 6.65? In NW Nashville? I did not like this area very much.
I get very good rates, I think-- I get 6.75 with minute amount of points for investment I do not think average investor gets this. In Nashville, I put large downpayment too. I don't find any quality house below $600k in Nashville, and most of these I have fixed up. So real value is a lot higher. My leveraged(20-25%) are in Cleveland Park area between 41/31 which are more spec properties. My cash ones are south part of Nashville, just north of 440. I have yet to see a quality house in Nashville under $600k. Even the land in the area I speculate on is about $300k for a 5k sq ft lot.
this is your nashville rent growth, basically there're more supply > demand, causing rent growth to be flat.
Hello BP Compatriots! Below is a brief, hopefully insightful, dive into real estate and/or financial markets for the week. Let me know what you think in the comments and what you are seeing in your local market? (I'm in Nashville).
Today we’re talkin:
Well, what a week! Federal Reserve Chair Powell made a historic pivot in rhetoric, tampering down his hawkish tone and re-posturing on interest rates, saying rate cuts are something that now “begins to come into view” and “clearly is a topic of discussion.” Before this the Fed was only talking about how many more rate hikes may be necessary and did not have any future predictions of rate cuts. Even going as far as saying: that discussion was “premature.” The Fed now is projecting 3 cuts in 2024. While it is important to note that we are still above the rate levels we had at the beginning of 2023 (6.45% Jan. 3rd, 2023), the momentum and official Fed outlook has shifted markedly in just a few days. For its part, the bond market is pricing in 3-6 rate cuts in 2024. So far the bond market has been right.
Still, the Fed did not change rates, only rhetoric. For now, this may be enough to begin a shift in demand for housing (and hopefully for builders as well to boost supply). As long as inflation continues lower. But to see a continued reduction in mortgage interest rates the Fed will have to actually cut rates. Will they wait until inflation is at 2%? That still may take a while.
So Now What?Powell, , also reminded the crowd of reporters / analysts that the Federal Reserve has a dual mandate from Congress to maintain "maximum employment" and "stable prices." And on the inflation front, has made “real" progress.” So IMO, as long as employment doesn’t blow up above 5% (which traditionally has been considered ‘full employment’) and the rate of inflation continues a steady decline, peak interest rates have even reached, 30 days ago.
But, interest rates are still very high, is now a good time to buy a house?Doubling down what I said back in October, I would argue no… It’s a fantastic time to buy a house. But, it’s a not so good time to sell one. Follow me here…
It is absolutely true that home affordability is at an all time low. Why? Interest rates have gone from 3% to 6.65%. To put this in perspective, a $400,000 home with a 20% down payment would have a monthly payment today of ~$705 more than it would have been two years ago. Put another way, the same mortgage 2 years ago would buy you a $600k house, now you can afford a $400k house. Meanwhile, inflation for most of life’s items, while the rate of increase has wained, are still getting more expensive.
Echoing this, the National Association of Realtors NAR Housing Affordability Index is at 91.4, as of October, down from 94.5 in September, the lowest reading since the 1980s. At this level, the median household earner can’t even get approved for a mortgage on a median-priced home. ** Important this chart does NOT include the last 30 days of rate decreases which will slightly improve this number but actually not move the needle significantly.
Home affordability is hurting buyer’s ability to buy, meaning, those looking to sell are having a hard time finding buyers and are being forced to lower their asking price. Price reductions are now not only commonplace, but savvy buyers who are able to afford the mortgage (or have cash) are finding themselves in the driver’s seat. See chart below of listing price vs final sales price. Buyers are negotiating large reductions in list price.
So while it is true that home affordability is at an all time low, this is a direct result of higher interest rates, not a systemic financial or housing crisis, as there was during ‘08-09. The Federal Reserve is holding rates artificially high on purpose, in an effort to slow the inflation wildfire, which again we all see in the grocery store. Gas prices are fortunately cooling, but total inflation today still is 3.1%, and that is on top of last year’s prices, which were 8% higher than the year previous. Inflation sucks because it compounds.
Once interest rate waters recede back to the 5 - 5.5% levels, home prices will spike dramatically higher (just like other rate sensitive assets) as literally millions of households get back into the market looking for a home. Demand 👆 = Price 👆. And you will have wanted to have purchased that home already. This may take 12-18 months, but it will happen.
Let’s look at a case example on a typical investment property or primary home and determine if the numbers tell us to buy now or wait…
Let’s say you are purchasing a home for $400k in Nashville, TN, using my home market as an example. (And see next section with my Nashville market update).
At 6.65%, your mortgage is $2454.
Let’s assume it takes 18 months for rates to come down by then to 5.5%. The 3% COVID-era mortgages are likely never happening again. FYSA, I also think a bottom of 5% will be our new “normal.”
Purchasing that home today will cost you 18 months of higher interest at 6.65% vs 5.5%: $238/ mo., or $4284.
So, if you purchase a home today you will want to make sure you get a deal, and pay $4284 less for the home than comparable homes. Hire a great agent and they will make this happen (Need one? Message me and I’ll give you a fantastic referral).
The Strategy?Once rates come down, you refinance your current loan into that lower 5.5% (or lower) rate. Importantly, make sure to select the right lender, ask your agent for their preferred lender list, which any self-respecting one should have in their hip pocket. Many banks are offering free refinancing too, meaning no or very low closing costs to refinance into a cheaper rate. Lenders are calling this “Buy now, refinance later for free.” And check the fine print for any fees. Don’t pay those.
And let’s not forget we are in a buyer’s market. Why stop at $4284 off the purchase price? You can be much more aggressive in our home purchase negotiations.
So, is it a better idea to purchase a home now or wait?Using my home market of Nashville, TN (one of the most resilient real estate markets for home prices) as an example, the median price reduction from list is still a whopping 22% or $129,000 on an average home of $704,000 (see chart above).
So, if we can get just an average deal, let’s say 15% off the purchase price, the shrewd investor / homebuyer can save 14x their money if they purchase a home today vs wait for interest rates to drop. Let me say that again, you are likely to save more than $50,000 on a $400k home if you purchase today vs wait for rates to rebound.
Further, it is important to note that home prices bottomed in January, and are rising on average since. Over the next 18 months home prices will likely continue to rise, and you will be missing out on that valuable home appreciation if you are sitting on the bench.
If home prices rise a conservative 5% in those 18 months while you are waiting, that’s an additional $20,000 you are missing out on, or 4.6x the amount you were trying to save in interest by waiting!
So, if you are a prospective homebuyer, the answer is yes. I would buy today vs waiting. It’s a no brainer.
Market Insights: Nashville
I buy real estate where there is growth. And one fantastic growth area continues to be Nashville, TN. Homebuilders/apartment builders recognize this and were building in 2023. Big time.
One criticism/discussion I often hear/have is will there be too much supply - too many homes - which will depress home values. In my opinion, thats a strong no. We are heavily under built and there is extreme pent up demand to purchase a home today. To back this up, just this week Bank of America analysts released a report showing we are still“underbuilding” and this has been going on for the last decade. In fact, we find ourselves in a "deficit of 4 million" U.S. homes. Interestingly, BofA said the exact same thing in 2021. We haven’t made up any ground despite some improvement in future supply.
Simply put, Bank of America thinks we went from an over-built nation pre-financial crisis to an under-built nation today. According to the report, “The most direct solution for the housing shortage problem is to build more homes.”
In fact - and I believe this is a critical point we also sometimes miss - if a city/locality doesn’t have robust homebuilding numbers, especially if the city/locality is experiencing robust growth , the underlying economy of the area is at risk. A city must have strong homebuilding numbers to maintain growth.
If you are a first-time homebuyer, or investor, it’s a fantastic time to purchase a home. I wouldn’t advise selling, unless you have to. As long as you can afford/stomach/hold your nose at the moderately higher mortgage for 12-18 months, it should make far more financial sense to just eat that higher mortgage cost and refinance later into a rate for the long-term. This gives you the best of both worlds. Your investment today will likely make you several times your money back in additional interest payments for a temporary period of time. And if you can improve the home through renovation, or a little DIY, your home’s value will grow significantly faster.
I hope this has been insightful. Obviously I made some assumptions in calculations here but I tried to keep them conservative. I’m actively purchasing more rental properties myself. This is a fantastic time to be in real estate, waiting on the sidelines for interest rates to drop is like stepping over a nickel to pickup a penny. Just keep disciplined and make sure you get a good deal.
Favorite Tweet of the WeekThis is why inventory is low. Most sellers are buyers. Why move if you have a low rate?
That’s it for this week. If you are interested in digging deeper into these ideas or talkin’ real estate investing - which I always love doing - don’t hesitate to reach out. You can DM me right here and I read every message personally.
Until next time.
Herzliche Grüße
-Andreas
* The preceding has been my opinion only, the views are my own, and are intended for educational and entertainment purposes only and does not constitute financial advice.
Welcome Anthony! Great to hear from a fellow Nashville Investor. My new favorite spot is Charlotte park, the northern side. There is a new development going in up near the marina there that is going to be amazing. Im showing a few clients a duplex up there and there is another available too if you may be interested. Also happy just to talk local real estate if you have time? Send me a direct message. -Andreas
Hello BiggerPockets community,
My name is Anthony Paladino and I am a commercial real estate professional joining the BP community.
A bit about myself:
I grew up in Buffalo, NY and attended college at Loyola University Chicago. In 2019 I relocated to Tennessee to pursue a MBA at Belmont University here in Nashville. I have more than 9 years of professional experience working in commercial real estate with a primary focus on corporate real estate (managing portfolios for large publicly traded companies). I've worked with office, industrial, and retail properties throughout my career and have a strong background in underwriting deals, negotiating leases, and managing construction projects.
Like many others in this community, I believe that real estate investment is one of the best avenues for creating generational wealth and making a direct impact in your community. I am passionate about development and have spent significant time on both education and connecting with other industry professionals doing projects in this region. I am committed to using my corporate experience to facilitate institutional-grade investment opportunities in Middle Tennessee. My current focus is on 2 development project types:
1) Flex space (office-warehouse) new construction
2) Horizontal land development for low-density residential subdivisions
I am interested in connecting with other real estate investors and professionals that share similar interests and/or experience. I am member of several local real estate organizations including CRE615 and REIN TN. My weekly podcasts include the BP Real Estate Podcast, Adventures in CRE Audio Series, America's Commercial Real Estate Show, and The Commercial Real Estate Investor Podcast.
Please feel free to contact me on the BP forum, via email, or on LinkedIn. I look forward to getting more involved with this community!
what's interesting is the job market only growing for gov. job and hospitability industry. Other than that, it's crashing down !!! So Fed is successful enough to reduce employment.
Carlos, yes! I'm perpetually skeptical but it does worry me. Im watching closely!
Awesome insights, only found you because you mentioned my city, Alexandria, VA.
Now following you to stay on top of your content!
Thanks Daniel!! (I actually lived in DC for 17 years, just sold y last place there to reinvest in TN. DC unfortunately has gone downhill but Alexandria is lovely :)