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Eric W.
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Finding deals that justify pulling from HYSA

Eric W.
Posted Mar 29 2024, 06:11

I’ve been searching in the Sherman/abilene areas for potentially starting out. These areas seem affordable compared to where I live in dfw. I would be looking for something in the 200k range and have anywhere from 100-130k for a down payment. 

My issue that I’m having trouble getting over is that down payment money is currently yielding 5.5% in an HYSA with no risk or stress. If I pulled to put on a rental property for around 200k then after property tax, property management, mortgage, insurance I’d probably be cash flowing much less than my 5.5% at the moment. 

Would this be a bad idea to pull from the HYSA to enter real estate investing right now? Would it be better to just wait for rate cuts then jump in. 

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Jonathan Bock
Tax & Financial Services
  • Financial Advisor
  • Bryn Mawr, PA
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Jonathan Bock
Tax & Financial Services
  • Financial Advisor
  • Bryn Mawr, PA
Replied Mar 29 2024, 06:27

@Eric W.

What's your expectation/thesis for HYSA rates in several years? 

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Eric W.
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Eric W.
Replied Mar 29 2024, 06:42
Quote from @Jonathan Bock:

@Eric W.

What's your expectation/thesis for HYSA rates in several years? 

I think it’s hard to say. The consensus is lower than they are now, but anything could happen. Inflation could spike again we live through another Arthur burns era. Maybe rates go even higher from here. 

I get that monthly cash flow on the investment property isn’t the only factor and that real estate always goes up and now a days - going forward will probably just go up in a vertical line indefinitely, but if I don’t intend to sell the property due to tax purposes I wouldn’t be capturing the price appreciation, it would be the cash flow. 

idk, I’m probably overthinking this lol. Just most of the people I know in real estate investing got started when rates and housing prices were all much lower. They’ve secured low rates and rapid equity increases due to the last few years of Fed/gov intervention.  

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Samuel Diouf
  • Real Estate Agent
  • Columbus, OH
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Samuel Diouf
  • Real Estate Agent
  • Columbus, OH
Replied Mar 29 2024, 08:17

Look at people who were waiting in 2020 for prices to drop. It looks like the same pattern is happening now with rates. We can always speculate but we will never know for sure. If you buy now while rates are high when they do drop, real estate  will seem like a much easier game and you will have more experience for that next one as well. 

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Eric W.
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Eric W.
Replied Mar 29 2024, 08:38
Quote from @Samuel Diouf:

Look at people who were waiting in 2020 for prices to drop. It looks like the same pattern is happening now with rates. We can always speculate but we will never know for sure. If you buy now while rates are high when they do drop, real estate  will seem like a much easier game and you will have more experience for that next one as well. 

True. Where do you think housing would be had the government / fed intervention of 2020/21 never happened? 

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Aaron Breckenridge
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Aaron Breckenridge
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  • Dallas, TX
Replied Mar 29 2024, 08:46

Don't try to time the market. When/if rate cuts happen, everyone is going to be jumping into something else, all at the same time.

If it makes sense at 100-130k down payment on a 200k-ish property, does that same logic work for 50-75k down payment? With that strategy you're keeping more in reserve and earning interest and possibly seeing appreciation.

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Eric W.
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Eric W.
Replied Mar 29 2024, 09:04
Quote from @Aaron Breckenridge:

Don't try to time the market. When/if rate cuts happen, everyone is going to be jumping into something else, all at the same time.

If it makes sense at 100-130k down payment on a 200k-ish property, does that same logic work for 50-75k down payment? With that strategy you're keeping more in reserve and earning interest and possibly seeing appreciation.

So on a 200k home in Dennison the with 75k down the estimated payment on Zillow is 1,028 and rental estimate is 1512.factoring 9% management fee of 140 a month puts cash flow ~$350 a month. 

would that be considered decent in this market? I realize using Zillow numbers is a really rough estimate 

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Aaron Breckenridge
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Aaron Breckenridge
  • Technology
  • Dallas, TX
Replied Mar 29 2024, 09:09

Sadly, I don't know anything about the Denison market. I think it does make a ton of sense to look around DFW than right inside DFW.

And yes, I would try a few different tools to get a rent estimate, not just Zillow:

https://www.rentometer.com/
https://www.biggerpockets.com/insights/property-searches/new
https://www.neighborhoodscout.com/

Neighborhood Scout has pretty good info on what returns look like for specific markets.