Is now a good time to buy or its best to wait?

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Is now a good time to buy or its best to wait?

Nick Eckemoff
Triangle, NC · Member since 2017 · 28 posts · 6 votes

I've been debating on getting my first rental property, however having experience with investing in the stock market, I understand the critical nature of 'getting in at the right time.' Sometimes that isn't an easy call because prices continue to go up and you really don't know if the trend will continue or reverse. I'm sad to report that I have been burnt buying stocks on top days before they crashed down, so now I'm hesitant in doing the same in real estate. At least with stocks you can cut your losses and move on, but not so with a mortgage.

In central NC, there is a lack of supply and high demand, especially now during the summer. Properties are selling fast and way too much for what I'd consider a good investment...if anything, you'd be lucky to break even because there is little motivation to sell for less. I don't take appreciation into consideration and maybe others do, but how do they know prices wont come crashing down? I'd buy and hold, but being upside down in a mortgage and where rent doesn't even cover it is my fear.

What comes to mind is Trump tax plans. The impact of is said to send prices down quickly by 15%. Seems its best to wait for that to happen?

Researching the topic, many think 2008 to 2014 was a good time to buy, but since then prices have been going out of control with a steep uptrend, but now  peaking trending lower in the future or at best flat. Now many are selling to cash out and it feels like I'd be buying at the peak of prices to benefit an investor if I were to buy today. 

The stock market has lots of talks about valuation. Many companies are trading outrageously high due to potential earnings that may never materialize. Even if a company has positive earnings, their stock is still dropping because it wasn't good enough considering all the speculation and expectations investors had many months before where the price got set! Smart investors continue to ride the wave, but are quick to pull out or ready to profit from it. The recent tech sellouts are a tell sign that potentially a crash is coming to get prices back down to realistic levels...some of these tech company's stock price is trending up, but actually have negative revenue or haven't even sold ANYTHING yet. Tech bubble all over again anyone? Maybe this has nothing to do with real estate and a reason I should get out of stocks.

Mortgage interest rates are really low still and projected to continue to rise now that the market is past recession. This is a good opportunity to lock in a low rate still.

Please let me know if I'm just trying to convince myself to wait or there are any real merits in doing so?

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Ryan Dossey
Real Estate Broker · Indianapolis, IN · Member since 2014 · 3k+ posts · 2k+ votes
9y

It totally depends on your local market. What I typically recommend is buying with equity regardless of timing. Don't count on appreciation. Then also run your #'s with a 20% reduction in monthly rent. Does it still cash flow? If so I'd pursue the property. 

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  • Ryan Dossey
    Real Estate Broker · Indianapolis, IN · Member since 2014 · 3k+ posts · 2k+ votes
    9y

    It totally depends on your local market. What I typically recommend is buying with equity regardless of timing. Don't count on appreciation. Then also run your #'s with a 20% reduction in monthly rent. Does it still cash flow? If so I'd pursue the property. 

    1Reply
  • Nick Eckemoff
    OP
    Triangle, NC · Member since 2017 · 28 posts · 6 votes
    9y

    Right - I don't want to bank on appreciation. I want to assume there will be none and if there is some, great!

    My numbers show that while you could gain 80% of rent (20% expenses) in an ideal situation, 40% expenses is a better realistic buffer. The numbers look okay for 20% expenses, but not 40% in my market, and I don't want to bank on optimism (or rather I want a 20% buffer).

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  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y
    Nick Eckemoff There's no perfect answer for you question. The forums are littered with people that are "seeking 2006" and waiting for another crash. The reality is that they are waiting for another 2008. But 2008 was only a great buying opportunity in hindsight. By the way, the other interesting fallacy is that if there is a crash that lending ease will stay the same. That access and the cost of capital will stay the same. So while you might be able to qualify today for an income property that isn't a guarantee you'll be able to qualify tomorrow. Well, okay, maybe not in a post-crash environment. What if your personal resident value crashes also? How does that impact your DTI ratio? My point is that it's never quite as simplistic as "wait for a correction/crash/etc." What is far more certain, however, is that 30-year fixed-rate mortgages will be there to weather the storm. So if you think that rates will increase (not an unreasonable posit) your locked rate will take you though the next 2-3 cycles. Is it worth it knowing you might get hit with a correction in the near term? Well, that's up to you.
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  • Ryan Dossey
    Real Estate Broker · Indianapolis, IN · Member since 2014 · 3k+ posts · 2k+ votes
    9y

    What I was suggesting wasn't setting aside 20% for expenses. What I was suggesting was that if it's rented for 2k could you still cash flow if you had to drop your rent to 1600 to rent it out?

    We typically set aside 50% for all the expenses - debt service when just running quick and dirty #'s. 

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  • Nick Eckemoff
    OP
    Triangle, NC · Member since 2017 · 28 posts · 6 votes
    9y
    Originally posted by @Ryan Dossey:

    What I was suggesting wasn't setting aside 20% for expenses. What I was suggesting was that if it's rented for 2k could you still cash flow if you had to drop your rent to 1600 to rent it out?

    We typically set aside 50% for all the expenses - debt service when just running quick and dirty #'s. 

    Oh gotcha. That's a good thing to consider.

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  • Ryan Dossey
    Real Estate Broker · Indianapolis, IN · Member since 2014 · 3k+ posts · 2k+ votes
    9y

    @Nick Eckemoff kind of a "just in case" situation. 

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  • Nick Eckemoff
    OP
    Triangle, NC · Member since 2017 · 28 posts · 6 votes
    9y
    Originally posted by @Andrew Johnson:

    Nick Eckemoff There's no perfect answer for you question. The forums are littered with people that are "seeking 2006" and waiting for another crash. The reality is that they are waiting for another 2008. But 2008 was only a great buying opportunity in hindsight. By the way, the other interesting fallacy is that if there is a crash that lending ease will stay the same. That access and the cost of capital will stay the same. So while you might be able to qualify today for an income property that isn't a guarantee you'll be able to qualify tomorrow. Well, okay, maybe not in a post-crash environment. What if your personal resident value crashes also? How does that impact your DTI ratio? My point is that it's never quite as simplistic as "wait for a correction/crash/etc."

    What is far more certain, however, is that 30-year fixed-rate mortgages will be there to weather the storm. So if you think that rates will increase (not an unreasonable posit) your locked rate will take you though the next 2-3 cycles. Is it worth it knowing you might get hit with a correction in the near term? Well, that's up to you.

    I suppose you're right. A good point is I qualify today but perhaps I wont qualify tomorrow because my situation will change. Maybe I'd talk myself out of it lose all my money in stocks. Who knows. :)

    My home is paid for and my debts are really low. I'm not stretching myself and can afford a loan, but my concern is that a correction would cause me to go bankrupt. I guess for this to happen you'd have to be really over leveraged on debt, where you can't get past the correction. 

    I wouldn't mind paying cash, but numbers show that 30 mortgages is better ROI. Its best to start the timer of tenants paying off the mortgage sooner than later too.

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  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Nick Eckemoff Bankrupt?  You have a paid for home and low debts.  Now could you go "negative cash-flow", sure, that's a realistic scenario.  I know I always ask myself if I can stand a 20% decrease in collected rents (vacancy or lower rents, it doesn't matter).  If there's a crash so bad that rents drop over 20% I probably have bigger issues.  If not, I go through a cycle of break-even while still paying down a mortgage.  As for your scenario, you could get to a point where you consciously default and walk away.  Your credit will be decimated but I don't think you'd be bankrupt.  

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  • Ben S.
    Investor · Tampa, FL · Member since 2017 · 122 posts · 87 votes
    9y
    I share your concerns with the market in general, and the stock market in particular, where there will need to be a significant correction. Considering this, my goal has been to be very cautious. I very run down homes and fix them up (I have a construction background, so that helps a lot). I want to have a lot of profit on any deal, so if prices drop or rents drop it doesn't hurt me as much. I'm also considering selling off some properties to have more cash in reserves, both to cover expenses during a crash, and to be able to buy after prices drop. Of course that may not happen, and I'll have left potential profits on the table, but oh well, it's worth not making as much as insurance against losing too much.
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  • Nick Eckemoff
    OP
    Triangle, NC · Member since 2017 · 28 posts · 6 votes
    9y

    So I thought this through more.

    Every year there have been doomsday prophecies and people absolutely convinced about something. Some even have lots of data to back up their theory. Fact is, most never come to pass.

    What I definitely learned in dealing stocks that you simply can't predict the market...you can only adapt to it. Sometimes prices continue to rise and you stare thinking 'no way! they're going plummet any day now!' but they continue to rise for months or years. At times prices fall drastically and it feels like the trend has reversed, but sure enough they recover the next day or week. All the while some sit there and not act (even when prices fall). The same situation happens on a down trend, where some refuse to (short) sell hoping for recovery, but only losing even more, yet others panic at a normal blip or spike, selling or buying too soon.

    I am a believer of 'past performance statistically increases the odds of similar future performance.' Yes past performance IS an indicator of future performance. I buy stocks trending up assuming they will continue to do so rather than stocks tending down hoping they'll recover. After time, the trend will reverse and there is time to sell before too late. Another words... when real estate prices are rising is a good time to buy - not when they start falling.

    Real estate is very location oriented, but I'd say as a whole its trending up now today. I don't think there are signs of a reversal yet. Real estate is very slow moving compared to stocks. Of course there could be some kind of drastic turn of the real estate market, but I don't think that the likelihood is any more today than yesterday. There is always risk and it is always accompanied by opportunity.

    You never know where the bottom or top is, so you can't rely on a bubble bursting as an indicator of when to buy. So my current theory is today is still a good day to buy real estate and waiting around is pointless. Nonetheless, I think people should be careful being over leveraged or too tight on what is break even or making a profit. Traditionally, rents don't really move up and down much and I really doubt this would be a drastic change.

    I think the most critical situation today is that there is a lower supply and higher demand in the real estate market now that the economy is doing well. Many more people today would rather rent than buy (young people don't want to get starter homes, but rather save up for the big one while living cheap). This trend is very different than in the past where  unqualified people were handed mortgages with no down payment. So I don't see a crash or prices dropping in the near future, but rather it is a good opportunity to buy and in fact perhaps investors are the real winners in this situation.

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  • Aaron D.
    Investor · Mount Laurel, NJ · Member since 2017 · 30 posts · 12 votes
    9y

    I think the most critical situation today is that there is a lower supply and higher demand in the real estate market now that the economy is doing well. Many more people today would rather rent than buy (young people don't want to get starter homes, but rather save up for the big one while living cheap). This trend is very different than in the past where unqualified people were handed mortgages with no down payment. So I don't see a crash or prices dropping in the near future, but rather it is a good opportunity to buy and in fact perhaps investors are the real winners in this situation.

    @Nick Eckemoff

    Most young people don't want to buy homes, and rather save up for the big one while living cheap? I guess I haven't met those young people or perhaps I am not involved with that consumption-oriented crowd. I would never buy a big house on debt. That shackles you for as long as you have that property. Many Real Estate Investors prefer the saying a home is not an asset it is a liability. Most young urban professionals need to move around for their jobs - can't be shackled to one spot (unless they rent it out). In my state it is getting very hard to sell one's home there is so much inventory on the market. 

    I agree with you in regards to a crash coming. There could be a crash coming - but then where do those former homeowners go? They would go into rentals which pushes rents up. I don't worry about a crash in real estate when it's a fixed loan. I would only worry about it if I had adjustable rate mortgages and interest rates keep rising. Interest rates are rising slower than the last time so we could have another downturn not next year but in 5-10 years. A crash is not important if you are collecting rent and paying down the principal. A crash is beneficial for landlords because more people would rent LOL! 

    By the way I'm in a state where foreclosures are still occurring and/or have not been sold off by the banks and/or other entities. You talk like the real estate market is like the stock market as if it moves altogether state by state, locality by locality. 

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