Rental Property Investor · Providence, RI · Member since 2020 · 7 posts · 22 votes
Hi!
I’m new to the investing world. I want to buy a multifamily and house hack it. Would it be wise to invest now, while my market (Providence, RI) is super hot or wait for a potential crash? Any advice is greatly appreciated!
@Kelsey Mortimore I’m doing a mixture of both, trying to keep some cash in reserve but also staying active and still doing some deals here and there to keep some money at work and especially keep a pulse on what’s happening in the market.
For your first investment though, I believe the best time to start is “now”, at any point in the market cycle, simply because you have to live somewhere and there is a lot of virtue in just getting started and getting over the “first deal” hump, overcoming “analysis paralysis” etc.
I’d recommend taking some time to “digest” your first deal though and acclimate to all the joys and responsibilities of house ownership, before rushing on to the next one. I’d say that at any point in the market cycle but with a little more emphasis now as we may see the market change while you’re settling in on your first purchase.
“Waiting for a potential crash” is more of an intermediate/advanced strategy and... to be honest even most of the “experts” get it wrong as far as timing. (Being human, I’m just as likely to be wrong on predictions and timing as most other people of course.)
So I think you should definitely just focus on what’s best for your own situation and “get a piece on the board” with a house hack if the numbers are acceptable to you, and then reevaluate where the market is, and you are, after that.
@Kelsey Mortimore Even though I do think you should always invest in cash flowing assets. I did see that the facts show 3-4million Americans are delinquent on their mortgages and its estimated that 30-40 million may get evicted. Obviously we can all look at stats and draw our own conclusions. It also depends on what markets your looking at. Just because one market is doing bad does not mean all markets are doing bad. There are people that always say they are waiting for a crash, but how many of those people bought in 2010? or even over the last ten years? You are never going to have a perfect situation but if you pick the right property and it cash flows you will be fine
I’m new to the investing world. I want to buy a multifamily and house hack it. Would it be wise to invest now, while my market (Providence, RI) is super hot or wait for a potential crash? Any advice is greatly appreciated!
You’ve presented a straight forward question without providing any figures. I’ll answer your question with a question; when is the potential crash coming? Smart investors here on BP aren’t asking that type of question. Rather, they move forward with securing additional assets with the intention to make sure they’re positioned properly in case a crash does come. There are different ways to do that which you can research and determine what feels best for you. Regardless of whatever strategy you employ, be sure to have reserve funds on hand which will enable you to pay the monthly expenses on the asset if you lose your tenant or if they can't pay the full rent.
I’m new to the investing world. I want to buy a multifamily and house hack it. Would it be wise to invest now, while my market (Providence, RI) is super hot or wait for a potential crash? Any advice is greatly appreciated!
You’ve presented a straight forward question without providing any figures. I’ll answer your question with a question; when is the potential crash coming? Smart investors here on BP aren’t asking that type of question. Rather, they move forward with securing additional assets with the intention to make sure they’re positioned properly in case a crash does come. There are different ways to do that which you can research and determine what feels best for you. Regardless of whatever strategy you employ, be sure to have reserve funds on hand which will enable you to pay the monthly expenses on the asset if you lose your tenant or if they can't pay the full rent.
@Kelsey Mortimore find deals that you are comfortable with, even if there is a drop in RE prices. For me, this means I like to operate with a Debt Service Coverage Ratio(DSCR) of about 1.25 to 1.5. I invest for cash flow, so future property value is not a primary driver in my decisions, but cashflow absolutely is. If you find a deal that works for you, do it!
Had to scroll past quite a few "now" comments before I came to your post. I very much agree with your assessment, though I think your time horizon is a little conservative.
To OP:
My opinion, as another would-be investor with a finger on the trigger and all my ducks in a row, is that these are unprecedented times and the FOMO is always very strong. In retrospect, was January of '07 the right "now" to get into the market? Of course not. But other than those few with a finger on the pulse of rising foreclosures or the preponderance of risky mortgage products, the only real evidence to support a bubble burst was a long steady march up in values. Which is flimsy.
Today, however, there is an obvious unresolved issue with the moritorium on foreclosures. Depending on your targeted market, this could be the only thing propping the market up. It's not unreasonable to consider a wave of foreclosures if the gov does nothing to prevent/mitigate. Who is running that government in the near future will be a major factor. Something that will be determined in only a few weeks...we hope. Not to mention cases are in the rise in pretty much every state. My state of NC, e.g., just hit a record in daily infections.
That being said, depending on your strategy, if you can make the numbers work, then "now" can be the right answer. I am a firm believer in time-in-market > timing-the-market, but that notion really only applies to long run strategies.
@Matt Romano, yes, I agree with you on that and other special scenario(s) , my reply is more for generic situation for investor.
But it's very tough to find a good deal in today's scenario, until you are very lucky.
I don't know about that. Deals are always out there. It's what you make of them. I've gotten to the point where I haven't found many properties where I couldn't figure out a way to make a deal out of it. Most REI look for the same things going in and coming out. Low cost, then rehab to increase value, then eventually sell for flips. Low cost, rehab, and appreciation and or cash flow coming out. The same basic strategies are used as well.
There are many more ways than the basic strategies and the typical "buy low. rehab, and sell high" path to make REI highly profitable. It starts with understanding that the total cost of a deal isn't equal to the REI's cost, and includes the Golden Rule of never spending your Seed Money...use it to infinity, but NEVER spend it. This allows the REI to exponentially grow as opposed to the limited linear growth that current strategies allow for.
This also allows for paying higher interest (using special rules) and even more than the Asking Price for a property and make instantly more money, more cash, and more future gains (appreciation and equity) then using the current buy low and sell high system. In other words, learning how to invest on the left side of the equal sign instead of the right side.
1. If you're a new investor and there is a crash...HIGHLY unlikely you would dive in, as fear would keep you out just like you're afraid now.
2. Buy houses at large discounts. Closing on a house for 122k, worth 200k, needs minimal repairs (bought offmarket). Master finding deals in a hot market and you'll be shooting fish in a barrel in a normal market.
3. As Jay alluded to, during a crash, there is little money to borrow, so if you can't pay all cash, you'll miss out then too
Forget about the crash. There have many posts about the next crash. Most times when people talk about the next crash there imagining a redo of the 2008 crash which was really good to me. The economy is in a much different place. Record low interest rates, stimulus which will most likely come back after the election, no evictions in many areas, etc. Yes, I believe there will be a run on foreclosures eventually. The forbearance will really hurt some people (3 month forbearance) and cause them to lose there homes. It might be another year or so. Remember the forbearance won’t effect your credit, well it won’t from a score perspective, but it will when underwriting gets it.
If you find a good deal in any market or economy jump on it. If your waiting you’ll probably miss it. There are to many mechanisms in place to reduce the crash. A correction is another story and we can wait and see on that.
If the deal works than why not. Good deals can weather bad situations. Yes the value may drop but I will eventually go back up. Buy and hold is where the money is. Control those assets or someone else will.
Kelsey First of all house hacking is a wonderful start in a lot of ways. It was actually my second move 9 years ago. I learned A LOT living in a simple 2 family for example the importance of good tenant relations. Timing the market is one facet of investing but not everything. Money is cheap to borrow right now. First i would set up your framework for how you want to live, ex multiple tenants or 1 on 1.
Next if the deal works out numbers wise, its a good idea to move forward. Waiting to time the market is a tough game. be shrewd. I your looking for something move in ready you will pay top dollar right now but save on the interest rate side. If you wait you will save on the purchase price. For your first I would move forward and lock in a SUPER low interest rate now because its likely property you will have for quite a few years.
Rates are supposed to stay low according to the FED, that will keep prices high.
Look for a stable township with good taxes and schools, you'll be glad you moved forward!
Got a guy 86 years old born after the Great Depression still waiting and swears this is the big one.
The biggest problem is if prices drop, then you'll wait for the bottom. Then when prices go back, you'll swear they'll come back down and that people are crazy not to wait some more. I heard it after the 09-10 crash - A lot.
Look at the property and see if it'll be a good earner now. If not look someplace else.
@Kelsey Mortimore it’s almost impossible to time the market. Don’t compromise on your numbers and you should be okay in my opinion. Depends on your risk appetite too I suppose. Just be cautious and smart.
so, how many times has the market adjusted in your area? when would you of had to buy to take advantage of that? in the moment would you of bought then? (basically when no one else is, when little is on the market, and banks are not lending) .... most people are not that lucky and few can time the market. the point is, especially if you are house hacking a MF ensure that the place cash flows (may not in DC?) and go for it...... remember that the good thing about RE is even if prices go down you dont have to sell.... you can wait or not sell at all..... as long as you can pay the mortgage and taxes (ie cash flow positive or have cash reserves) you will be fine.
@Matt M. do you know how to time the market or when the "crash" will happen? usually its better to be in the game as long as you are not over leveraged and can afford the mortgage for 6 months with no income (ie have reserves)....
@Kelsey Mortimore I recommend study prices and cash flow of properties vigorously and start looking for a deal that will work for house hacking or cash flow. Goal should be to obtain enough cash flow that it costs you close to zero if you live in one side or basement. I believe it is certain there will be a crash. Likely in about 6-12 months but every market is different. I am in Ky and don’t expect as much extremes and value. Likely a loss of 20 percent. Other markets will be far more extreme. But I have been wrong before. And I am still buying houses to flip and houses/ apartments to rent because they may loos value but unlikely to loose much cash flow if any.
I would suggest study and watch for your ideal place and plan on not finding it until March or later when I believe prices will be falling and many will become scared.
@Kelsey Mortimore Congrats on the wonderful househacking idea. It can be an AWESOME approach to RE investing and a great wealth builder. I’d keep it simple and say that nobody really knows if and when the next crash will happen, especially looking at the local level. It IS the case however, that there are always deals and good investments to be had without regard to “the market”. I’d recommend looking, analyzing, and being ready and willing to pull the trigger now and in the future. If you wait around for the crash to come for years and years, you may end up missing out on SEVERAL years of investment returns waiting on “the crash” that MIGHT save you a relatively-small amount on the purchase price.
I’m investing now and have been for several years and I’ll continue to invest no matter what happens in the market. Up or down a good deal is a good deal. I don’t believe that investing for an increase in value right now is smart but as a beginner I believe you’ll be investing for cashflow. That would be a smart move
On your part to either stop paying rent or remove your housing payment by gaining cash flow. My only thing to remember is right now we are at a height in the market. Some of these values we may not see again for a very long time. So just keep that in mind during your purchase. I’m in negotiations with a guy right now for an off market duplex which is only worth less then he paid for 12 years ago. He obviously paid down the loan so he’ll make money but he said “mentality it’s tough to take less then I paid” as long as you don’t just but to buy and get a good quality deal I say go for it!!
I have the same reservations while looking for my first deal. I think I found possibly two, one inexpensive with a 8.72% ROI, the other a little more expensive, with around a 15% ROI. I still need to line up a preapproval, set up an appointment to see the property, and possibly make my first offers.
There is a lot of talk about a crash coming "soon" or buy now - don't time the market, wait it out, make sure it's a good deal, cash flow, etc. You talk to one person and they say there is likely to be a correction in 2021. It starts in the bigger cities and then filters down to smaller markets. Another says to look at the economic numbers and you'll see a crash occurs every 7 years and it has been 12 years since the last one. And others say, keep buying as long as it's a good deal.
Could someone explain a little more about "just make sure it's a good deal that cashflows and you'll be fine?" Put our hearts at ease. What is the rationale behind it if a correction occurs next year? I think my biggest concern would be losing value in the property and tenants stop paying rent. In other words, how do we ignore the potential for a crash with the confidence that we find a deal that is cash flowing with a good ROI? I hope my question is clear. I'm having a difficult time expressing what I'm thinking.
I absolutely do not, but I’d never buy when there’s a buying frenzy and when prices are high. I’ve seen stuff sell lately that’s way over priced. Not in my game plan of investing...
What crash? The fed is printing money and interest rates are going to stay low for atleast 2+ years. If anything prices are likely to be higher a year or so from now as covid becomes a thing of the past.
I waited and 12 years later I'm buying 2 duplexes. It was only 12 years though! You can probably guess, but my advice is don't do what I did. Find a property that works for you, live in it for a year or maybe 2, and move on to your next one. .