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!
Buy and Hold Investor · Cranston, RI · Member since 2013 · 1k+ posts · 1k+ votes
5y
@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.
@Johnathan Rodriguez I’m looking in the Providence, RI area!
Hey! I'm currently house hacking in Providence, and just picked up my first investment property! I think this is a great market to house hack in because you are able to "eliminate" your mortgage entirely. Decent 1% properties can still be found on the MLS. If you'd like a to learn some more feel free to reach out and I'd be glad to share some numbers on how I'm making it work out here!
Rental Property Investor · St. Louis, MO. · Member since 2019 · 12 posts · 3 votes
5y
@Kelsey Mortimore
If you wait to invest when time are hard most banks and lenders are going to be very selective on who they will lend too. If you have no established track record it will be very difficult to convince a lender to work with you. This is coming from a new investor in a time when everyone says money is easy to get right now.
Let’s just say covid wasn’t “a thing” but we decided to take 8 months off from filing evictions and having to pay rent. Also, we decided to let any home owner who wanted to stop paying their mortgage for 6 months with out a clear cut plan on what happens at the end of the 6 months. During this same period of time unemployment shot up to 8% when prior to that it had consistently ran at 2%. This is the world we are currently living in. The 12 months (or however long it ends up lasting) would create a bubble even if unemployment were still at 2%. Some homes are always in default! I believe this to be a government induced bubble of foreclosures and their has to be a reckoning. I am still picking up a cash flowing property here and there, but I believe the prudent thing to do is to get cash for 6 months to 1 year after evictions turn back on. I disagree with the “people will just sell the house because they have equity now” argument. What’s the old saying?, “in investing values go up the stairs and down the elevator”. this is different than the prior few years when things just felt frothy. There is with out a doubt a backlog of foreclosures to come created by the government.
You do understand why I would sell off my equity right? It has nothing to do with Covid19. It has everything to do with my cash (equity is cash lying dormant) outside of the property is 5 times more powerful than if it stayed in the property...and whether it stays or moves, the equity has exactly the same face value...it's the true value that increases to 5 times the face value when I move it.
That also means my cash flow increases as well as the appreciation since I now have more property value than I did when the equity remained in place.
I’m in the same boat as you. I pulled out a lot of equity that I’m now paying interest on. I just feel like taking the “wait and see” approach is the prudent move until foreclosures get turned back on. Currently we are only buying rent ready cash flowing stuff, sitting on cash, but my favorite product is the bank owned where we can add value.
My neighbour has been waiting for the next crash for 30+ years. My realtor has been saying “I’m in” for a decade but still wants to wait till the market corrects. Both are exactly as wealthy as they were at the start of the wait.
Rental Property Investor · Singapore · Member since 2018 · 128 posts · 48 votes
5y
I think it's similar to people trying to time the stock market - nobody can, and the best returns are for those who buy and hold. I think that if you see a good deal - it's a good deal. For example, I came across a flip with a ~40% ROI. Could I have this deal at a 55% ROI within a few months? maybe. I don't think you should disregard the future completely, just realize there is always going to be a "better time" to enter or a potentially better deal. Hope this helps, and good luck :)
Investor · Raritan, NJ · Member since 2016 · 12 posts · 6 votes
5y
@Kelsey Mortimore I was in a similar situation this summer. I was looking to buy my first multi family house hack and debating if I should wait for a possible crash or pull the trigger.
At the end of the day I decided to move forward on my first deal for the following reasons:
1. I plan to buy and hold over a 30 year period. Even if a 5-20% correction happens over the next few months, the numbers still make sense in the long run for modest cash flow and hit my ROI target.
2. It's hard to take advantage of a down market without experience, team members, and processes in place. By getting some of the growing pains out of the way now, I'll be better equipped to take advantage of any pull back that may happen in the next 6-18months.
3. I'm in a position where I can afford to do a second house hack after a one year period if prices do drop. Thanks to owner occupant financing allowing me to get in on properties with a low down payment.
If you're also in a position to be able to buy a second deal within a 12-18 month time frame I would suggest moving forward and buying property that makes sense to get the experience.
Invest now, if you wait you might see a 10% decline in a year, but if you invest now you can earn that 10% by the time the market bottoms. Also it's hard to time that market bottom and in the meantime you're losing real money since inflation is eating up your cash (assuming you don't have it in something else that you can sell easily like stocks...which also might crash).
@Kelsey Mortimore don’t ‘time the market’ - if you’re ready to dive in, you have a good understanding of the return you’d like to see and the area(s) you believe in, then jump on the right deal. There will likely be a waive of foreclosures in major markets over the next 12-18 months. I can say that will happen in Los Angeles with some confidence based on the current # of defaults in the pipeline. Will that correlate with a wider market crash? I have no idea. I do know that COVID has made people place a higher premium on where they live and on ownership, that lending rates are excellent and that banks are hungry for residential and MF opportunities because they are being really conservative with retail, office and hospitality/ground-up developments.
I can’t say that increased foreclosures will correspond with equally as favorable lending conditions, so right now seems pretty good if you have the capital lined up.
Well said.
I agree that corrections will be more localized. I think there is hesitation based on this being another '08, but that is comparing a systemic difficency to what could be considered a "typical" downturn, i.e. unemployment leading to late payments and defaults.
If someone is targeting a market where there tends to be a cluster of those prone to lose their jobs during these times, non-essential and non-remote capable work, then when that jenga piece of the moratorium is lifted price corrections are bound to follow.
As I said before, the uncertainty of how the gov will proceed is likely to be resolved soon, so why a first time investor would choose to jump in NOW, at the height of this uncertainty and with unemployment and late-payments on the rise...gotta chalk that up to FOMO.
“With the current eviction moratorium expiring in January, the situation could be even more challenging for renters,” Engelhardt said. “Many renter households across the country could find themselves with no place to live and no means to repay missed payments.”
Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
5y
@Matt Higgins I'm thinking your adage refers to investing in stocks. In real estate I have read "prices are sticky on the way down," which makes sense because it is difficult to sell for less than what you owe, foreclosures take time, many owners opt to wait it out or rent (reluctant landlords), and lenders often have the wherewithal to operate in their own best interest so they get a bpo , buy their collateral at foreclosure auction vs selling below the bpo and in some markets will hire asset managers to light rehab prior to offering their reo on the mls...in an attempt to be made whole. The last cycle peaked in 2006 and took 4-5 years to hit bottom. From what I am seeing today, re appears to be an elevator on the way up and a long ramp down. Not saying we will not head down that ramp in 2021. I kind of think it inevitable, but who knows. If Biden wins and creates a homebuyer credit the market might get even crazier.
Investor · Los Angeles, CA · Member since 2017 · 523 posts · 476 votes
5y
Educate yourself, find a good deal and get started now. Don't need a great deal - a decent one will do. The goal is TO START. The only thing I regret is that I did not start a few years earlier. Most investors will tell you the same. Figure out what you need to know - or partner with those who already know these things. You'll be glad you did.
I have a friend who wanted to buy after the last crash, waited, and will wait again now. He's not putting it off in search of a good deal - because there are tons of investors doing great deal. He's afraid. And that's natural - but the key is to overcome it. It sounds like you're on track, so I wish you all the best. Go get em!
Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
5y
Banks are already lending money to shaky buyers again. Appraisals are not coming in at sales prices. Debt is up, interest rates are low, and forbearance from Covid hasn't even timed out yet. All of the ground work is laid for a meltdown. It is a powder keg and is just a matter of time.
@Brandon Ingegneri, this is my exact thought! Some are skipping the inspection process and when the appraisal comes in lower, they purchase and find money from somewhere to make up the difference. Bidding wars, some are offering 15k to 50k over asking price to get that property and COVID cases are on the rise. I think 2021 is going to be interesting.
@Shelley Moore, how are things going in Reston? I'm in Bowie and everything is extremely high. I'm selling my home and want to buy a townhouse (new build) and they are just under $600k!!! Not quite what I wanted to spend, unless I can rent out the lower level.
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
5y
If you are buying to hold long-term, invest in good cashflowing deals, in solid B markets, with growing economics, don't over pay, put as little of your own money in as possible, and have 6-12 months expenses reserves for your situation and to support any real estate. If you are BRRRRing, stress test your ARV, rent, and vacancy numbers to make sure they can withstand any short-term movement. Then get to investing!
I’m curious as to why someone should put as little of their own money as possible into a purchase. Now when the market is high would be the worst time to put as little money as possible into their purchase because there is a good chance that we will see a dip in prices in the next 6 months and when someone puts down 3% on a purchase, they will have little equity and if prices drop 10% they will be underwater. If prices drop and OPM is in the deal, the other person might ask for their money back, then the owner would be in trouble if they don’t have the money to pay.
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
5y
@Cheryl Vargas Allow me to clarify... instead of putting your own money as equity down, buy an asset with equity built-in (ie. below value). This means finding a BRRRR deal, finding a below-market deal, or finding deal that you can manipulate the business plan (rent by the room, AirBNB, etc). Also, if you underwrote correctly, asset prices can drop and as long as you aren't forced to sell, you are good. This generally means it cashflows well.
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
5y
When it comes to house prices crashing, it has to crash for a reason. That reason means either less demand or more supply. The thought I have is if prices go down and someone isn't forced to sell, then why sell? This logic can keep inventory down for a long time. Plus with household formation from millennials, the demand is expected to be there for a while.
If 2020 has taught us anything is that the government has no problem interfering with the market, thus preventing major waves of foreclosures. This has prevented home prices from crashing because people could stay in their homes.
From the data I'm seeing, I don't see a major crash happening anytime soon. I do see submarkets struggling (such as high rise downtowns when people were leaving to work from home in the suburbs) but some are coming back.
Real Estate is a long term play. People who bought at the height of the market in 2007 are in better shape than those buying today. Prices have exceed and if they kept their mortgage, they would already be a 3rd of the way done! They could potential refinance into a 15 year and their payments could be close to what it was before.
If it works, then jump into it and have contingnecy plans.