Buy now while interest rates are low, or wait until prices drop?

Question

If I were to invest in residential real estate in a hot market down south (Austin, Tampa, Nashville...), do you think it would be best to do it now while interest rates are low and people are in the midst of flocking there from the northeast and CA? Or should I wait for the market to slow down and prices to drop?

Timothy Douglas · Answer

Time in the Market is better than trying to time the market in my opinion. Buy a property that has some cash flow and make sure that you can hold onto it through a recession. If that happens, you'll be set. There are always good deals!

Ryan Kelly · Answer

@Blaise Doremus Focus on making decisions based on data you know, versus don't know. You KNOW interest rates are low. You DON'T KNOW when or if prices will drop, and if they do, the properties could be at a much higher price. I agree with @Timothy Douglas, if you are a long-term investor, use the numbers you have now to purchase a property that makes sense for your goals now. If you get that right, the future should always work in your favor.

Jordan Moorhead · Answer

I don't understand why you think prices will be dropping?

Evan Polaski · Answer

@Blaise Doremus, are you buying for yourself or an investment?  If investment, rates are only one factor of your overall cashflow, and finding cash flow positive rentals in this market can be hard, and typically are only cash flow positive by underestimating expenses and Capex reserves. But, if you can find one that cashflows with healthy reserves, I would say buy now.  Might you get a better deal in 3-5 years, maybe.  But then your cash is sitting idle for years waiting for something that might never come.

If for yourself, I generally agree with others.  Good areas in most cities, but particularly cities like Austin that are seeing an even higher influx of new residents are not likely to drop anytime soon.

Theresa Harris · Answer

If you find a place where the numbers work, buy it.  No one knows what will happen to prices or interest rates.

Scott Brewster · Answer

@Blaise Doremus

The fed has stated over and over that rates will stay as low as possible for the foreseeable future. Once inflation starts rearing its ugly head they will allow them to rise again. Money is cheap, if you can afford a deal I’d jump in. There’s no telling if prices will continue to rise or fall, but inflation is guaranteed. Let the banks hold the bag of old debt while you acquire new money.

Dan Hunter · Answer

I would agree with others in that the prices doing down is not something I see any time soon.

Neil Narayan · Answer

there was a recent post on BP that stated that Austin is the most recession proof city in US.

Blaise Doremus · Answer

@Jordan Moorhead - A recession. But I've been told that some towns/cities in the Austin area are recession-proof, so you make a good point.

Brad Hammond · Answer

Hey @Blaise Doremus, that's a great question.  What I would do is run an analysis of different scenarios on the same property.  Take a look at interest rates now and what you perceive the new price will be.  Create scenario 1 (current market) and scenario 2 (perceived rate/price).

My thoughts are that when rates do start to rise in a few years, prices will adjust but it will be a slow process.

Buy now while interest rates are low, or wait until prices drop?

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