Make use of a 1.6% mortgage or wait for better deals?

Question

Our bank (in Europe) is offering a 1.6% fixed mortgage for at least the next couple of weeks, and we have some cash to invest. Using the Bigger Pockets calculator, I see that our best deal at the moment works out to a "5.94% 5-year annualized return" and a "CoC ROI" of 6.65% after 20 years. That's bad, right? (We are total beginners, with a single rental property that we have only because it was formerly our primary residence.) Can anyone tell me if I'm misunderstanding the analysis of the rental property calculator? Is this a poor investment?

Looking for properties here in Slovenia has been like shopping for toilet paper in the US in March of 2020: there is extremely scant inventory, and prices have shot up similarly to hot markets in the US. The properties for sale are basically a bunch of overpriced table scraps that won't cash flow. We've tried to be open-minded and creative, looking at everything from the nation's capitol to possible opportunity zones along areas where new highways are being built. We've looked at distressed properties and ones that are newer builds. We've kept an open mind about adding value through renovations/additions. There just isn't much to choose from that's viable, unfortunately.

After a very frustrating month of researching and visiting properties, our most interesting option is an off-market deal through family in a desirable location near the "Old Town" city center (an area filled with jobs and tourist attractions). It looks like it won't cash flow until the second year (if I'm working the calculators correctly). From the second year onwards, projections show cash flow becoming positive, but it's a slim margin for a while. After 15 years, we would have the mortgage paid off, so cash flow would be a lot better.

Are we looking at yet another table scrap that we should pass up? If we don't find something in the next couple of weeks, we'll have to miss out on the 1.6% fixed mortgage offer. Definitely feeling some FOMO here. Maybe we should just invest in mutual funds instead and revisit our options in a few years? Would really appreciate some advice. Thanks!

Larry Turowski · Answer

@Erin Babnik Wow that is incredibly cheap! What are “normal rates?” That should be part of the consideration.

If you are investing purely for cash flow, which describes most of BP, then it doesn’t make sense. And most would tell not to invest for appreciation. I don’t really invest for market appreciation due to my area but if I lived in an area where that was a big factor and I was confident of it and I had access to cheap money, I’d definitely consider it.

Most investors who do really well do so from appreciation, either forced by rehabbing or adding on, or because they are confident in where the market is moving.

Erin Babnik · Answer

Thanks very much for sharing your thoughts! I was beginning to wonder if my question was too difficult for anyone to answer. I'll look into those other options you mention.

Taylor L. · Answer

That's not a particularly appealing rate of return. I would keep looking and perhaps consider another strategy. 1.6% is definitely cheap money, but cheap money doesn't make a good deal.

Other strategies may be a better fit for your specific situation. Syndications, notes, private lending - there are a lot of other options :)

Make use of a 1.6% mortgage or wait for better deals?

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