Strategies with high interest rates

Investor · Jacksonville, FL · Member since 2019 · 135 posts · 106 votes

I’m curious to hear what everyone is doing to navigate this market with high interest rates

Investors, agents, buyers/sellers and lenders what are you doing to close deals? Are you having to get creative?

The Fed is planning to raise rates another 50basis points going into the new year and doesn’t look like things will reverse course anytime soon. What are you doing to adapt?

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Andrew PostellPro Member

Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes

@Drew C Grossman thanks for posting! I started my investing career in Florida and still have property in Jacksonville.

So what you are asking is what some of us have been talking about for many years - cash flow not being that important. Now, in addition to that, higher rates means less competition. Less competition means not as many buyers. Few buyers means sellers are more desperate than they were before. And that's what we are seeing right now - sellers are willing to negotiate. Remember what it was like when rates were really low? It was very difficult to find a deal because everything was going for MAXIMUM price and even over! So now, you have a lot more leverage than you did before. A lot! So you should be getting better deals than you were.

On the other side of this higher rates means less cash flow. And sometimes even NO CASHFLOW. So should you even buy right now? Two things I will say on this subject:

1. Cashflow - If you were expecting $200 per month in cash flow and you have $0 now...well, $200 per month = $2400 per year. So make your offer $5,000 less to accommodate for it. Oh, you want to make it even lower? Fine by me! I feel a lot better about properties when I buy them for less money. That's the mentality to have right now. You have more leverage now than you did before. And as the post above mentions...rates are decreasing. So that leverage might be going away in a hurry! Act now! Just make aggressive offers. Keep in mind that you will be increasing your rents next year...and the year after...and so forth. You will be cash flow positive down the line.

2. Appreciation - Appreciate has outpaced cashflow for at least a decade at this point. So that $200 per month? That's $12,000 over a 5 year period. Your property will earn you $100,000 in equity if you work the BRRRR method halfway correct. So who cares if my cashflow is $0 when I'm making $100,000 per year on my properties? (You can read more on this strategy HERE) Now this runs COUNTER to some "gurus" out there that talk about buying into their program and sitting back and collecting "mailbox" money and living off the cash flow. Investing in real estate has NEVER been about that....well, unless you are a multi-millionaire already. Maybe it works that way for that type of a person. But for the rest of us, we have to work REALLY hard. We have to LEVERAGE our properties. It takes TIME and ENERGY. So to me, the higher rates really show flaws in some of these "guru" teaching methods. I have always preached keeping your day job and investing in real estate part time. It's not as sexy as some "other" techniques out there - but it works.

Anyways, I hope all of that makes sense. Thanks!

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Jon Puente
Lender · Charlotte, NC · Member since 2020 · 224 posts · 221 votes
3y
Quote from @V.G Jason:

Quote from @Jon Puente:

Quote from @V.G Jason:

Quote from @Jon Puente:

Hey Drew,
Use seller credits to your advantage (as much as you can get) and buy down your interest rate with a temporary rate buy-down.
This is different than a permanent rate buy-down, because you get more buying power to achieve a lower rate.
The goal would be to refinance after 2 years (which rates should decrease in that time period if you bought today).
This strategy is used for traditional financing, but obviously you can to do "sub-to or seller finance" to achieve great results as well.
Great Question!

You're just speculating on the 2 year part. That's the problem. There's no given that it lasts just 1 year or two years. Not saying you're wrong, just saying you don't know if you're right.

I think prices will reflect the consumer sentiment. Ultimately, buyers don't go into the bank looking for a loan size but a monthly payment that reflects their financial situation. No one goes in saying, okay yeah cool give me $500k loan. They go in saying, ok I can make this work at a $3,000 monthly mortgage amount. That can be whatever rate it needs to be, but the leveraged amount must fit it. I'm already seeing prices lowered in almost city I look at, and quite drastically.

Pick a few market's you're looking at, and filter "price reduced" and see how often it's going down. Rocket Mortgage has already put out some really interesting incentive programs, that makes me think they clearly are ahead of the curve here and that would not surprise me. They're offering 1% buydowns in year 1, and offered to lower the rates in the first 3 years if they did go down at no cost(this was back around Labor Day). I am not sure if it's still offered. I'm watching them and my markets pretty often, I'd also point out the # of listings that have "price reduced" has increased daily. I do a filter for that, within last 14 days, and update it to within a day daily and track.

I am 100% certain that rates will be not be 6-7% for longer than 36 months. Using a 2-1 buy-down is exactly how to get a better payment, just like you are saying, for the first 2 years of your loan. Why wouldn't you do this, especially if it's the seller paying for it?
Oh btw, you have to qualify the loan on the note rate anyways, so its not like they wouldn't be able to afford it at the highest note rate (with current lending guidelines).
Rocket Mortgage is putting out really aggressive incentives because they have the highest rates of anyone lol. Their retail channel charges an absurd amount of fees & points on every loan. You can't watch a sports game without seeing their commercial almost every break, how do you think they pay for it?
Sorry, but I have done enough research to know that rates will drop sooner rather than later, from real economists.  6-7% is not sustainable in the economy longterm.
Long-term is subjective, and go ahead and use real economists that have always been wrong. Rates can't stay high long due to debt, we already know that. You're not some genius thinking he's found the missing ticket in life.

But exactly when no one knows, there's no saying they don't shoot up then back down like Papa Powell suggested they could do, rather than sit on it. And if hyperinflation comes from that due to dropping it too low too quick, we'd know about 4-6 months after that happens then yes in the 30-36 month timeline we'll be back here. We don't really know what the fed is going to do long term, or how things sit. Real economists and banks have been terribly wrong.  There's also no saying when you re-finance you aren't already underwater as is. You're trying to time stuff, that's not going to always work.

Temporary buydowns are happening, sure, and for sure take if the deal makes sense and it's being offered. But it's not moving the needle in most deals.

Okay, I want you to look up Barry Habib and watch some videos. He has done a lot of research on this and has been literally spot on predicting rates and other real estate activities. He won the crystal ball... 3 times.  I will leave you with this -
Temp buy-downs work in EVERY CASE, unless you need the cash for other reasons.
You can refinance at 95% or 96.5% LTV. If someone really paid THAT much over asking that you owe a lot more than that, then it is what it is! Sucks to suck.
This has nothing to do with timing the market. It has to do with getting the best payment you can now, and WHEN (not if) rates drop, you refinance in the best way available. By the way, when rates drop, home values will go up again, and the cycle continues.
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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y
Quote from @Jon Puente:

Quote from @V.G Jason:

Quote from @Jon Puente:

Quote from @V.G Jason:

Quote from @Jon Puente:

Hey Drew,
Use seller credits to your advantage (as much as you can get) and buy down your interest rate with a temporary rate buy-down.
This is different than a permanent rate buy-down, because you get more buying power to achieve a lower rate.
The goal would be to refinance after 2 years (which rates should decrease in that time period if you bought today).
This strategy is used for traditional financing, but obviously you can to do "sub-to or seller finance" to achieve great results as well.
Great Question!

You're just speculating on the 2 year part. That's the problem. There's no given that it lasts just 1 year or two years. Not saying you're wrong, just saying you don't know if you're right.

I think prices will reflect the consumer sentiment. Ultimately, buyers don't go into the bank looking for a loan size but a monthly payment that reflects their financial situation. No one goes in saying, okay yeah cool give me $500k loan. They go in saying, ok I can make this work at a $3,000 monthly mortgage amount. That can be whatever rate it needs to be, but the leveraged amount must fit it. I'm already seeing prices lowered in almost city I look at, and quite drastically.

Pick a few market's you're looking at, and filter "price reduced" and see how often it's going down. Rocket Mortgage has already put out some really interesting incentive programs, that makes me think they clearly are ahead of the curve here and that would not surprise me. They're offering 1% buydowns in year 1, and offered to lower the rates in the first 3 years if they did go down at no cost(this was back around Labor Day). I am not sure if it's still offered. I'm watching them and my markets pretty often, I'd also point out the # of listings that have "price reduced" has increased daily. I do a filter for that, within last 14 days, and update it to within a day daily and track.

I am 100% certain that rates will be not be 6-7% for longer than 36 months. Using a 2-1 buy-down is exactly how to get a better payment, just like you are saying, for the first 2 years of your loan. Why wouldn't you do this, especially if it's the seller paying for it?
Oh btw, you have to qualify the loan on the note rate anyways, so its not like they wouldn't be able to afford it at the highest note rate (with current lending guidelines).
Rocket Mortgage is putting out really aggressive incentives because they have the highest rates of anyone lol. Their retail channel charges an absurd amount of fees & points on every loan. You can't watch a sports game without seeing their commercial almost every break, how do you think they pay for it?
Sorry, but I have done enough research to know that rates will drop sooner rather than later, from real economists.  6-7% is not sustainable in the economy longterm.
Long-term is subjective, and go ahead and use real economists that have always been wrong. Rates can't stay high long due to debt, we already know that. You're not some genius thinking he's found the missing ticket in life.

But exactly when no one knows, there's no saying they don't shoot up then back down like Papa Powell suggested they could do, rather than sit on it. And if hyperinflation comes from that due to dropping it too low too quick, we'd know about 4-6 months after that happens then yes in the 30-36 month timeline we'll be back here. We don't really know what the fed is going to do long term, or how things sit. Real economists and banks have been terribly wrong.  There's also no saying when you re-finance you aren't already underwater as is. You're trying to time stuff, that's not going to always work.

Temporary buydowns are happening, sure, and for sure take if the deal makes sense and it's being offered. But it's not moving the needle in most deals.

Okay, I want you to look up Barry Habib and watch some videos. He has done a lot of research on this and has been literally spot on predicting rates and other real estate activities. He won the crystal ball... 3 times.  I will leave you with this -
Temp buy-downs work in EVERY CASE, unless you need the cash for other reasons.
You can refinance at 95% or 96.5% LTV. If someone really paid THAT much over asking that you owe a lot more than that, then it is what it is! Sucks to suck.
This has nothing to do with timing the market. It has to do with getting the best payment you can now, and WHEN (not if) rates drop, you refinance in the best way available. By the way, when rates drop, home values will go up again, and the cycle continues.

I'm not saying they don't work. Of course they work, nobody is refuting that. I'm saying it as the only strategy isn't the solution there's others that are far more risk adverse to timing the market. I stick by buy intrinsic or ATM and add incentives. There's more ways then temp buydowns as incentives, but yes, that's one. When rates drop, the market will go back up but there's usually a small lag. So you'll have to wait some. Likewise, a longer lag on the decrease of prices when rates go up due to last 6 month comps being the fave for appraisers and real estate agents.

I'm not going to look up Barry Habib, I don't need to take crystal ball advice from some dude or some dude that worships some guy named Barry Habib. I sit pretty as is.
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Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Drew C Grossman:

I’m curious to hear what everyone is doing to navigate this market with high interest rates

Investors, agents, buyers/sellers and lenders what are you doing to close deals? Are you having to get creative?
The Fed is planning to raise rates another 50basis points going into the new year and doesn’t look like things will reverse course anytime soon. What are you doing to adapt?

I deleveraging two property into one

and / or

buying 1031 with cash, debt is replaced with ZC dst
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Vanessa Ursery
Realtor · Corpus Christi · Member since 2019 · 39 posts · 10 votes
3y
Quote from @Christopher Yager:

@John Morgan hello from Corpus Christi. I'm currently considering renting rooms out. Any drama issues with the tenants so far?Also can you recommend some vetting procedures for screening the tenants? Thanks

Hey Christopher.
mom an agent in the area, I have a few programs at my disposable for vetting tenants as an agent. I would suggest teaming up with one and just covering their cost.
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Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
3y
Quote from @Jon Puente:

I am 100% certain that rates will be not be 6-7% for longer than 36 months. Using a 2-1 buy-down is exactly how to get a better payment, just like you are saying, for the first 2 years of your loan. Why wouldn't you do this, especially if it's the seller paying for it?
Oh btw, you have to qualify the loan on the note rate anyways, so its not like they wouldn't be able to afford it at the highest note rate (with current lending guidelines).
Rocket Mortgage is putting out really aggressive incentives because they have the highest rates of anyone lol. Their retail channel charges an absurd amount of fees & points on every loan. You can't watch a sports game without seeing their commercial almost every break, how do you think they pay for it?
Sorry, but I have done enough research to know that rates will drop sooner rather than later, from real economists. 6-7% is not sustainable in the economy longterm.
This is a very dangerous statement. Rates absolutely can stay high for longer than 36 months. Not only that, but they can rise for decades. Here's the Federal Funds Rate over the past 60 years:
If you don't like that, here's a great visual of interest rates over the last 600 years.
The Fed does not care about you, your assets, or your business. It only cares about inflation (and unemployment). And, the Federal Minimum Wage is the lowest it's been (in real, inflation adjusted terms) in 80 years. The economy can take a massive beating before unemployment begins to swell. I believe this Fed, that they are convicted about beating inflation.
What's more, the pain is going to be felt disproportionately by the rich in a higher interest rate environment. Higher interest rates wipes out equity value in assets like businesses, commercial real estate, etc. It has way less impact on homeowners. People still need to operate those businesesses and we still have 2 job openings for every job seeker even now. Rising rates hurt everyone, but they might just hurt the rich more than the poor this time around. In a perverse way, that reduces long-term systemic problems, like income inequality, in this country.
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- V.G JasonPro Member
  Investor · Member since 2022 · 3k+ posts · 3k+ votes
  1y
  Quote from @Scott Trench:
  
  Quote from @Jon Puente:
  
  I am 100% certain that rates will be not be 6-7% for longer than 36 months. Using a 2-1 buy-down is exactly how to get a better payment, just like you are saying, for the first 2 years of your loan. Why wouldn't you do this, especially if it's the seller paying for it?
  Oh btw, you have to qualify the loan on the note rate anyways, so its not like they wouldn't be able to afford it at the highest note rate (with current lending guidelines).
  Rocket Mortgage is putting out really aggressive incentives because they have the highest rates of anyone lol. Their retail channel charges an absurd amount of fees & points on every loan. You can't watch a sports game without seeing their commercial almost every break, how do you think they pay for it?
  Sorry, but I have done enough research to know that rates will drop sooner rather than later, from real economists. 6-7% is not sustainable in the economy longterm.
  This is a very dangerous statement. Rates absolutely can stay high for longer than 36 months. Not only that, but they can rise for decades. Here's the Federal Funds Rate over the past 60 years:
  If you don't like that, here's a great visual of interest rates over the last 600 years.
  The Fed does not care about you, your assets, or your business. It only cares about inflation (and unemployment). And, the Federal Minimum Wage is the lowest it's been (in real, inflation adjusted terms) in 80 years. The economy can take a massive beating before unemployment begins to swell. I believe this Fed, that they are convicted about beating inflation.
  What's more, the pain is going to be felt disproportionately by the rich in a higher interest rate environment. Higher interest rates wipes out equity value in assets like businesses, commercial real estate, etc. It has way less impact on homeowners. People still need to operate those businesesses and we still have 2 job openings for every job seeker even now. Rising rates hurt everyone, but they might just hurt the rich more than the poor this time around. In a perverse way, that reduces long-term systemic problems, like income inequality, in this country.
  
  How's that buy down going now @Jon Puente?
  
  At this point, those buys down folks have rates coming back up and house prices stagnating or coming down, unless in primo areas. Absolutely awful situation to be in.
  
  This didn't age well for John.
  And if people read Scott & my post's they'd learn the hard way. Agents have something to sell, it's always a good time to buy. Listen to the ones, like me, with nothing to sell but verify still.
  0 Reply
- Chris SeveneyBusiness Member
  Moderator
  Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
  1y
  Quote from @V.G Jason:
  
  Quote from @Scott Trench:
  
  Quote from @Jon Puente:
  
  I am 100% certain that rates will be not be 6-7% for longer than 36 months. Using a 2-1 buy-down is exactly how to get a better payment, just like you are saying, for the first 2 years of your loan. Why wouldn't you do this, especially if it's the seller paying for it?
  Oh btw, you have to qualify the loan on the note rate anyways, so its not like they wouldn't be able to afford it at the highest note rate (with current lending guidelines).
  Rocket Mortgage is putting out really aggressive incentives because they have the highest rates of anyone lol. Their retail channel charges an absurd amount of fees & points on every loan. You can't watch a sports game without seeing their commercial almost every break, how do you think they pay for it?
  Sorry, but I have done enough research to know that rates will drop sooner rather than later, from real economists. 6-7% is not sustainable in the economy longterm.
  This is a very dangerous statement. Rates absolutely can stay high for longer than 36 months. Not only that, but they can rise for decades. Here's the Federal Funds Rate over the past 60 years:
  If you don't like that, here's a great visual of interest rates over the last 600 years.
  The Fed does not care about you, your assets, or your business. It only cares about inflation (and unemployment). And, the Federal Minimum Wage is the lowest it's been (in real, inflation adjusted terms) in 80 years. The economy can take a massive beating before unemployment begins to swell. I believe this Fed, that they are convicted about beating inflation.
  What's more, the pain is going to be felt disproportionately by the rich in a higher interest rate environment. Higher interest rates wipes out equity value in assets like businesses, commercial real estate, etc. It has way less impact on homeowners. People still need to operate those businesesses and we still have 2 job openings for every job seeker even now. Rising rates hurt everyone, but they might just hurt the rich more than the poor this time around. In a perverse way, that reduces long-term systemic problems, like income inequality, in this country.
  
  How's that buy down going now @Jon Puente?
  
  At this point, those buys down folks have rates coming back up and house prices stagnating or coming down, unless in primo areas. Absolutely awful situation to be in.
  
  This didn't age well for John.
  And if people read Scott & my post's they'd learn the hard way. Agents have something to sell, it's always a good time to buy. Listen to the ones, like me, with nothing to sell but verify still.
  
  unfortunately people only want to listen to the opinions that feed their biases. Basic economics of supply and demand along with affordability have always been in play but people think real estate moves like stock market, so if they do not see it coming down they are like "told you so" then will be like "well it was 2 years later".
  100% right, people with no skin in the game will share an unbiased opinion.
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John MorganPro Member
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
3y
Quote from @Christopher Yager:

@John Morgan hello from Corpus Christi. I'm currently considering renting rooms out. Any drama issues with the tenants so far?Also can you recommend some vetting procedures for screening the tenants? Thanks
I only have 3 rentals that I’m renting out by the room. I’ve had minor drama issues. But I talk to them individually or as a group to work past them. It’s hard putting people with completely different ages and backgrounds in one house. But they all adapt and get along. I ask them if they’ve had any felonies and evictions. Then check online to see if they were telling the truth. I’ll take them if they haven’t had any felonies within 5 years. Tenants with criminal histories or previous evictions have turned out to be my best ones. So I don’t rule anyone out. I just want honesty and a good work ethic and attitude.

I pick men and women to live together. My women tend to keep the houses very clean which I like. So far so good for me! And I net on average $1800/month off these properties which is much more than my other boring rentals. Lol. Average purchase price is around 230k in the ft worth area.
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Jon Puente
Lender · Charlotte, NC · Member since 2020 · 224 posts · 221 votes
3y
Quote from @Scott Trench:

Quote from @Jon Puente:

I am 100% certain that rates will be not be 6-7% for longer than 36 months. Using a 2-1 buy-down is exactly how to get a better payment, just like you are saying, for the first 2 years of your loan. Why wouldn't you do this, especially if it's the seller paying for it?
Oh btw, you have to qualify the loan on the note rate anyways, so its not like they wouldn't be able to afford it at the highest note rate (with current lending guidelines).
Rocket Mortgage is putting out really aggressive incentives because they have the highest rates of anyone lol. Their retail channel charges an absurd amount of fees & points on every loan. You can't watch a sports game without seeing their commercial almost every break, how do you think they pay for it?
Sorry, but I have done enough research to know that rates will drop sooner rather than later, from real economists. 6-7% is not sustainable in the economy longterm.
This is a very dangerous statement. Rates absolutely can stay high for longer than 36 months. Not only that, but they can rise for decades. Here's the Federal Funds Rate over the past 60 years:
If you don't like that, here's a great visual of interest rates over the last 600 years.
The Fed does not care about you, your assets, or your business. It only cares about inflation (and unemployment). And, the Federal Minimum Wage is the lowest it's been (in real, inflation adjusted terms) in 80 years. The economy can take a massive beating before unemployment begins to swell. I believe this Fed, that they are convicted about beating inflation.
What's more, the pain is going to be felt disproportionately by the rich in a higher interest rate environment. Higher interest rates wipes out equity value in assets like businesses, commercial real estate, etc. It has way less impact on homeowners. People still need to operate those businesesses and we still have 2 job openings for every job seeker even now. Rising rates hurt everyone, but they might just hurt the rich more than the poor this time around. In a perverse way, that reduces long-term systemic problems, like income inequality, in this country.

Hey Scott, I am honored that you took the time to respond. While I understand rates have been as high as 20%, the chances of that happening are almost zero. Inflation wasn't necessarily caused by low rates in the beginning, so by raising rates, it's only treating the symptom to a bigger problem which was: supply chain issues due to COVID, and the printing of trillions of dollars. As you know, we can't really go back in time to fix those items now, so the only option now is to raise rates in hopes to slow inflation.

Which leads me to my point that rates will not increase for decades because that would literally destroy the entire economy. I understand rates could be "higher" for a while, but higher doesn't mean 12%. It means higher than 2%-3%, which were all time lows. I dont disagree that higher rates hurt businesses and everyone seeking financing. The only point I was trying to make to the previous contributor was that a Temp rate buy-down is the best solution right now to someone purchasing a home because you use seller credits to obtain a lower rate (none of your own money) and can refinance in the future should rates drop, which they will eventually.
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Wale LawalBusiness Member
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
3y
@Drew C Grossman
As mortgage rates rise, the effect on real estate investing can be positive. The market for rental properties will increase because fewer people can qualify for mortgages. That said, rising interest rates reduce prices, so it can sometimes be better to buy during a rising interest rate environment.

Moreover, as interest rates rise, fewer real estate transactions will take place since lending standards will be tighter. Thus, more people will need rental properties until they can afford a mortgage. A 1% increase in interest for an investor can turn into a windfall of profit in the right housing market.
Read this article for more information https://www.investopedia.com/f...
All the best!
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Cole Steele
Member since 2022 · 12 posts · 9 votes
3y
Quote from @Eliott Elias:

Eating, buying more deals than ever. Seeing a lot more subto opportunities, people who overpaid but have locked in a good interest rate.

What is a subto opportunity? Are you just buying out their loan?
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Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
3y
@Jon Puente.

@Scott Trench

I’m with you Jon. Interest rates can’t go a “lot” higher and for very long. Take the above interest rate chart and overlay it with Federal Debt and GDP. You get a ceiling on the interest rate.

Could Powell raise the interest rate to 18%. Yes. But start counting the years. 1/2/3. Very quickly the Federal Debt starts to roll over and get refinanced at this higher debt level. Quickly becomes unsustainable. Average Federal debt is 8 years.

Interest rates in the 6% range is normal.

@Drew C Grossman. When do we hit a buyers market are we in transition. Who knows but we are headed that way. Would double or triple the number of offers you were making before. Add subject to inspection. Put a $2,000 refundable deposit down. Make them 3 day offers and move on.
Buyers market is a collective thought. Individual sellers will hit that point at different times. Keep making a bunch of offers that meet your financial targets. Disregard the asking price. They want $310k you offer $180k. They ask $1.3mm you offer $800k. Yes those are real numbers and closed deals in the last 3 months.
Make a list of properties in descending order each month. Shoot for value add. Stay in the higher end properties. They have liquid cash and can take less. Better for your rental or resale.
Go hunting.

Didn’t we talk a while back about self storage? Now is the time.
Want you to go buy a bottle of something you like and put it next to your door way so you see it each day. Tell yourself when you close your next deal in the next 30 days you’re opening it. Make sure it fits your financial targets not the asking price of the seller. Don’t care if they are 89 and want to sell their investment property or if their partner got tagged by the FBI and had to pay a huge fine. Life is out there. Go find it.
If you get a chance send me a picture of conch stew and a Bimini bread sandwich. Fond memories of Florida.
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Paul MoorePro Member
Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
3y
Hi @Drew C Grossman! You got a lot of great feedback here. I would recommend that you fund recession resistant assets that have a lot of intrinsic value baked in. Many of these can be acquired from mom-and-pop sellers. There are many examples. Some could include mobile home and RV parks. Happy Investing!
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1 Reply
Jay Pillalamarri
Investor · Seattle, WA · Member since 2015 · 34 posts · 4 votes
3y
Quote from @Andrew Postell:

@Drew C Grossman thanks for posting!  I started my investing career in Florida and still have property in Jacksonville.
So what you are asking is what some of us have been talking about for many years - cash flow not being that important. Now, in addition to that, higher rates means less competition.  Less competition means not as many buyers.  Few buyers means sellers are more desperate than they were before.  And that's what we are seeing right now - sellers are willing to negotiate. Remember what it was like when rates were really low?  It was very difficult to find a deal because everything was going for MAXIMUM price and even over! So now, you have a lot more leverage than you did before.  A lot! So you should be getting better deals than you were.
On the other side of this higher rates means less cash flow.  And sometimes even NO CASHFLOW. So should you even buy right now?  Two things I will say on this subject:
1. Cashflow - If you were expecting $200 per month in cash flow and you have $0 now...well, $200 per month = $2400 per year. So make your offer $5,000 less to accommodate for it.  Oh, you want to make it even lower? Fine by me!  I feel a lot better about properties when I buy them for less money.  That's the mentality to have right now. You have more leverage now than you did before.  And as the post above mentions...rates are decreasing. So that leverage might be going away in a hurry!  Act now! Just make aggressive offers. Keep in mind that you will be increasing your rents next year...and the year after...and so forth. You will be cash flow positive down the line.
2. Appreciation - Appreciate has outpaced cashflow for at least a decade at this point. So that $200 per month? That's $12,000 over a 5 year period. Your property will earn you $100,000 in equity if you work the BRRRR method halfway correct. So who cares if my cashflow is $0 when I'm making $100,000 per year on my properties? (You can read more on this strategy HERE) Now this runs COUNTER to some "gurus" out there that talk about buying into their program and sitting back and collecting "mailbox" money and living off the cash flow. Investing in real estate has NEVER been about that....well, unless you are a multi-millionaire already.  Maybe it works that way for that type of a person. But for the rest of us, we have to work REALLY hard.  We have to LEVERAGE our properties. It takes TIME and ENERGY. So to me, the higher rates really show flaws in some of these "guru" teaching methods.  I have always preached keeping your day job and investing in real estate part time. It's not as sexy as some "other" techniques out there - but it works.
Anyways, I hope all of that makes sense.  Thanks!

Great points. I agree about how an investor should adjust his strategy in this market.
Boils down to demand and supply. And when demand plummets, it creates pressure on sellers, especially ones who are desperate to get out. Long term investor can take advantage of it by taking a short term hit on the CF (which can be negotiated in the price and terms)!
Make sure to research the strength of the local economy and its fundamentals.
0 Reply
Jack B.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
2y
Quote from @Vanessa Ursery:

Quote from @Christopher Yager:

@John Morgan hello from Corpus Christi. I'm currently considering renting rooms out. Any drama issues with the tenants so far?Also can you recommend some vetting procedures for screening the tenants? Thanks

Hey Christopher.
mom an agent in the area, I have a few programs at my disposable for vetting tenants as an agent. I would suggest teaming up with one and just covering their cost.

He can run the background check himself for $30 a tenant instead of paying a realtor more...just google tenant background search...I've used the same service for 14+ years
0 Reply
Vanessa Ursery
Realtor · Corpus Christi · Member since 2019 · 39 posts · 10 votes
2y
Quote from @Jack B.:

Quote from @Vanessa Ursery:

Quote from @Christopher Yager:

@John Morgan hello from Corpus Christi. I'm currently considering renting rooms out. Any drama issues with the tenants so far?Also can you recommend some vetting procedures for screening the tenants? Thanks

Hey Christopher.
mom an agent in the area, I have a few programs at my disposable for vetting tenants as an agent. I would suggest teaming up with one and just covering their cost.

He can run the background check himself for $30 a tenant instead of paying a realtor more...just google tenant background search...I've used the same service for 14+ years

That’s fine. To each their own. My systems even tell me speeding tickets nationwide. Different stokes for different folks.
0 Reply
Jack B.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
2y
Quote from @Vanessa Ursery:

Quote from @Jack B.:

Quote from @Vanessa Ursery:

Quote from @Christopher Yager:

@John Morgan hello from Corpus Christi. I'm currently considering renting rooms out. Any drama issues with the tenants so far?Also can you recommend some vetting procedures for screening the tenants? Thanks

Hey Christopher.
mom an agent in the area, I have a few programs at my disposable for vetting tenants as an agent. I would suggest teaming up with one and just covering their cost.

He can run the background check himself for $30 a tenant instead of paying a realtor more...just google tenant background search...I've used the same service for 14+ years

That’s fine. To each their own. My systems even tell me speeding tickets nationwide. Different stokes for different folks.

As does every system...not that traffic tickets are relevant in tenant screening anyways.
0 Reply
Wale LawalBusiness Member
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
2y
@Drew C Grossman House Hacking is always a great strategy for any kind of market condition.
It's a low-risk and potentially a high-reward way to invest in Real Estate if it fits that investor's current condition.
Good luck.
[email protected]832-776-9582 Podcast Guest on Show #469
NETWORTH BUILDERS5236 Reviews
Website View Page
1 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
2y
Quote from @Wale Lawal:

@Drew C Grossman House Hacking is always a great strategy for any kind of market condition.
It's a low-risk and potentially a high-reward way to invest in Real Estate if it fits that investor's current condition.
Good luck.

in fact househacking for primary and rental could be the default and only available option to make DSCR higher than 1.

i have been doing that myself and i learnt lot of stuffs from building additional bathrooms, additional kitchen and what kind of kitchen utensil that would work in such scenario, a lot of this come from learn and doing active investment from business perspective. I can't imagine how many bathroom I built this year lol
1 Reply
Wale LawalBusiness Member
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
2y
Quote from @Carlos Ptriawan:

Quote from @Wale Lawal:

@Drew C Grossman House Hacking is always a great strategy for any kind of market condition.
It's a low-risk and potentially a high-reward way to invest in Real Estate if it fits that investor's current condition.
Good luck.

in fact househacking for primary and rental could be the default and only available option to make DSCR higher than 1.

i have been doing that myself and i learnt lot of stuffs from building additional bathrooms, additional kitchen and what kind of kitchen utensil that would work in such scenario, a lot of this come from learn and doing active investment from business perspective. I can't imagine how many bathroom I built this year lol

Hahaha. It is an ACTIVE form of investment but it's worth it for those with little money and experience to get started.
[email protected]832-776-9582 Podcast Guest on Show #469
NETWORTH BUILDERS5236 Reviews
Website View Page
1 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
2y
Quote from @Wale Lawal:

Quote from @Carlos Ptriawan:

Quote from @Wale Lawal:

@Drew C Grossman House Hacking is always a great strategy for any kind of market condition.
It's a low-risk and potentially a high-reward way to invest in Real Estate if it fits that investor's current condition.
Good luck.

in fact househacking for primary and rental could be the default and only available option to make DSCR higher than 1.

i have been doing that myself and i learnt lot of stuffs from building additional bathrooms, additional kitchen and what kind of kitchen utensil that would work in such scenario, a lot of this come from learn and doing active investment from business perspective. I can't imagine how many bathroom I built this year lol

Hahaha. It is an ACTIVE form of investment but it's worth it for those with little money and experience to get started.

lol in the last 13 months I made myself as bathrooms builder for those hyper active househacking project, but I am lucky, my contractor is giving me the bath shower tub and new toilet from their other project so they install it for free for me....having contractor that's more like family member is really the key to make it all possible lol lol
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