Bad time with rates and prices!?

Question

Hello guys and gals,

I’m looking to get into real estate investing and more specifically residential SF rental property in the Midwest. I have ran the numbers on many calculators with a purchase range of 200-300k and the math just ain’t mathing (break even or negative per month). I think this is pretty normal for this climate but just want to see if others have any advice?

Nicholas L. · Answer

@Sean Petrie

house hacking is a great way to get started but not everyone's situation permits it.

here's a great thread on the challenges of investing OOS in the midwest.

https://www.biggerpockets.com/forums/48/topics/1159104-overl...

Julien J. · Answer

@Sean Petrie

Yes, times are tough for buyer. Adjust your strategy to match the market.

Find an add value and play the long term game. The good deals are unicorns.

Travis Biziorek · Answer

Hey Sean, the numbers still work in Detroit. In fact, I've changed basically nothing from the strategy I've been running there since 2019.

That said, I'm strategically picking properties in strong C Class areas that have potential to transition quickly to B areas. I find my deals off-market and do some cosmetic updates.

In short, it's not for everyone and many will fail trying to run this playbook from out of state (or even locally).

There are still areas and markets that work, you just need to be more creative or willing to put more work in than you did in the past.

Bruce Woodruff · Answer

Look for distressed properties. That will give you a lot of wiggle room to make up the cash flow (and appreciation). Plus it will lessen your competition as most people run away from rough properties....

Mike Finn · Answer

Great thread, thanks for sharing!

Kaylee Walterbach · Answer

Agree, I also had a hard time making the numbers work in the midwest without house hacking being involved. Buying cheap and fixing up is an option, too!

Michael Smythe · Answer

@Sean Petrie at those prices, you are probably looking at Class A properties. These rarely cashflow from day one, usually taking 3-5 years to cashflow.

Why? Because rents do not increase linearly with prices. That's why investors in California either invest in their backyard for appreciation or OOS for cashflow.

In our experience, most investors should start with Class B rental properties. There will be a few headaches and learning experiences, but most won't bankrupt you.

Class C has more headaches and higher chances of making huge mistakes. So, investors either need to be experienced, have a great team (which is another headache) or stay away.

Check some of the great things happening in Detroit and DM us if you have more questions:)https://michiganchronicle.com/2024/01/03/major-developments-that-will-define-detroit-in-2024/

Sean Petrie · Answer

Thank you Stuart and Chris! I appreciate you both taking the time to reply! Your feedback is very helpful.

Stuart Udis · Answer

If you are solely judging your investment on the cash flow then yes, it's a bad time to purchase but you could be missing out on good  properties as there are plenty of distressed opportunities out there. Also, banks are lending with lower leverage which means investors are required to bring more cash to the table to close. This is keeping many on the sidelines as well which could present opportunities as you might find yourself in a position where you have better negotiating leverage. As rates continue to decrease, more investors will come off the sidelines.

Bad time with rates and prices!?

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