Louisville Real Estate Market
Investor · Louisville, KY · Member since 2016 · 4 posts · 0 votes
I am hearing a lot of different suggestions on when the right time to buy investment properties is. I would greatly appreciate some insights on how to determine if the real estate investment market is ripe in a certain area. I am having some healthy dialog with my business partners over whether now is the time to buy, or if we should wait out the market.
Appreciate the help from more experienced REI's.
Thanks,
Andrew
@Andrew Fazzone- The only "right" answer regarding when you should buy is that you should do so when the numbers/property meet your criteria. You're unlikely to find 2 investors with the same criteria and that's something you (along with your partners) will have to figure out for yourself.
Whether or not an area/city is "ripe" is also a very vague question. It depends completely on what you're looking for.
As to whether or not you should wait...I'd ask what is it that you're trying to wait for? Prices are definitely not at lows, but price/rent ratios in most areas are reasonable/normal. I wouldn't say prices are overly inflated and poised to come crashing down. On the other hand, if you bought property 8-9 years ago at the trough of the cycle, then prices today would seem very high (just like if you bought any number of stocks at that time).
It's good to jump in and get your feet wet and figure out what type of investment will work best for you. Even if you overspend a bit on the first deal, it'll help you recognize a steal when one comes along.
@Andrew Fazzone- The only "right" answer regarding when you should buy is that you should do so when the numbers/property meet your criteria. You're unlikely to find 2 investors with the same criteria and that's something you (along with your partners) will have to figure out for yourself.
Whether or not an area/city is "ripe" is also a very vague question. It depends completely on what you're looking for.
As to whether or not you should wait...I'd ask what is it that you're trying to wait for? Prices are definitely not at lows, but price/rent ratios in most areas are reasonable/normal. I wouldn't say prices are overly inflated and poised to come crashing down. On the other hand, if you bought property 8-9 years ago at the trough of the cycle, then prices today would seem very high (just like if you bought any number of stocks at that time).
It's good to jump in and get your feet wet and figure out what type of investment will work best for you. Even if you overspend a bit on the first deal, it'll help you recognize a steal when one comes along.
@Michael Seeker I greatly appreciate the response. My business partner and I are looking for multifamily (3+ units) to rent. I completely agree with you that regardless buying something would be a good exercise not only as a learning opportunity, but to get a better gauge on the market. Looking at the rental/price points in the current Louisville market it looks very reasonable to me. Articulating the value of the potential risk to my investors and business partners is another story entirely.
Thanks again!
@Andrew FazzoneMy very short answer is "Immediately! NOW! Today!" Maybe that's 3 answers, but pick whichever you like best.
If for some reason you are ignoring the above answer and still reading, here's a longer version. I am assuming your definition of "investment properties" is buy-and-hold. I also assume we are talking about the Louisville market. Given this, there are 3 critical aspects to my answer.
1) We had little to no appreciation from 2008-2014. Even last year was fairly modest. As a result, the gap between new construction prices and existing inventory prices is huge. Until that narrows, demand for existing inventory will be higher. This will force appreciation until builders can profitably get back in the game. Buying today will allow you to get in before prices creep up.
2) Interest rates are still at a historic low. A 1% increase drops your buying power by nearly 10 percent. As an example, a $110,000 rental property financed (20% down) at 5% over 25 years has a PI payment of $514.44. If interest rates go up by 1% and you want to keep the same payment, you would have to buy that same house for $100,000.
To not be buying today, you need to believe that either prices are going to drop or interest rates are going to drop. I don't think either of those options are true. Additionally, this is a long-term strategy. During the next 10, 20, or 30 years we will see positive and negative market fluctuations. You can't wait until conditions are absolutely perfect to jump in. (That being said, I think we are pretty damn close to perfect).
More importantly...
3) The numbers work. This may be the only thing that really matters. For $110,000 you can get a completely updated house with a new roof, new HVAC, new water heater, new kitchen, etc. And, you can rent it for $1000+. After taxes, ins, and PM you still cashflow (>$220/month) very well and you don't have to do anything. You can find this deal all day long. Obviously, if you get a 4%/30-year loan or if you want to trade your time for dollars, you can do better.
In conclusion, GO BUY A HOUSE!
Regards,
Erik
@Erik HitzelbergerI can certainly appreciate that answer. I tend to agree that interest rates are at an all time low. I didn't realize the gap was that large between construction and existing inventory. Also to answer the assumption, we would be buy-and-holding these properties in the Louisville metro area.
This gives yet another great level of perspective for us to assess. Thank you much!
I am currently looking for my first property in the Louisville/Oldham area and am "waiting" to find the right property. I wanted to start with something very inexpensive on my first house so that the risk would be less, and then gradually move the needle up as my experience and confidence in my process grows. How much did you spend on your first properties? I am hoping to find something around $50K or less + rehab costs. Is that an unrealistic expectation? Am I going to be waiting a long time?