Investor · Tampa, FL · Member since 2010 · 377 posts · 56 votes
Here in the Central Florida market, things are shaping up for prices to take another dip. Inventory is rising and demand is slowing down noticeably. I have a goal of buying my first buy and hold by February 2011 (I've only bought and flipped, never held).
If you knew that prices were going down more, is it still logical to buy and hold? Some have told me it's common sense to not buy if you know you're going to "lose money" but then again, some people tell me if you have positive cash flowing to your mail box, it's all good! Any input from you all would be appreciated, thank you!
Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
16y
There are short and long term strategies in RE investing. Long term strategies are less effected by current market conditions. Short term strategies must continuously factor in current market conditions.
A buy & old strategy is a long term investment strategy, IMO as long as you are buying right with cash flow in mind you will see appreciation over time. I doubt that anyone can accurately forecast were housing prices will be in ten or twenty years, but my guess is there will be reasonable appreciation over time.
You should become very familiar with your market. IMO it seems that Florida is likely to always be a place to retire. As the economy improves I suspect you will see renewed appreciation in many Florida areas.
So, should you invest in buy and hold. I don't know? You financial situation is going to play a factor in the decision, you should have reserves set aside, the strategy is a slow but steady way to grow wealth.
Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
16y
There are short and long term strategies in RE investing. Long term strategies are less effected by current market conditions. Short term strategies must continuously factor in current market conditions.
A buy & old strategy is a long term investment strategy, IMO as long as you are buying right with cash flow in mind you will see appreciation over time. I doubt that anyone can accurately forecast were housing prices will be in ten or twenty years, but my guess is there will be reasonable appreciation over time.
You should become very familiar with your market. IMO it seems that Florida is likely to always be a place to retire. As the economy improves I suspect you will see renewed appreciation in many Florida areas.
So, should you invest in buy and hold. I don't know? You financial situation is going to play a factor in the decision, you should have reserves set aside, the strategy is a slow but steady way to grow wealth.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
16y
I would focus on cash flow. If you cash flow using the correct underwriting the appreciation is a bonus. With rates low right now buying property for the long term is a good idea as long as you don't think the value will tank completely over the long term.
Keep in mind that you get tax benefits and loan amortization immediately by buying now too.
Real Estate Investor · Portland, OR · Member since 2009 · 660 posts · 244 votes
16y
As mentioned by Charles & Bryan, cashflow is the key for buy-and-holds ... one can never predict the bottom but it it's spinning $$ off every month then you'll be able to weather (and enjoy) the next few turbulent years before housing settles and hopefully appreciates.
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
16y
I'm attempting to buy in SWFL . If I buy a property that has the ability to be flipped for a 30% profit, I'll sell. If not, but I feel it is a great property in time due to condition, location etc., I'll hold it.
SWFL will be a very in demand as population continues to age and sun continues to rise. Rich
You can use the predictions that the market is going down to negotiate a better price.
If you are long term buy and hold, it doesn't much matter what the current market value is. The only time sales price is a consideration is when you are actually selling.
Buying for long term hold is slightly different. You want to buy in areas that have the potential to go up in value. You also want to avoid areas that are slipping down into ghettos or that have some sort of long range government plans that are going to hurt values.
Don't buy were the city is placing a sewer plant 5 years from now.
I recommend areas that have something desirable about them: good weather, growing populations, close to water or outdoor sports activities. In short, buy places that people are going to want to live in, over other locations, if they have a choice about it.
Investor · Tampa, FL · Member since 2010 · 377 posts · 56 votes
16y
Thank you all for your post. I'm now thinking that even if the market does take a bit of drop in the next few quarters, I should be fine if I use the right guidelines for the property I'm buying to hold. No one can precisely predict the very bottom of the market so as long as my numbers work out positively, I should be able to withstand the market turbulence if it should come. Thank you all again for your post. It definitely helped!
Investor · Tampa, FL · Member since 2010 · 377 posts · 56 votes
16y
Rich - Thank you for the post. You've mentioned in your profile that you've picked perfect areas for appreciation in your lifetime. Is SWFL your current location of choice for future appreciation?
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
16y
Rich is partial to south Texas and Texas in general from what I have read, which I agree with. I think central Texas is better than south, but both are good choices.
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
16y
Tony- I picked SWFL as my next area and the jury is still out! I've only bought a home to live in and a Self Storage Faqcility so far. Trying to purchase sfrs currently and it is not as easy as I had anticipated.
Bryan accurately portrayed the areas I like. So texas primarily and all of Texas as secondary. Least interested in Houston and that seems to definitely be a contrarian view. Rich
Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
16y
My current theory is to focus on the low end properties (30K - 55K in this area) right now. My belief is, proportionally, they will take less of a hit than a property that lists at 80K right now, if there is another market dip in the near future.
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
16y
Tony, as has been said, it it is a fool's game to try to time exact bottoms and tops in markets. On the other hand, when have you been able to buy for cheaper in the last 10 years? When have you been able to borrow for cheaper in the last 50 years? I'm buying now.
Rich, why don't you like Houston as much as the rest of Texas?
Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
16y
Originally posted by Jon Klaus:
Tony, as has been said, it it is a fool's game to try to time exact bottoms and tops in markets. On the other hand, when have you been able to buy for cheaper in the last 10 years? When have you been able to borrow for cheaper in the last 50 years? I'm buying now.
Rich, why don't you like Houston as much as the rest of Texas?
Yes, it seems to me the most important thing is cash flow, and not buying at or near the top, which I'm pretty sure is no longer a danger at this point. But Florida houses at 2005 prices didn't cash flow anyway, so you would not have considered them in the first place.
Developer · Palm Beach, FL · Member since 2010 · 2 posts · 1 vote
16y
Personally, I think it's about the right time to buy. Prices are down, inventory is up, sellers are often highly motivated, and interest rates are low. It's a good combination. That said, markets always over-react at the top and bottom so timing might not be perfect, but I am optimistic.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
16y
Interest rates are really low, but banks really don't want to lend to investors right now. If anyone really wanted to sop up the inventory they would ENCOURAGE investors to buy the excess with special programs right now.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
16y
Here is something else that starts to happen when prices drop too much (I heard that some of this happened in Detroit during the downturn). Early in the declining market, owner occupants sell just to get out without losing too much, and investor buys to hold as a rental since it will cash flow positive. Or the owner is foreclosed upon and the investor buys an REO that cash flows positive (type of purchase isn't really a factor). So far, so good.
As this continues, investors start to realize that they will cash flow positive with lower rents when they can buy lower. Eventually, those who bought to hold earlier end up being unable to sustain the original rents they were getting, and they then rent it for what the market rent drops to. At some point, cash flow becomes negative.
So, as long as you can be confident that rents won't decline while you are in the holding period ...
Real Estate Investor · Elkhorn, WI · Member since 2008 · 453 posts · 104 votes
16y
Originally posted by Bryan Hancock:
Interest rates are really low, but banks really don't want to lend to investors right now. If anyone really wanted to sop up the inventory they would ENCOURAGE investors to buy the excess with special programs right now.
While I generally agree with your post, I've found that local banks ( that keep their own loans) are BEGGING for good investments now. I had no problem getting a large commercial line of credit on my SFH's. They want you to have skin in the game as well as intimate knowledge of the investment area.
Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes
16y
I always look at "dollar cost averaging."
If you buy a house for $100,000 that rents for $1,000 and the price goes down to $90,000, but another one that rents for $1,000. If it goes down to $80,000, buy another one.
Of course your personal finances will dictate how many you can buy, but cash flow is very different from value. Trying to time the "bottom" of the market is a magic trick that mankind has been trying to do for milleniums. Less than 1% actually get it exactly right, but you always hear about them because they then think they are a GURU because they got lucky and start selling books, tapes and seminars.
So just look at the investment IN THE PRESENT. If the cash flow, IRR, Cash on Cash, Cap Rate and any other gauge you use is good, buy it. If not, move on.
Private Financing Consultant · Honolulu, HI · Member since 2010 · 132 posts · 27 votes
16y
Tony,
If you are looking at SFR's for buy and hold you can consider working out a lease-purchase deal with your tenant. This way, you tenant is more likely to stay for a longer time and take care of the home while committing to buying it in a few years at a higher price.
If you are looking at multi-families, consider 10 - 20 units with different unit mix, so that it is not too hard to personally manage it and in case some tenants move out, you still have most units occupied.