My wife and I are looking to make our first investment purchase in Lexington, KY. Lexington is actually a little bit of a hidden gem. Home to the University of Kentucky and lots of growth in the past five years. We have been looking at a few duplex properties, which are going quickly in the area.
Here is the issue we are facing... Prices in Lexington seem to be slightly inflated. Since real estate is going so quickly, lots of sellers are getting their listing prices or close to it even though lots of properties are over priced. My wife and I obviously do not want to overpay for a property, but at the same time, interest rates are on the rise.
Here's our question... Do we lessen our standards on purchase price (be willing to pay more) to avoid waiting too long and getting stuck with a higher interest rate?
I know that's tough to answer without the specifics of an investment property, but any guidance would be much appreciated, especially since this is our first purchase.
Aaron, I have a duplex in Lexington that I have been thinking about listing.
Don’t worry about interest rates. Find the right property that works for you. If between now and the time you find the right property the rates have risen .25 or .5 it won’t matter much. For your first property it’s much more critical to find an undervalued property.
If you were crushing it in the rental world and needed a place to park your cash then rates would factor in much more. But not right now for you.
That makes sense. Thanks for the insight @Ali Hashemi
Aaron, what I have found is the trick is often to find a house before it hits the market. Are you financing the purchase or paying cash?
We will be working with a lender to help finance the purchase. We already have pre-approval.
Aaron, congrats on being preapproved. From there the next step is really deciding what your long term goals are regarding real estate and then finding a deal that makes sense and moves you toward those goals. Building wealth through real estate takes time and persistence, so don’t let yourself suffer the “paralysis by analysis” that many people fall prey to. Jumping in on your first deal is usually the toughest part! Let me know if I can help you somehow.
@Aaron Vargas Welcome to REI and the BP community. It is great to hear you are getting serious about your REI journey. Make sure to attend the local REIA group if you want to get knowledge and access to some off-market deals. Like you have mentioned, Lexington has seen increased growth consistently over the years (I believe since the 1800's and even during the financial collapse). This is partially due to the Urban Service Boundry.
You are correct that it can be tough to find "good" deals in our current climate. This will likely not change anytime soon since there is a shortage of housing as it is. I suggest to never bet on appreciation. That only leaves you with a few options.
- Change your buying criteria (price, location, property type, ect...)
- Stick to your criteria/wait (you will likely be left with the same results for awhile)
- Find a new approach to find deals (direct mail, REIA groups, working with an agent, ect...)
Seems to me if you want to get in the game you will need to change something. You need to figure out what goals you are trying to achieve with your investment. There are many things that go into factoring this.
Interests rates are likely going to rise for awhile but we have a long way to go until we are back to a more "reasonable" interest rate. Do you think there were not real estate investors when rates were 10%, 12%, or 18% for homes? You just have to adjust. @Ali Hashemi is right in that rates do not matter right now as much and it isn't what I would focus.
Thanks for the insight @Jim Wilcox
This forum is a good start to meet people in the business. I’ll definitely start to work on some alternative strategies in finding deals. We have preferences but are open to different property types, not ruling anything out until we learn a little more, especially about the market in Lexington. Only thing we are not looking to do is house flipping. My wife and I have pretty full schedules and house flipping just doesn’t fit into our plan.
@Aaron Vargas I agree. BP is an awesome place to network. Come hang out with us sometime. Next meeting is right around the corner and it will have vendor tables set up to help with finding the best people to work with. Grabbing a beer isn't 2 bad either lol.
House flipping has never been our interest either.
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