Is it a good time now to buy my first investment property?

29 Replies

I'm thiking of buying my first investment property and was wondering what do you think about the market in general these days? Is it too high and likely to crash in the next year or so?

@Assaf Kehati Short answer- yes, it's the perfect time. The beautiful thing about (most residential) real estate is that it is micro/micro and has more to do with people and personalities than actual structure or economic indicators. The macro economy has nothing to do with whether it's a good time to invest, it's just a matter or having the skill-set and experience to recognize opportunity....There are always deals to be had! 

I would also consider your asset class and location. You're in one of the most expensive areas in the country to invest...the Midwest is still filled with opportunity. 

Thanks @Brandon Sturgill , I'm considering an investment in NJ or PA, just not sure if the prices in the market are right, don't want to buy something that would be worth less in a year if the market goes down significantly, especially for a first investment, and to be stuck with it for several years till prices are back where they have been.

Honestly, like Brandon always says, buy when the time is right for you-  don't try to time the market.  You will NEVER time it perfectly, and waiting a couple years for the market to crash is dumb when you could have been getting cashflow the whole time.  If your ready to buy, look for a good deal, and pull the trigger.  

I'm an agent/investor in Philadelphia, let me know if you have any questions.  

Hi @Brendan Markle and thanks for the input. Much appreciated and make sense. Just because it's my first deal I'm obviously more intimidated and also feel like if I do the first deal wrong it will be harder to recover vs. if it was my 3rd or 4th deal and I have something to fall back to.

Anyway, I'm actually interested in the market in Philly and was there a week ago to check out some properties, would love to hear more about what you do there. Thanks.

As some one trying to get into the market you must be very selective about what you invest in. Generally speaking the markets are high/overpriced now and very likely to adjust in the next few years. You have to look for the right deal in a overpriced market. Find the properties that are poorly managed and have rents below market. Possibly needing some rehab work to add value. You are looking for burned out hobby landlords. 

Most seasoned investors with numerous properties under their belt are sitting on the side lines accumulating cash for when the adjustment hits. There are still deals out here but you will have to look hard to find them and be in the right place at the right time.

Your best option is to invest in purpose built multi units. They will hold their value where as SFHs are at the whim of the home buyer and the market. SFHs will be the hardest hit during a market correction. 

@Assaf Kehati I generally invest in multi family units around Port Richmond/Frankfrod  area.  Although they are not the best neighborhoods, I can alwyas find deals that cashflow very well in the area, and have honestly had very few problems.  I have helped investors buy properties in Norristown, Levittown in Bucks County, Northern Liberties, etc.  

Originally posted by @Assaf Kehati :

Hi @Brendan Markle and thanks for the input. Much appreciated and make sense. Just because it's my first deal I'm obviously more intimidated and also feel like if I do the first deal wrong it will be harder to recover vs. if it was my 3rd or 4th deal and I have something to fall back to.

Anyway, I'm actually interested in the market in Philly and was there a week ago to check out some properties, would love to hear more about what you do there. Thanks

Surely the agents will make you believe it's always a good time to invest, that's how they find thier clients. I don't want to discouraged you, but the market in Philadelphia is so hot, especially for multyfalimy. You might find some multyfalimy in questionable areas. The OK zipcodes are a battle field right now. A lot of people from out of states looking to park their cash. As to me, I can't compete with cash buyers. Properties are flying with the blink of an eye. And FHA buyer are driving prices up to the point that not only there is no cash flow but you are going to be in negative. You can tell economy is going strong. The question is for how long?

Sorry Brendan. I wasn’t trying to steal your thunder. I skipped ahead a few posts and missed you saying you were an agent as well. I’m up in the Lehigh Valley. Some Bucks County, Lehigh Valley and Pocono areas.

Every day regardless of interest rates or housing market is a good day to buy if numbers work. I’ve owned a portfolio of houses for 21 yrs. I care less about past or future. What can house rent for and does that make it cash flow. If so but if not don’t.

@Assaf Kehati As with any investment, the gain/loss in asset value is only on paper unless you sell it. No different than people who held stocks in 2008, if they sold when the market bottomed in 2009, they got clobbered, if they held, their investment is now worth even more than at the last peak ... and they've been collecting dividends the entire time. As long as you don't spread yourself too thin and don't need to sell during the bad times, you should do okay.

As a side note, I wouldn't trust anyone who tells you its a good time to do anything if they make money when you do it. There are always deals to be had, but as the market gets hotter & hotter, you have to be extremely picky, and usually its the sophisticated investors who can still execute on the decent deals because they have the contacts, the track record, understand the risks, can pay cash & can close quickly.

It’s a matter of finding opportunity not waiting to time the market. For the most part you should think micro not macro. 

Yes, caps are compressed so if you're buying a 100 unit multi fam in Austin TX or some big box NNN with a 2 year remaining lease term, maybe not the time.

But finding a sfr or a small multi., those opportunities will emerge regardless of market conditions. 

@Assaf Kehati   This question makes me think of the quote, "the best time to invest was 20 years ago, the second best time is now". If you're in it for the long hall and hit your numbers then you should be able to weather the storm in the long run. 

@Assaf Kehati when asked the question is this a good time to buy?, I have yet to find a realtor that will say No.  Those who say it is the "perfect" time would make me question their judgement.  For a newbie getting into investment RE, do your research, and set parameters for your investment decision.   Have some guidelines on what you are looking to buy.

Write out your goal that you want to achieve with your purchase.  There are basically two ways to make money purchasing an investment property.  Either capital appreciation (buy low sell high) or cash flow.  

To over simplify, one I call the California method (buy high and sell higher) and the Texas method (buy for positive cash flow).  Since prices are very high in California, it is hard to cash flow positive even when putting 20% down, so most are looking for appreciation. That method involves the most risk as you have to have the market move in your direction, you then have to overcome the negative cash flow while holding and you have to overcome the cost to buy and sell the property.  If the market does not cooperate, or you can't continue to make payments since your cash flow is negative you may find yourself in a stressful situation.  

In Texas, it is easier to cash flow positive, so essentially if you buy a property the provides good cash flow but the price of the property stagnates over time, your still able to make a profit due to the positive cash flow.  Additionally, the property itself won't put stress on you as long as it is continually producing positive cash flow.  This method usually carries the least risk.  

Ask your self, What is my goal, more appreciation or better cash flow.  That will give you some direction as to what type of property to pursue.  Over long periods of time, properties tend to appreciate so you should see both appreciation and cash flow on properties but different type properties tied to different locations will do better with appreciation vs cash flow or vice versa.  

To help you focus, I'll give you a snap shot of what I look for, it may work for you, I don't know for sure but it works great for me.   I'm in Texas, and I concentrate on building CASH FLOW.  I am not concerned about appreciation as long as I can get great cash flow.  I have been buying investment property since 2002 and I have yet to sell any.  They have cash flow positive since day one.  coincidentally they all have appreciated as well.

I mainly look for duplexes as they cash flow better than a SFH, and good tenant quality is not hard to achieve. Compared to a 4 plex, a 4 plex usually will cash flow better than a duplex but management of that type of property is generally more time consuming than a duplex. So my happy compromise is investing in duplexes. My guideline is that I buy using the 1% rule, if you don't know what that is, you need to do more research before you buy. Here on BP you can learn about the 1% rule as well as others.

My strategy:  Since I am buying duplexes and looking for positive cash flow day one, I am not overly concerned where the real estate market is headed (up or down) but I have to have 1% or better.  I also like to concentrate where my rents are usually $1200 and below.  That market segment is not going away here in Texas no matter what happens to the housing market.  My reasoning it this:  We all have heard of people buying a property and either due to market conditions or possible loss of job they either lost the property due to foreclose or took a bath selling it.  But have you heard of rents crashing, not softening but CRASHING something like rents were $1000 but due to market conditions they are now $500. I have never heard that yet in my 62 years of living.  I know it can happen though, just look at Detroit.  But where I live I don't see that happening, therefore if my cash flow is positive day one then I have a great chance of making money in real estate.  However, my goal is long term hold, use profits to pay all expenses and pay off loan with said profits within 12  years so that I can produce exceptional cash flow to allow me to become financial independent within 12-15 years.  

From what I have described above you can see I have a goal, and I have some guidelines I focus on, when looking to purchase investment real estate.  You need to develop your own, because if you don't you will be less confident when you buy, if you buy at all.  Buying your first property is the hardest, Mr. Doubt on your shoulder will be very tall.  But once you are successful on your first one, Mr Doubt begins to shrink.  Good Luck, Happy Hunting!

@Joe Scaparra Wow! That’s exactly what I’m planning to do. Buying cash flow property and hold them and repeat until they are paid off and you are clear and free! I’m from the East Coast and I think house prices here are too expensive for me but I heard Dallas is getting to that point to. Would you recommend some area that would be a good place to start for newbies like us? 

@Mora Clark , Hi.  Texas is heating up in pricing as well but you can still find good opportunity.  Dallas is good right now as well as anything within 5 miles of HWY 35 from Dallas down to San Antonio.  Texas is landlord friendly but you will have additional challenges managing from Boston.   I live in Austin and within 5 miles of downtown center you are looking at California pricing (hard to cash flow positive), lucky for me I have several duplexes bought before the price explosion.  Out lying areas from Austin are still viable, you just have to do your research, but Texas in general still has lots of opportunity.

@Assaf Kehati

Hello sir!!

Great question. In my humble opinion, I always believe that the time to buy real estate is NOW.... so long as you have the capital, basic knowledge, and contacts/resources to do so. If you wait for the "perfect" market conditions, you'll be waiting forever.

Are you looking to buy and hold? Or fix and flip?

If you're looking to build a rental portfolio, I don't think there's ever a bad time to start. The sooner you start, the sooner you can get your mortgages paid off and collect more of your rent.

Either way, remember: 

Timing isn't AS IMPORTANT as LOCATION. Location is KING in real estate.

If you can get a good property in a GREAT area, no matter if you're looking to buy and hold, or fix and flip, you should be in good shape no matter what the market is doing.

Hope this helps!