Louisville Overpriced: Now What?

Question

Good evening!

Background: Newbie in Louisville looking to house-hack a duplex/triplex/quad. Most familiar with Crescent Hill, Clifton, and St. Matthews. Working in Indiana, so also interested (but less familiar) with downtown Jeffersonville and New Albany.

After researching my market, I've come to realize that (surprise, surprise) it adheres to the trends in the rest of the nation. Although I desire to house hack, I have not found a property (yet) that seems like it will cash flow in the areas I know are desirable for renters (looking to market to local graduate and seminary students as well as young professionals).

Right now, I'm saving well from my civilian job, but I want to make sure I'm waiting well. So, BP, what do you do when your market won't seem to cash flow? Bonus Question: Will a market correction fix my problem or make it worse?

Chuck B. · Answer

@Adam Carbone - Not all areas are great for rentals.  It's very hard to find a property in St.Matthews or Crescent Hill (both are higher end areas) that will meet typical investor criteria.  On our last house hack, my wife and I moved to Camp Taylor (a working class neighborhood) to get owner-occupied financing on a really solid brick duplex. It was not our dream neighborhood, but it was a fair compromise between live'ability and the pure financials of the deal.  (Think, "I do what other's won't today so that I can do what other's can't tomorrow.") It wasn't quite a 1% deal but it was close and a few years later with rent appreciation it's a good deal better than that.  The loan is fixed too, so it will never change.  We subsequently moved to Crescent Hill (absolutely wonderful neighborhood, but pricey) and maintain that rental today.

Theresa Harris · Answer

@Adam Carbone  Run the numbers as if ALL the units are rented even though you will be living there.  If you are house hacking, you are very unlikely to find a place that will cash flow while you are living there.

Stefan Tsvetkov · Answer

@Adam Carbone I would not bet on a market correction in Louisville, KY too much. While cap rates may not be super high over there (reference reitnotes.com), hinting towards low absolute affordability, the market is still technically 'undervalued' -8% as based on deviation from its historical affordability/price-income relationship.

If a broad-based price correction was top happen post-COVID in U.S. real estate, I would expect a small 3-4% drop in Louisville prices, as income drops in a commensurate manner.

Adam Carbone · Answer

Great reminder and great advice. Thank you so much!

Perhaps someday soon we'll get to come back to the neighborhood we love... Thank you for the anecdote as well! I appreciate it a lot!

Adam Carbone · Answer

Rob, "beat up" doesn't exactly fit my criteria, but thank you so much for thinking of me! I appreciate it greatly!

Rob Bergeron · Answer

I have a beat up property on Willam. Zoned as a duplex, one kitchen, one bathroom. Could be converted back to duplex. Floors are wonky. Check it out!

Adam Carbone · Answer

@Theresa Harris

Savings on rent ARE included in my calculations. But rents are relatively low and purchase prices are still way high in the area. So do I continue to make contacts and wait for something to pop up? Bank on a market correction?

I know deals aren't going to find themselves. So how do I wait/hunt well?

Louisville Overpriced: Now What?

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