Good or bad: Overpaying for a property with reasonable cash flow

[Jack Stewart]

Hi BP friends - I have a question and hoping some of you could share your opinion. I will go ahead and post the question, feel free to answer it and/or keep reading to get my full situation. Is it worth overpaying for a property if it cash flows well?

Further information: There are a few townhomes in the Harford County, MD area that are turnkey and tenant ready. Living in D.C. with a slim savings account (just enough for a down payment and blind start-up costs), they intrigue me [due to that being the nicest area I can invest in] but they are what you would consider an average price for today's market (very high). These 3b/2.5ba would cash flow anywhere from $400-$800 with the rates my lender gave me. 

Knowing the market won't be this high for long and that I'm possibly overpaying for a townhome compared to what the usual price would be at this moment in time without the Real Estate boom, I'm nervous about putting in an offer for the long run. My goal is to ultimately cash flow but I don't want to be in a rut if I wish to sell and buy bigger in a few years. 

Any advice on this matter helps. Also, any advice is also welcome for investing along the 95 area in Maryland (specifically Baltimore and above). If you're in NW D.C., feel free to DM me, looking to buy someone coffee to pick their brain for 20 minutes. 

Thanks in advance.

[Chris Clothier]

@Jack Stewart, The best part of your post was the request to be able to buy someone a coffee to pick their brain for a bit.  

When I first read the post, my easy answer is yes.  I am willing to pay more than other investors on properties all the time and even above what they will appraise for, if I see value for the way I invest.  But, I'm hesitant to jump out there and say that you should.  You have mentioned a few things that should be red flags.  

1.  The fact that it is marketed as Turnkey.  That doesn't mean anything.  What is the actual value you are getting from the seller?  

2.  You have slim savings in an expensive area.  Be careful not to use every dollar you have to buy one investment - regardless of whether you think it is over or under value.

3.  You mention that the market won't be this high for long.  

It reads like you are relatively new to actually investing and I don't want to assume that you have not purchased an investment property before, but it reads like you don't have a lot of experience.  

I think the best plan you can make right now is to learn.  You do not need to be in a hurry.  You are correct in one important factor you point out and that is low interest rates.  The rates are still low enough to make the rate almost as attractive as the investment itself (that was borrowed from @J Scott).  But that only works in my opinion for experienced investors who have navigated these types of markets before.  You have to be very careful right now and I do think you recognize that there is a lot you simply don't know enough about right now.  

Spend some time - find some mentors - buy a few coffees and get really comfortable that you know all of the hidden dangers to the investment you want to make and then, pull the trigger.  If these deals are gone, then so be it.  It may end up being a good thing for you.  When you are ready, a solid investment can be found in almost any city at almost any time.  Surround yourself with good people who are investing the way you want to invest there in MD. and then the question of possibly over-paying will be an easy one to answer.

best to you -