Which strategy works best for the current market condition?

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Which strategy works best for the current market condition?

Jason Nguyen
Real Estate Agent · Fairfax, VA · Member since 2019 · 79 posts · 68 votes

As you may have known, interest rate went up a lot recently and that forced the majority of retail buyers out of the game. Therefore, flipping takes longer to sell or may need to go down in prices if on market too long, BRRRR formula doesn't make sense anymore at nearly 6% interest rate for conventional investment loan or 7% for non-QM loan. Long term rental cash flow doesn't look too good if there's a big repair going on. What do you guys think of Airbnb? I see some Airbnb at a good location brings in more than 100k revenue a year.

Please let me know what you think.

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Steven Foster Wilson
Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
4y
Quote from @Jason Nguyen:

As you may have known, interest rate went up a lot recently and that forced the majority of retail buyers out of the game. Therefore, flipping takes longer to sell or may need to go down in prices if on market too long, BRRRR formula doesn't make sense anymore at nearly 6% interest rate for conventional investment loan or 7% for non-QM loan. Long term rental cash flow doesn't look too good if there's a big repair going on. What do you guys think of Airbnb? I see some Airbnb at a good location brings in more than 100k revenue a year.

Please let me know what you think.


Find the right deal, we have been refinancing into 5+ interest rates and our properties are still cashflowing, that's why I like the Columbus market!

My first BRRRRR was $300k, put $50k into it, refinanced, and got $90k back. I just refinanced again and got another $50k and it still cash flows $1800/month.

Second BRRRRR cost $160k, put $55k into it, refinanced, and got me just under $200k back and cash flows $2000/month.

Currently working on my 4th BRRRR in the city and even with 6.5% interest rate this will be a homerun!

15Reply
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  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    4y

    BRRR still works. Rents have gone up so much over the last 2 years that the interest rate increase isn't that big a deal. We aren't seeing 6 here its a tick under 5 FYI and I just did a 6 unit at 4.5.

    7Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    4y

    They all still work.  You just have to understand math.

    8Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    4y

    Break even on mortgage and hope for appreciation.

    6Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    4y
    Quote from @Eliott Elias:

    Break even on mortgage and hope for appreciation.


     That's not investing...that's speculating.

    14Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    4y
    Quote from @Joe Villeneuve:
    Quote from @Eliott Elias:

    Break even on mortgage and hope for appreciation.


     That's not investing...that's speculating.


     Not if your'e in Austin 

    4Reply
  • Steven Foster Wilson
    Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
    4y
    Quote from @Jason Nguyen:

    As you may have known, interest rate went up a lot recently and that forced the majority of retail buyers out of the game. Therefore, flipping takes longer to sell or may need to go down in prices if on market too long, BRRRR formula doesn't make sense anymore at nearly 6% interest rate for conventional investment loan or 7% for non-QM loan. Long term rental cash flow doesn't look too good if there's a big repair going on. What do you guys think of Airbnb? I see some Airbnb at a good location brings in more than 100k revenue a year.

    Please let me know what you think.


    Find the right deal, we have been refinancing into 5+ interest rates and our properties are still cashflowing, that's why I like the Columbus market!

    My first BRRRRR was $300k, put $50k into it, refinanced, and got $90k back. I just refinanced again and got another $50k and it still cash flows $1800/month.

    Second BRRRRR cost $160k, put $55k into it, refinanced, and got me just under $200k back and cash flows $2000/month.

    Currently working on my 4th BRRRR in the city and even with 6.5% interest rate this will be a homerun!

    15Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    4y
    Quote from @Eliott Elias:
    Quote from @Joe Villeneuve:
    Quote from @Eliott Elias:

    Break even on mortgage and hope for appreciation.


     That's not investing...that's speculating.


     Not if your'e in Austin 

    Yes it is.  Austin might just might have a bigger shiny object of distraction. 
    Anytime there are two sentences used to describe an "investment", and the key word in each are "break even" in one and "hope" in the other, that's not investing...that's speculating. 
    7Reply
  • Allen L.
    Rental Property Investor · Chicago and mainly invests in KS remotely · Member since 2018 · 360 posts · 314 votes
    4y

    First of all... interest rate on conventional loans for rentals are not 6%.. I don't know where you're hearing this, maybe need to improve your credit score. Last I checked they're ~4.5% with very little points. If interest rates get to 6%, I expect rent will have increased enough to cover it. However, I expect rates to increase by about 1.5-2% by EOY so we might be heading into a interesting market of high inflation, higher interest rate, and strong housing demand.. As to AirBnB, I think there are a lot more risk associated with this business model, it's heavily dependent on local regulation. I've read somewhere that someone paid 500K for a property to be used as AirBnB this year that was worth like 300K 2 years ago. The numbers may work for him based on revenue, but if regulations change, and no one else buys based on STR, then market might actually correct in his locality.

    3Reply
  • Jason Nguyen
    OP
    Real Estate Agent · Fairfax, VA · Member since 2019 · 79 posts · 68 votes
    4y
    Quote from @Allen L.:

    First of all... interest rate on conventional loans for rentals are not 6%.. I don't know where you're hearing this, maybe need to improve your credit score. Last I checked they're ~4.5% with very little points. If interest rates get to 6%, I expect rent will have increased enough to cover it. However, I expect rates to increase by about 1.5-2% by EOY so we might be heading into a interesting market of high inflation, higher interest rate, and strong housing demand.. As to AirBnB, I think there are a lot more risk associated with this business model, it's heavily dependent on local regulation. I've read somewhere that someone paid 500K for a property to be used as AirBnB this year that was worth like 300K 2 years ago. The numbers may work for him based on revenue, but if regulations change, and no one else buys based on STR, then market might actually correct in his locality.


    Maybe check it again. A 30-year fixed conventional for first time home buyers is already above 5% at most banks. Investment program is near 6% already. For non-QM is around 7%. If there's a 4.5% investment loan somewhere please let me know. Would love to check it out. 

    Regarding the Airbnb, that makes sense. I kinda have the same feeling about the local regulation change, but it looks like people tend to travel more post-COVID, so the vacation home model is pretty attractive nowadays.

    3Reply
  • Jason Nguyen
    OP
    Real Estate Agent · Fairfax, VA · Member since 2019 · 79 posts · 68 votes
    4y
    Quote from @Steven Foster Wilson:
    Quote from @Jason Nguyen:

    As you may have known, interest rate went up a lot recently and that forced the majority of retail buyers out of the game. Therefore, flipping takes longer to sell or may need to go down in prices if on market too long, BRRRR formula doesn't make sense anymore at nearly 6% interest rate for conventional investment loan or 7% for non-QM loan. Long term rental cash flow doesn't look too good if there's a big repair going on. What do you guys think of Airbnb? I see some Airbnb at a good location brings in more than 100k revenue a year.

    Please let me know what you think.


    Find the right deal, we have been refinancing into 5+ interest rates and our properties are still cashflowing, that's why I like the Columbus market!

    My first BRRRRR was $300k, put $50k into it, refinanced, and got $90k back. I just refinanced again and got another $50k and it still cash flows $1800/month.

    Second BRRRRR cost $160k, put $55k into it, refinanced, and got me just under $200k back and cash flows $2000/month.

    Currently working on my 4th BRRRR in the city and even with 6.5% interest rate this will be a homerun!

    The deals look too good to be true to me, honestly. 
    8Reply
  • Jason Nguyen
    OP
    Real Estate Agent · Fairfax, VA · Member since 2019 · 79 posts · 68 votes
    4y
    Quote from @Eliott Elias:

    Break even on mortgage and hope for appreciation.


    I wouldn't bet on appreciation anymore especially interest rate surpass 5% already. This has already kick most of the retail buyers out of the game. They're not buying or not qualify to buy the same kind of house they used to qualified a month ago anymore. Low inventory = Less sellers/ Higher Interest Rate = Less Buyers. Home value will go flat line from now on and either one or two things will happen. Either interest rate goes back down causing another wave of buyers (bidding war) or people will sell their homes for cheaper prices because their properties are on market for too long.

    3Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    4y

    All of these strategies are alive and well, rates are still low relative to historic levels, TBD on what rising rates will do...may reduce inventory even more as people move less, and I don't know where you are seeing retail buyers out of the game...the market is still red hot most everywhere.

    8Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    4y
    Quote from @Mike Dymski:

    All of these strategies are alive and well, rates are still low relative to historic levels, TBD on what rising rates will do...may reduce inventory even more as people move less, and I don't know where you are seeing retail buyers out of the game...the market is still red hot most everywhere.

    All the changes that were proposed here as problems that would somehow change things have occurred many times before the next time,...and the next, ...and...
    When those changes happened before, how did it impact the REI market?  All it did was change the scoreboard, and the playbook.  The playing field, the rules, and the players all remained the same.
    8Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    4y

    @Jason Nguyen I am doing a lot of BRRRR for LTR, some monthly rentals, some STR and a fair bit of passive investing in syndications personally.

    [email protected]512-888-9122
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    3Reply
  • Eric Bilderback
    Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
    4y

    @Jason Nguyen

    I love Airbnbs. I do worry about what might happen with them in a recession however. I think it comes back to fundamentals blocking and tackling. If you buy real estate that cashflows you probably won't think it is that great in 18 months. But in 10 years if you do it right I bet it will change your life. So find a good deal and buy it. I am currently looking for STR for bigger COC but I want them in a price range that I could LTR if I had to.

    The most proven way to become a millionaire is to borrow a million dollars from a bank and have a tenant pay it back for you.


    Now go Break some necks and cash some checks!  LOL

    6Reply
  • Adam Reyher
    Residential Real Estate Broker · Brownsburg, IN · Member since 2016 · 25 posts · 7 votes
    4y

    @Steven Wilson

    i would love to see the numbers on those deals. Are you saying, cash flowing, as in after mortgage and expenses?

    2Reply
  • Joshua JanusBusiness Member
    Realtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes
    4y

    @Jason Nguyen STR's have been very successful for many just like any other investing strategy but getting your plan down and executing properly is the most important. I would interview multiple STR management companies so you can get an idea of what they offer, emphasize and their experience so you can hand off your asset in the hands of a reliable, intelligent and effective team. Make sure your units meet the standards of the STR's in your market so you aren't left holding the ball every night. This is definitely a more heavy up front cost way of investing but the increased cash flow in many cases can make that initial investment worth the time, energy and money. Buying a unit or units that already operate relatively well as a str with the plan of improving the looks of the units in order to decrease vacancy and up the nightly rate is a great way to add value and increase the cash flow. I have seen this done multiple times.

    [email protected]614-502-5316Podcast Guest on Show From DoorDasher to $1.5 MILLION in Real Estate (All at 22 Years Old!)
    2Reply
  • Billy Smith
    Shawnee Mission, KS · Member since 2016 · 716 posts · 313 votes
    4y

    I can grab under 5% for a 30yr rental note no points ,20% down in A or B areas. The underwater is conservative they will not do 2nd mortgages on rentals.

    1Reply
  • Nate Sanow
    I​nvestor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
    4y

    I know what you mean, the rate hike sucks. But, my tenant is paying that interest rate for me. That’s the most basic but most important philosophical thing to keep in mind.

    3Reply
  • Jared HottleBusiness Member
    Real Estate Agent · Cedar falls IA Waterloo, IA · Member since 2020 · 902 posts · 549 votes
    4y

    BRRR is still great! One thing that is helping me is cross-collateralizing after our reappraisal instead of the cash-out refinance. This keeps or original loan with favorable terms in tact and we tap the available equity for the down payment on the purchase/construction line on the next property. Obviously, the rate has gone up a bit on the most recent property but still can make it work. Appraisals have been coming back higher than we expected which is the hedge against rising interest rates in my mind. As they will have an inverse relationship.

    [email protected]319-288-5382
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    2Reply
  • Adam S.
    Rental Property Investor · Louisville, KY · Member since 2020 · 36 posts · 25 votes
    4y

    @Jason Nguyen

    Like David Greene says, what’s your strategy? Are you looking for cash flow now, or are you playing a longer-term game?

    If interest rates are affecting your numbers that much, then maybe you can stress test your deals more. I don’t look at deals for short-term returns and see what changes in a number of variables would do for my deals. That way, I know I have some cushion for various scenarios (i.e. a global pandemic).

    Good deals are out there. Some may need more work. Remember that people were renting properties were near 18% in the 80s. Good luck on refining your strategy!

    1Reply
  • Steven Foster Wilson
    Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
    4y
    Quote from @Adam Reyher:

    @Steven Wilson

    i would love to see the numbers on those deals. Are you saying, cash flowing, as in after mortgage and expenses?


    After mortgage and expenses, pure cash flow. Welcome to the Midwest! 

    2Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    4y
    Quote from @Steven Foster Wilson:
    Quote from @Adam Reyher:

    @Steven Wilson

    i would love to see the numbers on those deals. Are you saying, cash flowing, as in after mortgage and expenses?


    After mortgage and expenses, pure cash flow. Welcome to the Midwest! 


    What stated here is the reward, not the work. Steven worked his butt off finding these deals as do I and many others. They aren't just sitting on the MLS.

    Do the work creating the deals or work longer as you 'break even and hope' in Austin. LOL 

    2Reply
  • Beau F Borinstein
    Rental Property Investor · USA · Member since 2022 · 32 posts · 25 votes
    4y
    Quote from @Jason Nguyen:

    As you may have known, interest rate went up a lot recently and that forced the majority of retail buyers out of the game. Therefore, flipping takes longer to sell or may need to go down in prices if on market too long, BRRRR formula doesn't make sense anymore at nearly 6% interest rate for conventional investment loan or 7% for non-QM loan. Long term rental cash flow doesn't look too good if there's a big repair going on. What do you guys think of Airbnb? I see some Airbnb at a good location brings in more than 100k revenue a year.

    Please let me know what you think.


     If you see a near downturn in the future caused by interest rates/current conditions in the world, airbnb/luxury good and vacation spots are the first things that you will see less of. I see it as a different asset class, don't put all of your eggs in one basket!

    2Reply
  • Colton Hahn
    Specialist · Member since 2021 · 322 posts · 273 votes
    4y

    I think the multifamily space is going to continue to appreciate with how the single family housing market has been going. Multifamily is here to stay for the time being.

    1Reply
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