Sicklerville, NJ · Member since 2015 · 2 posts · 0 votes
I'm looking at solid cash flowing($400.00-$650.00) rentals but I feel they are overpriced. If holding long term, how concerned should I be with purchase price?
Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes
5y
I have always gained equity upon closing because I did things (off market, distressed, negotiate, etc.) to get a great price. If you over pay, you are really losing instant equity upon closing. The market is dictated by what a buyer is willing to pay, but I wouldn't count it if you knowingly are overpaying.
I would find an opportunity with some value add, off market, desperate seller, etc. scenarios where you could be closer to market rate or even slightly lower.
Personally, I would never over pay for an asset unless there was some strategic move. If it's just for a few hundred bucks a month net cash flow, I don't think it's worth typing up that capital. Also, everyone goes into investments thinking it may be for the long haul, but really understand your finances & make sure it can truly be locked up for X years or longer in the potential case of depreciation in your asset and a recovery.
Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes
5y
I have always gained equity upon closing because I did things (off market, distressed, negotiate, etc.) to get a great price. If you over pay, you are really losing instant equity upon closing. The market is dictated by what a buyer is willing to pay, but I wouldn't count it if you knowingly are overpaying.
I would find an opportunity with some value add, off market, desperate seller, etc. scenarios where you could be closer to market rate or even slightly lower.
Personally, I would never over pay for an asset unless there was some strategic move. If it's just for a few hundred bucks a month net cash flow, I don't think it's worth typing up that capital. Also, everyone goes into investments thinking it may be for the long haul, but really understand your finances & make sure it can truly be locked up for X years or longer in the potential case of depreciation in your asset and a recovery.
Are there other numbers you can share? Overpaying by 1000 bucks on a property that costs 10k to make 500 dollars a month actual profit (not just rent minus mortgage) is totally fine. Overpaying 200k to get that same 500 dollars a month is... Not a good plan.
Sicklerville, NJ · Member since 2015 · 2 posts · 0 votes
5y
Maybe "overpriced" was a bad way to phrase it on my part. They seem to be competitively priced in the current high market but they are in low end B possibly C areas in South Jersey and I do not expect much appreciation. So maybe the question is should you buy a high cash flowing rental in a high market when you do not expect much appreciation?
Gotcha. That's a different question. Should one buy at the top of the market? No.
How does one know where the top of the market is? Ahh, there's the rub.
Real estate, in general, does well over a long time horizon, but that does not mean that individual circumstances don't overcome the general. There are a lot of factors to consider. If the area you are buying in looks to at least maintain a good job base over the next 10 years (ie not reliant on a single big employer or industry), then the population (and rents) should be stable. Obviously, growth of both jobs and population is preferable. If the value of the property you buy goes down on paper, will that affect your day to day finances and plans? If so, being more cautious is appropriate.
Let's look at ways RE can make you money. 1. Rent. You predict this will continue. 2. Paying down of debt by your tenant. This should happen if you manage tenants well. 3. Appreciation (forced or "natural") this you aren't expecting as you're paying market price and not getting a fixer upper. 4. Tax benefits. No reason why you shouldn't get those.
So assuming you are investing in an area with decent long term reasons for people to live there and you manage the property well, you'll probably get to enjoy 3 of the 4 main reasons to invest in a rental.
Would it be better to buy a fixer upper in the next great location during a buyer's market and do a spectacular (and cost-efficient) renovation? Yup, but waiting for that deal may take the better part of your life.
If the long term numbers make sense and you're left with a cash-flowing rental (real cash flow.... Include expenses!), give it a go. Hitting a single or a double is great. They don't all have to be home runs.