Reprocussions of a Cooling Market

7 Replies

Hello All, 

I'm still very new to to investing so excuse my lack of proper education. 

I live in Orlando where prices have sky rocketed in the past year. All my friends are telling me it's a bad time to buy a house but I know, as long as a I run the numbers and run them conservatively it'll be okay, right? But it did get me thinking, what kinds of things should I look out for when the market calms down?  

I'm assuming the amount I can rent the unit for (mostly looking at SFR and multi family) will go down? How much could it go down? Could the value of the property plumment? So should I lean towards putting more money down? or keep more in reserves? And at what point would a lender try to foreclose a house? When the LTV gets too bad? or just if I can't make the payments?

Anything else to take into consideration in my calculations before pulling the trigger on a house?

Thanks in advanced!

Kento

@Kent M.  "as long as a I run the numbers and run them conservatively it'll be okay, right?"

Not necessarily.....let's say you pay $300k for a house this month. You get whatever you can rent it for, and hopefully have a positive cash flow. Then next spring the market crashes, err readjusts... and next year at this time the house is worth $200k. How does that make you feel?

Of course the house will eventually be worth $300k again, maybe in a year or two, maybe longer, but in the meantime........you just left some money on the table. That you could've done something else with...

Just my humble opinion.

@Kent M. I would ignore the comments from friends unless they have experience with REI. I got push back from friends and family when I bought my first property in a cheaper, less desirable neighborhood. Now I'm sitting on a few properties, some cash-flow, and tons of equity.

"but I know, as long as a I run the numbers and run them conservatively it'll be okay, right?" - This is everything. Do not push the numbers to make a deal look good on a spreadsheet. If the deal isn't working out, doesn't cash-flow, or has major rehab issues it's probably time to walk. The more experience you have the more challenges and risk you can afford. Doesn't mean you want too just means you can survive when things go sideways. 

If the market slides or worse case c r a s h e s rents will go a little and the property value will drop, but you're smart so you do nothing. If you bought right, ran conservative numbers, and have reserves you'll survive and keep renting every year. It's a cycle that savoy investor master. That's why it's not a get rich quick game. Equity is imaginary money. It builds wealth but doesn't put money in your wallet.

A lender is only concerned with the LTV on the front and back end of an investment. Everything in between doesn't matter unless you ReFi or stop making payments.

@Bruce Woodruff  True I supposed that makes sense but other types of investments seem risky too, so if i dont use the money towards a house then I think it'll just sit there. At least if I put it in a piece of property and fill it with tenants then I'm hoping I'll get a little equity built up. Or at least that's how I'm looking at it.

@Jaron Walling Thanks for the reassurance! It gets hard to keep confident in what i've learned and read when everyone I talk to about say the opposite. 

What kind of reserves do you think I should have? 1 year? I'm looking for places around the theme parks so I'm fairly confident I can keep tenants in there even if I have to drop my the rental rate a little.

Thanks! 

Kento

A lot of people are moving to Florida due to COVID related issues in other states. A lot of people are vacationing in Florida due to travel restrictions or other vacation destinations being not fully open yet. The question becomes, after COVID will Florida stay as strong? Will people who relocated there stay long term? When other vacation destinations are fully open, will Florida see the same level of tourism? History has shown good population flow to Florida, even before COVID, but Florida also took a beating during the housing crash. A recession could hit Florida very hard. Personally I think Orlando is much less desirable than coastal cities in Florida, but ask any Disney fanatic and they will disagree.

@Joe Splitrock Interesting thought. I'm not good at thinking hypothetically as I alway end up wrong lol. I just usually assume the worst and prepare for it. haha

I know what you mean though. Having been in Orlando for 5 years surrounded by all these people obessed with theme parks, it's hard not to think that Orlando wont bounce back to 110%. It's good to hear and outsiders perspective to ground me lol. 

I do feel like since I've been here the Disney has really helped grow this town and houses are popping up all around the disney area. Which makes me feel like that as long as Disney continues to grow and lead in theme parks Orlando will stay as a top tourist destination. But again... I have been drinking the juice for a while now. My persective might be a little skewd lol. 

IMO where you invest is almost irrelevant as long as you understand that market. I'd personally invest locally vs out of state since it's easier to keep in tune with market changes and understand local laws. I actually drive around my investment neighborhoods occasionally to check on local development. 

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