Should I postpone a turnkey purchase to see what the market does?

Question

Thanking about waiting to make our first turnkey purchase until the new year as the markets seems like it’s getting closer to a big change. Just not sure it would make a difference or not in the world of turnkey purchases. Advice or insight appreciated!

Paul Shannon · Answer

Timing the market is not typically sound investment advice because nobody has a crystal ball. If you find a deal that meets your investment criteria, go for it.

Johnny Wolff · Answer

Hey @Chris Webb. Definitely a prudent thing to consider right now. We're in unprecedented times indeed. I think the answer is largely market dependant. Property values on the coasts might be in for an interesting 2-3 years as we come out of this thing. Am very bullish long-term on the coasts though. Think the "everyone is going to move out of California is a bit overblown."

When it comes to the middle of America - many of the markets have proven to be incredibly resilient to recessions. Take a look at this chart of KC --> https://fred.stlouisfed.org/series/ATNHPIUS28140Q. Only one downturn in 50 years in KC RE prices...crazy.

Anyways - I told my dad today that I'd wait to buy in expensive cities, but would encourage him to buy today (or anytime really) in the middle of America. Historically, we don't see a lot of pullbacks in those markets...and life is short.

Ujwal Velagapudi · Answer

It would depend on your time horizon. If you think you'll hold onto it for the long haul (min. 10+ years), then sure, you can fare alright if you buy something where the numbers make sense today.

Personally, I wouldn't touch anything today that was turn-key, especially on the MLS, selling at a premium. I'd only purchase where it was under market value and likely where there is a good value add opportunity, which more than likely means it'll be off-market. This would be my philosophy during any market, but even more so today.

Nathan Gesner · Answer

I'm with Paul. I've been hearing people smarter than myself (there are a lot of them!) predict a downturn for the last three years. I don't see any signs of a major correction. Even with the COVID fiasco, our market is doing great and I expect it to continue on that path.

Long story short, I'm focused on my long game. Buy something that can handle a correction and still survive. When the market recovers, you'll be in good shape. If there is no correction, you're even better off!

Account Closed · Answer

Ask yourself the question, say "Self, do I believe the 25,000,000 people who didn't make rent payments last month and don't have to until Dec 31 will affect how landlords view their property in, oh, say 3 months when they are struggling to pay the mortgage, and Self, how many of those properties will hit the market because of default and tired landlords?"

Will that affect pricing?

I say it depends on the market you invest in. Anywhere there are riots, BLM or Antifa, rents are dropping.

Derrick Dill · Answer

If you're targeting cash flow, shouldn't really matter that prices drop. If you're targeting appreciation, you should probably look into BRRR instead

Ali Boone · Answer

Values are going up for residential housing because of everything. Commercial properties may be a very different story, but there are a lot of factors causing the housing prices to go up because of it all. But more generally, fun fact, housing prices have only dropped in 1 of the last 5 recessions (including the Great Depression). And the only reason they dropped that one time (2008) is because the entire crash was because of the mortgage industry.

Todd Crippen · Answer

Chris, as others have mentioned, it is hard to know exactly what is going to happen. That being said, I as many others, choose this channel (in the right real estate market) because of the options it provides as a consistent investment through economic volatility. This increases the importance of researching the markets you buy in.

A couple items to focus on: 1. What has the appreciation looked like over the last 10 years. Is it modest or has the growth been too rapid for stability? 2-6% appreciation is the window of stability I look for. Look at what the average market price and value change was during previous economic downturns.

2. What is your primary goal with the investment? Is it up front equity, or decent equity with a focus on cash flow? If your primary goal is cash flow, then buying a property that cash flows after debt service and expenses can be a solid investment to rely on during some instability. Over 30 years your equity will grow as you see healthy cash flow.

I hope this is somewhat useful and wish you luck.

Jon Schwartz · Answer

Perhaps consider the rental profile you'll be engaging. Is it likely your renter might be affected if no further stimulus is passed?

Chris Webb · Answer

@Ali Boone guess the concern is values will drop

Should I postpone a turnkey purchase to see what the market does?

Should I postpone a turnkey purchase to see what the market does?

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