Is the Market Too Hot to Invest?

New York, New York
New York City Real Estate Forum
9yFollow

Is the Market Too Hot to Invest?

Chris Gorman
New York, NY · Member since 2013 · 7 posts · 0 votes

Hi!

What are people's thoughts on investing in this market? I'm hesitant - should I be? If I'm a buy and hold multi-family investor, should I care about buying at the peak of the market (which I believe we're at) if my cash flow is acceptable? Prices seem to be insane in the northeast (NYC/Boston/Philly/DC). If I'm looking at comps to help with my decision making, but those comps are also inflated, shouldn't that give me pause?

Would love your insight.

Thanks,

Chris  

0Reply
33 views

Most Popular Reply

Michael Enriquez
Rental Property Investor · Mount Vernon, NY · Member since 2016 · 89 posts · 125 votes
9y

when analyzing deals in NYC you can't approach it with the cash on cash ROI as your driving metric. Yes, you don't want to end up buying a dud that never cash flows but this is more of an appreciating market than a cash flow market so using Internal Rate of Return would be more suitable.

It should be noted that prices MAY hit a plateau for a bit here as the Fed is anticipating 3 interest rate hikes for 2017. Good news, however, is that if you're considering using an FHA loan to house hack the federal housing administration just lowered the annual PMI premiums on FHA insured loans that close on or after 1/27/17 from 85 basis points down to 60 basis points if you put less than 5% down.

2Reply
See this reply in the discussion

16 Replies

Jump to latestLatest
  • Jason D.
    Investor · Rockford, MI · Member since 2013 · 116 posts · 54 votes
    9y
    Depends. If rents are stable or increasing and you have enough cash flow generated what will it matter if the price drops in the coming years? This assumes your planning to hold for an extended period of time. Buying now, barely cash flowing and hoping to sell at a higher price would be a bad plan.
    2Reply
  • Account Closed
    Real Estate Investor · Kansas City, MO · Member since 2015 · 222 posts · 121 votes
    9y

    It all depends on your goals and expectations. You do need to remember the associated costs that go along with the investment (taxes, insurance, maintenance, property management, vacant, etc). If the numbers still work for you in a positive way, then you're set. If you are looking for a larger return on a buy and hold, you might try investing out of state in a lower cost market.

    2Reply
  • Michael Enriquez
    Rental Property Investor · Mount Vernon, NY · Member since 2016 · 89 posts · 125 votes
    9y

    when analyzing deals in NYC you can't approach it with the cash on cash ROI as your driving metric. Yes, you don't want to end up buying a dud that never cash flows but this is more of an appreciating market than a cash flow market so using Internal Rate of Return would be more suitable.

    It should be noted that prices MAY hit a plateau for a bit here as the Fed is anticipating 3 interest rate hikes for 2017. Good news, however, is that if you're considering using an FHA loan to house hack the federal housing administration just lowered the annual PMI premiums on FHA insured loans that close on or after 1/27/17 from 85 basis points down to 60 basis points if you put less than 5% down.

    2Reply
  • Chris Gorman
    OP
    New York, NY · Member since 2013 · 7 posts · 0 votes
    9y

    Thanks everyone for your input. Michael, I see you're from Mt. Vernon. How is the market by you for single family/small multi-family rentals?

    Chris 

    0Reply
  • Account Closed
    Minneapolis, MN · Member since 2014 · 332 posts · 288 votes
    9y
    Chris Gorman are you a first time investor? If so, holding off for a bit might not be the worst move you can make. I know most people might disagree with me, but if you buy wrong on the first one it could do some damage. Just my $0.02.
    1Reply
  • Chris Gorman
    OP
    New York, NY · Member since 2013 · 7 posts · 0 votes
    9y

    Yes Sean, looking to get in for the first time.

    Can I ask you to elaborate? Why, in your opinion, would this be a bad time, particularly for a first time investor?

    Thanks for your insight.

    Chris

    0Reply
  • Jack B.
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Michael Enriquez:

    when analyzing deals in NYC you can't approach it with the cash on cash ROI as your driving metric. Yes, you don't want to end up buying a dud that never cash flows but this is more of an appreciating market than a cash flow market so using Internal Rate of Return would be more suitable.

    It should be noted that prices MAY hit a plateau for a bit here as the Fed is anticipating 3 interest rate hikes for 2017. Good news, however, is that if you're considering using an FHA loan to house hack the federal housing administration just lowered the annual PMI premiums on FHA insured loans that close on or after 1/27/17 from 85 basis points down to 60 basis points if you put less than 5% down.

     Spot on.

    1Reply
  • Michael Enriquez
    Rental Property Investor · Mount Vernon, NY · Member since 2016 · 89 posts · 125 votes
    9y
    Originally posted by @Chris Gorman:

    Thanks everyone for your input. Michael, I see you're from Mt. Vernon. How is the market by you for single family/small multi-family rentals?

    Chris 

     I'd just like to disclose that I am a licensed agent. The rental market in Mount Vernon is good. Single families won't make sense as rentals here. Now if you flip north of the metro north train tracks you'd be in the money (more of a high end flip). 

    With that being said Multi-Family homes can make sense; I'd advise a 3-4 family home. Units command just as much in rent as the Bronx (slightly less), however, taxes are more than likely to be double or three times higher than in NYC. 

    1Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Chris Gorman The answer is...maybe...

    I wouldn't (right now) invest in a market that's driven by appreciation over cash-flow. Then again if I look back on this in 20 years I'll probably kick myself. You should probably consider what would happen on the financing angle if you use something like a 5 year fixed ARM to purchase a multi-family property. If rents don't rise but interest rates do (less likely but possible) you could find yourself going from cash-flow positive to cash-flow negative in short order if you're high leveraged. It's pretty easy to look at how the numbers would be if you have a 4.5 rate and it jumps to 6% and identify where the breaking point resets.

    Alternatively, if (to randomly make up numbers) you buy a 4-plex for $400K that cash-flows $20K per year and you wait 4 years hoping for the market to drop you've lost $80K in cash-flow.  Not to mention a portion of that cash-flow is immune from taxes thanks to depreciation.  If you think market will correct (read: drop) by 10% over the next 4 years you have one answer, if you think the market will drop by 50% over the next 4 years you have another.  Then again if you think the market will drop 50% you should probably sell everything you have...

    2Reply
  • Giovanni Soto
    Wholesaler · Elmont, NY · Member since 2014 · 55 posts · 9 votes
    9y

    I remember a guru saying Live where you want to live but invest where it makes sense.  I would not live in most parts of the city anymore but  If ALLLL the numbers make sense and your strategy is to hold and you KNOWWW how to manage then the Bx makes sense.  Prices there are already high.  Even if prices drop slightly (10%-not that slight) the rents will not drop substantially.  IMHO. I've been investing there for some years now.

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    Hot markets are how you get rich. Unless you forsee some giant housing collapse, then it's always a good time to buy. Time is the greatest ally of the buy and hold investor. At some point everyone has to get over their PTSD from the crash a decade ago.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group546 Reviews
    WebsiteView Page
    1Reply
  • Michael Nocella
    Real Estate Professional · Brooklyn, NY · Member since 2015 · 14 posts · 4 votes
    9y
    Originally posted by @Russell Brazil:

    Hot markets are how you get rich. Unless you forsee some giant housing collapse, then it's always a good time to buy. Time is the greatest ally of the buy and hold investor. At some point everyone has to get over their PTSD from the crash a decade ago.

    I think the real estate prices in all of New York City give a solid indication that there isn't much PTSD in that market.  Most of the recent sales prices don't support the in-place rent at all and cap rates are as low as 3%.

    1Reply
  • Steven Greenhill
    Real Estate Agent · New York, NY · Member since 2017 · 66 posts · 26 votes
    9y
    Originally posted by @Chris Gorman:

    Hi!

    What are people's thoughts on investing in this market? I'm hesitant - should I be? If I'm a buy and hold multi-family investor, should I care about buying at the peak of the market (which I believe we're at) if my cash flow is acceptable? Prices seem to be insane in the northeast (NYC/Boston/Philly/DC). If I'm looking at comps to help with my decision making, but those comps are also inflated, shouldn't that give me pause?

    Would love your insight.

    Thanks,

    Chris  

    Our prices double every 8 years on average... although cap rates are 3%, we make money on appreciation, not cash flow necessarily.... This is still true. Just gotta know where to purchase. I can help. Reach out. 

    0Reply
  • Matt Sumsion
    Provo, UT · Member since 2017 · 27 posts · 5 votes
    7y

    @Russell Brazil could you expound more on what you said about "hot markets are how you get rich"? I found this thread just now as I've been researching the best ways for investors to invest in hot markets safely. 

    Of course investors can make money in any market condition. However, it would be wise for investors to consider making appropriate changes as the market shifts to ensure they won't lose their shirts. What does that look like in a hot market? In your opinion what's the best way for investors to make money in a hot market?

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y
    Originally posted by @Matt Sumsion:

    @Russell Brazil could you expound more on what you said about "hot markets are how you get rich"? I found this thread just now as I've been researching the best ways for investors to invest in hot markets safely. 

    Of course investors can make money in any market condition. However, it would be wise for investors to consider making appropriate changes as the market shifts to ensure they won't lose their shirts. What does that look like in a hot market? In your opinion what's the best way for investors to make money in a hot market?

     Prices rise in hot markets. The hotter the market, the higher they rise.  I make tens of thousands, hundreds of thousands per year just owning a bunch of properties in hot markets.  Id much rather own properties that are in high demand rather than ones in low demand, or low demand markets.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group546 Reviews
    WebsiteView Page
    0Reply
  • Matt Sumsion
    Provo, UT · Member since 2017 · 27 posts · 5 votes
    7y

    @Russell Brazil Yes, that makes sense that properties are going to rise in hot markets. However, for the investors that are looking to invest right now how should they go about investing into real estate for them to maximize their return in terms of CASH FLOW?

    In your opinion is there a method that works best right now? Is there something investors should focus their attention on while the market is hot keeping in mind that the market will likely dip in the coming years? For example: BRRRR, Fix and Flip, Buy and Hold, Build New Construction, ect.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free