This is Not the Real Estate Environment for Rookie Investors

152 Replies

@Terry Harris: Depending on the region / market, wrapping up a flip or filling a vacancy is harder from November to January.  The main reason, at least what I have found, has to do with moving close to the holiday season (Thanksgiving, Christmas, New Years...).  Also, if you are in a cold weather climate, moving in the snow cannot be too much fun.

@Terry Harris this is when I predict a lot of homes will enter the foreclosure status. I vast majority of homes entered into pre-foreclosure in late May, and 6 months later is when the ticker hits

@Kevin Hill  I've been following this post and thought I would weigh in on a couple points:

There's been a lot of references to 'crazy low interest rates' but I thought it would help to quantify that for the newbies. During the crash of '07-08, primary 30 year fixed was approx 5.5% whereas now it is heading south of 3%. Investment mortgages are typically 0.5-1% higher rates than primary residence. I'm getting my whole portfolio refinanced at 3.5% and below for investment property. The savings in interest rates of '07 vs present rates results in $350 cashflow on a $300K loan amount. I'll agree it's bad to catch a falling knife if hundreds of thousands of foreclosures are on the horizon (which is totally unknown), but if the numbers work and you can cashflow decently on a LTR, short term changes in property value are just paper losses while your rent checks and cashflow are real money each month. Rental rates in good markets haven't been known to crash; they may go flat or decline slightly but your cashflow should be stable.

@Jon Pierre - I confess that I've tried to be a 'market timer' but it hasn't gone well. Selling part of your portfolio to trade them like stocks (Sell high, Buy low) seems like it could go awry. The two main problem areas I foresee are the RE costs involved in the two transactions, and trading out your nicely performing rentals for unknown foreclosures AKA headaches. You had mentioned selling your vacant properties, but there's still a lot of piece of mind that you've probably done several improvements and know the property's history up and down. Though it sounds like a tempting model, I think the unknowns and the negatives outweigh the positives. Best of luck though! Time will tell. 

Our rental that we had placed tenants in during this epidemic is cash flowing about 600/month and we were able to secure rent at $500 over market value!  If there isn't a market, go out and make yourself one!! The right time to invest in real estate is when you YOURSELF are ready!

@Kevin Hill

I really enjoyed your input. I just finished my first deal, a duplex in palm beach county, that I’m not too worried about even if there is a major correction. I have been saving up like crazy to run into my next deal but now I feel as though I have some more macro-economics to analyze!

What would be your advice for a rookie starting out in mobile homes? If I was to start out investing, what do you think about buying and holding? If financially able of course, cause in Chicago, and some cities south they are making houses down...........

@Kevin Hill

Do you expect supply to return in your area or overall in the nation at some point this year?

In FL I’m seeing a similar pattern of houses not lasting a week, with investor bidding above list price or cash offers at asking. In part that’s due to the lack of inventory. At the same time, I struggle with the thought that given how low interest rates are worldwide and central banks supporting the markets with their “whatever it takes attitude”, why can’t real estate continue this cycle for another 10yrs? What other asset can you buy out there that can generate some cashflow? Stocks and corporate bonds on average are yielding less than 2%?

I agree that househacking is a safe move in this environment given the market. In Ohio inventory is low but on the outskirts of larger cities and small cities prices are still affordable. Depends on where you look. During the shut down, I purchased by 1st househack and live for free while living in the unit above the garage. Getting some experience but still taking baby steps. 

@Sarah Kartsher - Good for you.  RE investing is a marathon and not a sprint (or even a 10K).  Take your time, learn and gain actual experience.  Sounds like you are on your way!

Originally posted by @Ana C. :

I think the concerns are valid as a newbie I'm being more conservative when running numbers and carefully following news. I've seen multiple reports where supply is very low now but demand is high (I suspect due to the low interest rate) so people are overpaying for real estate? I think the best time to really buy will be early next year and that will be due to many foreclosures unfortunately...  

Ana, my crystal ball is not showing a big increase in foreclosures next year. I think with the mortgage forbearance that was part of the CARE's Act, most people will be able to stay in their homes. The primary cause of the 2008 crash was 3 factors.

1. Overly lenient lending standards
2. Increased money supply in the economy
3. Overheated new construction

We have none of these factors today. Having said that, I do think some markets will be in trouble as a result of changes in how we do business and the workplace due to COVID 19. These will be the high cost markets, especially with a lot of tech sector jobs. As more and more companies are allowing employees to work from home on a permanent basis, people will start moving out of these high cost areas. I don't see that effecting investors though. These are not good cash flow markets to begin with. Personally, I think the more affordable markets like the midwest are going to come through this just fine. Inventory is very low in Indianapolis and Kansas CIty which I am familar with and as a result, prices are up over 5% YOY which for the Midwest is phenomenal. I think this is a time to be careful and strategic but I don't think it's a time to sit on the sidelines, especially with today's low interest rates.

 

Well put - I made a bid to buy my second rental to house hack, and numbers worked for me as long as I was house hacking at the listing price. I lost the bid to someone who offered $25k above asking. There were 10 offers in 3 days!!!!. I keep reading the advice to wait, but I want to buy my second property this year; it is one of my 12 yearly goals; I've always kept my goals since I graduated college 3 years ago. 1st year I paid off my credit cards, the second year I paid off student loans, 3rd I bought my first property, and this year I want the second one. Thanks for sharing.

@Kevin Hill This is a great discussion thanks for starting it. I’m a new investor and I’m thinking about waiting to purchase my first property at least 6 months to a year as the current market is a little tough. I’m looking to house hack and haven’t seen any multi family in central NJ that makes sense or in areas close to the train station for my NY commute

@Kevin Hill Amen to that, I’m in a small town in Kentucky and before COVID-19 hit there was an idea to start a project with a high rise, a plaza, and stores, in a small town of single family homes. Long story short it is now a man made lake that 6 houses wide. Shame. If only my city’s city council thought like you there would be progression, not regression.

thank you for this thread! I am in the process of buying a house hack in Miami, FL though the rental income wouldn't cover our living. Seems that homes above conventional max amounts is where there is a ton of movement & qualified buyers (as restrictions are increasing - now 750 credit score required to close a piggy back loan was quoted to me) flooding the market & homes are flying. 

@Kevin Hill

Sage advice!! Absolutely relevant for quick fix and flips. I 100% agree

As for buy and holds /house hacks it can still be a good time to buy even for rookies provided the numbers work still, with the intent of holding on to the property for minimum 5 years

Thanks for the post!

Originally posted by @Edwin F Zhingri :

Well put - I made a bid to buy my second rental to house hack, and numbers worked for me as long as I was house hacking at the listing price. I lost the bid to someone who offered $25k above asking. There were 10 offers in 3 days!!!!. I keep reading the advice to wait, but I want to buy my second property this year; it is one of my 12 yearly goals; I've always kept my goals since I graduated college 3 years ago. 1st year I paid off my credit cards, the second year I paid off student loans, 3rd I bought my first property, and this year I want the second one. Thanks for sharing.

Househacking is the best way to go for most new folks for sure.  I'd just caution you to not become a motivated buyer just to accomplish a goal you have. Specify that 3rd goal of buy my first property with 'below market value'. 

If your ideal househack is a plex, you have a distinct advantage when driving for dollars (D4D). Plexes are almost always landlord-owned.  LLs are more likely to not worry about maximizing sale prices, are more likely to carry and often have more than 1 property. 

The answer when all MLS property has bidding wars is a quiet off market deal directly with the seller. Take down the addresses of tired plexes and send those landlords a postcard. Get to know the owners in a neighborhood you like👍

 

Originally posted by @Serena Kim :

@Kevin Hill

Do you expect supply to return in your area or overall in the nation at some point this year?

In FL I’m seeing a similar pattern of houses not lasting a week, with investor bidding above list price or cash offers at asking. In part that’s due to the lack of inventory. At the same time, I struggle with the thought that given how low interest rates are worldwide and central banks supporting the markets with their “whatever it takes attitude”, why can’t real estate continue this cycle for another 10yrs? What other asset can you buy out there that can generate some cashflow? Stocks and corporate bonds on average are yielding less than 2%?

We have had low inventory in my area for a few years now. Once this up cycle ends, we'll see more inventory, then eventually a buyer's market. Not looking forward to that! I remember showing a client 100+ houses during the last buyer's market because they were so overwhelmed with choices and they always thought there might be a better house on the horizon that they were willing to wait for.

 

@Edwin F Zhingri - It is good to hear that you are a goal orientated person.  So am I.  However, do not "do a deal" just to achieve some yearly goal.  The deal will come but you need to make sure it is actually a good deal for YOU.  Save, learn, assemble your team and know your area well.

Originally posted by @Kevin Hill :

I don't want to announce the sky is falling and be a Debbie Downer, but in my opinion, now is NOT the time to be investing in real estate for rookie investors, especially flips. I keep seeing a lot of posts from newbie investors about investing in their first deal and I'm worried for them. I am in North Jersey (Bergen County) and this is what I am seeing in my area.

COVID-19 has only decreased available housing inventory during the pandemic causing a spike to home prices and demand. I keep reading about the residents who want to escape from New York City and New Jersey is one destination for them. Houses are routinely gone within a week now with multiple offers at full or over the list price. This is not a good time for an investor (especially one without experiences in different economic cycles). This is not sustainable with the high rate of unemployment, mortgage delinquencies, homeowners going into forbearance, Sheriff foreclosure sales currently on hold to at least October now, increased requirements for mortgage qualifications, small businesses going out of business, and a likelihood that children will be at home again in the fall for distance learning, restricting parents' ability to work.

Overpaying for the property, delays in securing contractors/finishing the renovation, towns slow in completing Certificate of Occupancy/permit inspections, delays on getting the title work done, etc in a market that could turn on a dime is a recipe for disaster. Yout can't do a BRRR strategy if you don't have any equity after the flip is complete.

Be very careful out there. Get a mentor, hire an agent who is really looking out for you and not just trying to close a sale, and be patient. The great deals will be coming once we enter into a down cycle. Real estate is cyclical and cycles typically run 7-10 years and we are at about year 9 in North Jersey. Down cycles don't last as long, so pile your cash and be ready to strike when the good buying opportunities are here again!

Great post for discussion. I think now is the perfect time for a rookie investor working with the right people (agents, lenders,....) in the right market with the right data.  

 

They told me there were no deals.

They told me this wasn't the right time.

They told me I don't have what it takes.

They told me its too hard.

They told me its too risky.

They told me I wasn't smart enough.

They told me I wasn't good enough.

They told me what I can't do. 


Glad I don't listen to others friendly ... "advice" ... and I just go do it instead. 

This is Real Estate, there is ALWAYS deals. The only reason you don't find deals and come to a conclusion there are no deals or other excuses is because.....

You.. Gave.. Up..

End.