This is Not the Real Estate Environment for Rookie Investors

152 Replies

Originally posted by @Nelson Sandoval :

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.

I wouldn't get those inspirational words on a t-shirt, you're going to lose it when the market tanks. 

The variety of opinions here reminds me of my husband’s saying about the RE market: “Everyday is Christmas to the right person.”

Are you positioned and willing to go after the deals that are in your market at this time? If so, it’s Christmas! If you’re not positioned or willing to house hack/wholesale/flip or whatever the numbers call for, then wait till you are. Learn and get ready. Knowledge is the ultimate leverage. Know yourself and your market as there is no single right answer. Christmas every day!!

Originally posted by @Sarah Kartsher :

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. 

 The supply in Grove City is lacking. There are way more opportunities to house hack in Columbus. I have seen a few 4 units in Grove City though. Did you get one of them?

Kevin Hill I agree with you. We are seeing office workers flee city apartments as employers now take advantage of not paying commercial office space, thus employees move to suburbs and farther out locations. This won't last, nothing does.  Around Halloween the mess starts with all those unpaid rents, mortgages and lack of jobs. Save your cash, get your credit perfect, study trends, know where to get material as that also is in flux as supplies come and go.

Kevin Hill, very cute. You have about the typical response and attitude a real estate agent would have. Not very enlightened for sure. Even in the 08' great recession I didn't just not lose my shirt, but I bought many more. Glad I don't listen to people like you. I've learned from success, not from naysayers.

@Nelson Sandoval if you bought after 2008 then it was golden timing but if you bought in late 2005/early 2006 your values went down. When you are in the moment it is very hard to know. With the numbers of people not paying rent, in forbearance and in default this time is not going to be easy

@Remington Lyman There are few "multifamily" properties listed on the MLS in Grove City right now. However, when I bought this place it was listed as a SFH but had a carriage house in the back(ADU on top of the garage/ mother in law suite). It is a legitimate dwelling as its metered separately and has its own address. In this town there are a few Duplexes and homes with ADU, but you have to look at each listing sometimes they are only listed as a SFH.

If you're young enough and in it for the long haul, then any market can work. Just depends on whether it will be easy or hard. In Denver and Colorado Springs where we work and invest, it's pretty tough to cash flow. 

You've got to get creative. We have four properties (five doors) and all are furnished medium term rentals, which helps juice the revenues a bit. If you're a young person buying your first place, then house hacking with roommates or finding a place with a mother-in-law suite can be a great option to get your feet wet, start building equity and offset your mortgage. 

On that point, like @Sarah Kartsher said, we like to find our clients properties that have a carriage house or basement apartment and are zoned for two units (either "TU" in Denver or "R2" in Colorado Springs). That gives you rental income while you live there and the option to rent both units when you move out. 

Experience is the best teacher.

Every year since I got started looking at real estate in 2015, we have all heard this is a top, this is the peak, prices are going to crash, etc. In most markets, this was not the case so from my perspective forecasting the market cycle is not purely data driven. There are so many factors that influence asset prices that a bad economy or high unemployment may not even drive prices down. The government injected trillions on dollars into the economy and those dollars are not just going to disappear. I believe that it will go into the hand of people that value assets who will use their newly found money to buy more assets at whatever the market price is. Money is basically free, asset prices go higher.

I agree that investing now seems more difficult that 2013 was in hindsight, but in 2030 we may be saying how easy 2020 was and how buying was a no brainer. For me it is more risky to sit on the sidelines and watch the market go up without me (some FOMO, I'll admit it) while not getting the experiential education that I'll need down the line. I'm NOT advocating for betting your net worth on the market, but as long as you have a solid financial foundation the education of getting involved NOW will probably be more valuable than any money you lose (if you lose any at all). 
 

@Matthew Forrest " ... getting involved NOW will probably be more valuable than any money you lose (if you lose any at all)."

Amen. Couldn't agree more. The experience you gain from buying is way more than anything you can read on this site. And again, if you're buying for a long-term buy-and-hold, the market in most desirable areas -- like here in Denver and Colorado Springs -- is going to go up. If you think you might have to sell whatever you buy in the next 2-3 years, then who knows. But long-term? It's a pretty good bet.

@Matthew Forrest - With all due respect, your comment "The government injected trillions on dollars into the economy and those dollars are not just going to disappear. I believe that it will go into the hand of people that value assets who will use their newly found money to buy more assets at whatever the market price is. Money is basically free, asset prices go higher." is dangerous and reminds me of the "Good 'Ole Days" in the early 2000's (circa 2004-2007 mainly). I cannot tell you how many times I was told by bankers, RE "Investors", flippers and brokers that "hey, money is free and the house is an asset and will it will always go up in value. Back then, someone...anyone...could get 90-110% LTV loans. Those were STATED income loans, where little to no proof was needed. Even a "full qual" loan was a cake walk compared to now. I ask ALL those people that took the advise that "money is free and assets will go higher", how did it turn out? Most would say that it wiped them out, some are just recently getting back to square one. The few, that actually had the income/cash reserve to feed the alligator for a long time, at BEST broke even when tax advantages were figured into the calculations.

Here is my take from doing this for 20 years.  Money, while cheap now, is never free!  There is always a cost, most of the time it is hidden from view.  Assets do NOT always go higher.  Also, how do define an asset?  My definition, for the most part, is something that puts $$$ in my pocket.  I say most part because there are exceptions like gold / silver, land banking and development.  As I was writing, an investment in RE should put money in your pocket either immediately or in the VERY short term (think buy, rehab and flip/rent).  If it does not, you just bough an expensive hobby.  Also, always calculate your deal using Before Tax Cash Flow as tax laws change. 

As for getting involved now, I think there are deals out there regardless of the economy, interest rates, COVID or even war.  It comes down to understanding your market, having a quality team, having a sound financial backing/reserve and not trying to hit a home run every time.  Is this current RE environment more difficult? Yes.  Should a newbie stay away? No.  Should you continue to look at deals, make offers that work for YOU and close if possible?  Hell Yes!!  Just do so with eyes wide open and, please, move forward at a decent pace. I am writing this from 20 years of experience. While I loved the last RE crash (2007-2010'ish), I personally know of many people and some former friends that got buried.  Two of them, including a family member, lost their personal home.  ALL of them were of the mind set that "money is cheap/free" and the house is an asset that will "keep going up in value".  Learn from their mistakes so you won't repeat them. 

Just my 2-centavos!




Haven't read the rest of the thread besides the original OP's post but I would like to mention how BP mods and speakers have switched from "get creative" and "how to invest with no money down" to all of a sudden putting an emphasis on " Cash Reserves" and not to over leverage yourself...I hope no eager rookies got in over their heads with such advice. I'm sure those topics seemed implied but to a rookie investor its nice to mention over leveraging and being ready for a downturn which I rarely see on here besides just before the storm...

On another note, to be a seller right now the market is insane and in your favor..as you all know I'm sure.

Originally posted by @James Barnes :

Haven't read the rest of the thread besides the original OP's post but I would like to mention how BP mods and speakers have switched from "get creative" and "how to invest with no money down" to all of a sudden putting an emphasis on " Cash Reserves" and not to over leverage yourself...I hope no eager rookies got in over their heads with such advice. I'm sure those topics seemed implied but to a rookie investor its nice to mention over leveraging and being ready for a downturn which I rarely see on here besides just before the storm...

On another note, to be a seller right now the market is insane and in your favor..as you all know I'm sure.

 Yeah the overleveraging part scares me. Many people got hurt by cashing out all their equity last time we had a downturn in the market. Thanks for commenting!

Originally posted by @James Carlson :

@Matthew Forrest " ... getting involved NOW will probably be more valuable than any money you lose (if you lose any at all)."

Amen. Couldn't agree more. The experience you gain from buying is way more than anything you can read on this site. And again, if you're buying for a long-term buy-and-hold, the market in most desirable areas -- like here in Denver and Colorado Springs -- is going to go up. If you think you might have to sell whatever you buy in the next 2-3 years, then who knows. But long-term? It's a pretty good bet.

This has been what I've been struggling with. I am itching to buy my first rental property, but I've been waiting and saving as much as I can to afford a larger down payment (currently have $20k), while also dealing with a cross country move myself. I'm in the Milwaukee area and already live rent free (staying in an in-law suite)... anyone have advice on if it's better to wait till the Spring to buy? I had initially set the goal to buy before the end of 2020, but I don't know how many people are moving around in the middle of winter - especially in a pandemic. 

@Abigail Ford fall is the best time to buy investment properties, winter is around the corner and sellers may take a little less - at least in past years. This year demand is so brutal that we may not slow down. Spring is the worst time to buy traditionally, because everyone is so you have maximum competition. Inventory is usually at the lowest in Jan and February. In past years we have always seen list prices stepping up about 5 to 8% in early spring. So fall is definitly the time to buy. For a little more data check out the video on my BP profile page.

Originally posted by @Joseph M. :

@Matthew Forrest - With all due respect, your comment "The government injected trillions on dollars into the economy and those dollars are not just going to disappear. I believe that it will go into the hand of people that value assets who will use their newly found money to buy more assets at whatever the market price is. Money is basically free, asset prices go higher." is dangerous and reminds me of the "Good 'Ole Days" in the early 2000's (circa 2004-2007 mainly). I cannot tell you how many times I was told by bankers, RE "Investors", flippers and brokers that "hey, money is free and the house is an asset and will it will always go up in value. Back then, someone...anyone...could get 90-110% LTV loans. Those were STATED income loans, where little to no proof was needed. Even a "full qual" loan was a cake walk compared to now. I ask ALL those people that took the advise that "money is free and assets will go higher", how did it turn out? Most would say that it wiped them out, some are just recently getting back to square one. The few, that actually had the income/cash reserve to feed the alligator for a long time, at BEST broke even when tax advantages were figured into the calculations.

Here is my take from doing this for 20 years.  Money, while cheap now, is never free!  There is always a cost, most of the time it is hidden from view.  Assets do NOT always go higher.  Also, how do define an asset?  My definition, for the most part, is something that puts $$$ in my pocket.  I say most part because there are exceptions like gold / silver, land banking and development.  As I was writing, an investment in RE should put money in your pocket either immediately or in the VERY short term (think buy, rehab and flip/rent).  If it does not, you just bough an expensive hobby.  Also, always calculate your deal using Before Tax Cash Flow as tax laws change. 

As for getting involved now, I think there are deals out there regardless of the economy, interest rates, COVID or even war.  It comes down to understanding your market, having a quality team, having a sound financial backing/reserve and not trying to hit a home run every time.  Is this current RE environment more difficult? Yes.  Should a newbie stay away? No.  Should you continue to look at deals, make offers that work for YOU and close if possible?  Hell Yes!!  Just do so with eyes wide open and, please, move forward at a decent pace. I am writing this from 20 years of experience. While I loved the last RE crash (2007-2010'ish), I personally know of many people and some former friends that got buried.  Two of them, including a family member, lost their personal home.  ALL of them were of the mind set that "money is cheap/free" and the house is an asset that will "keep going up in value".  Learn from their mistakes so you won't repeat them. 

Just my 2-centavos!

I'm glad that there are other opinions other there! That's what makes markets and helps prevent bubbles. My statement around money being free was hyperbole and I apologize if that wasn't clear. 2008 was obviously full of bad decision in hindsight, but as you mentioned we plugged some of the gaps that made the situation particularly precarious.

My overall sentiment is not in support of over leveraging! The barriers to entry in real estate are pretty high so reckless speculation is much less common than it is in penny stocks and crpyto. From what I've seen analysis paralysis is a bigger problem for new investors so they don't need to be any more scared than they already are. I believe education mitigates both risk and fear and there is no better way to learn than to do.

 

This post tricked me!   I thought he was gonna say why rookie investors shouldn’t try and was pleasantly surprised on why they definitely should.   I remember reading a quote, not sure who made it but it works for any profession.  It says “A professional writer is just an amateur who never gave up.” 

Don’t let others tell you what you can’t do because they are comfortable in a 9-5.  Great post!

Originally posted by @Joseph M. :

@Matthew Forrest - With all due respect, your comment "The government injected trillions on dollars into the economy and those dollars are not just going to disappear. I believe that it will go into the hand of people that value assets who will use their newly found money to buy more assets at whatever the market price is. Money is basically free, asset prices go higher." is dangerous and reminds me of the "Good 'Ole Days" in the early 2000's (circa 2004-2007 mainly). I cannot tell you how many times I was told by bankers, RE "Investors", flippers and brokers that "hey, money is free and the house is an asset and will it will always go up in value. Back then, someone...anyone...could get 90-110% LTV loans. Those were STATED income loans, where little to no proof was needed. Even a "full qual" loan was a cake walk compared to now. I ask ALL those people that took the advise that "money is free and assets will go higher", how did it turn out? Most would say that it wiped them out, some are just recently getting back to square one. The few, that actually had the income/cash reserve to feed the alligator for a long time, at BEST broke even when tax advantages were figured into the calculations.

Here is my take from doing this for 20 years.  Money, while cheap now, is never free!  There is always a cost, most of the time it is hidden from view.  Assets do NOT always go higher.  Also, how do define an asset?  My definition, for the most part, is something that puts $$$ in my pocket.  I say most part because there are exceptions like gold / silver, land banking and development.  As I was writing, an investment in RE should put money in your pocket either immediately or in the VERY short term (think buy, rehab and flip/rent).  If it does not, you just bough an expensive hobby.  Also, always calculate your deal using Before Tax Cash Flow as tax laws change. 

As for getting involved now, I think there are deals out there regardless of the economy, interest rates, COVID or even war.  It comes down to understanding your market, having a quality team, having a sound financial backing/reserve and not trying to hit a home run every time.  Is this current RE environment more difficult? Yes.  Should a newbie stay away? No.  Should you continue to look at deals, make offers that work for YOU and close if possible?  Hell Yes!!  Just do so with eyes wide open and, please, move forward at a decent pace. I am writing this from 20 years of experience. While I loved the last RE crash (2007-2010'ish), I personally know of many people and some former friends that got buried.  Two of them, including a family member, lost their personal home.  ALL of them were of the mind set that "money is cheap/free" and the house is an asset that will "keep going up in value".  Learn from their mistakes so you won't repeat them. 

Just my 2-centavos!


Great post @JosephM. My only comment is you state to calculate [the] deal using Before Tax Cash Flow, as the tax law always changes (which is true), I would say do the opposite. I would try to be as conservative as possible and calculate after tax cashflow especially if the investor is looking for cashflow.  I say that because if the tax law changes such that it eats into ones profit, depending on if they were holding it for appreciation or strictly cashflow, it could wind up costing them to hold the property. 

That's my thought, but again, the rest of your post, I couldn't agree more. 

 

I believe this is market specific. Certain markets are still profitable for beginners, however they should have more than one exit strategy. My market's inventory has been depleted or sellers are holding out. I used to get 8-10 deals a day coming through email, I'll be lucky to get 2 per day now. At this point when you see the deal come out and it is in your farm market you better make an offer sight unseen (as long as there are pics in the email.) 

Money can be made in real estate no matter the economic health. If you run the numbers and buy at the right price there should be no issue (as long as you understand where you are buying). Finding a mentor that has years of experience to help you through your deal is always a good idea! 

Best of luck

I absolutely understand your angle and idea. I will reiterate a very commonly used phrase "don't waste a good crisis". There are definitely moments of opportunity that a rookie investor can capitalize on and I think right now, as people are in a lot of uncertainty, a real estate investor has to be very keen and sharp with studying the market and where the industry will head to in the foreseeable future. As a new real estate investor, I do see the struggles that I can potentially face in all phases of the process of buying a property, but I think that staying prepared will allow me to be a lot more confident in my ability to make a decision. 

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!


"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!"


That's good advice.

 

We are in Lansing, MI. The market has been ridiculously hot. When this started happening the word caution came to mind, not stop, but caution. We have (3) four unit buildings and all cash flow well and so we have spent the last 6 months building cash, with our third purchase in September and our first one 10 years ago. So, with that in mind we are excited to really roll on to our next one (much slower stack), until we recently drove out to see another four unit. I reference this four unit to the gentleman who said buy sight unseen. The price was great the cash flow looked good to great but when we went out and physically looked at the property...needed new roof, siding repaired or possibly replaced, scrap metal everywhere and a hand full of other small items, plus area rents were lower than what this place was getting and the buildings around were nothing to write home about. So no appreciation, no upward mobility in rent, cash to get the property up to”snuff”, respectable and we would have sucked a good portion, half, of our reserves down getting it there. There is something to be said for getting in the game but there is more to be said for being patient. There will be opportunities but you have to do the due diligence and be responsible with what you have been given and worked so hard to get. Young guys and ladies don’t quit and do get in, but don’t be a “ball of fire” and burn out fast. It is a long race of building lifetime wealth, not a get rich quick “scheme”. Take care of people first and they will take care of you.  

Just for reference we are a buy and hold, so our approach is obviously different, more conservative.

Keep moving forward!

How about looking at it this way; What IS a good R.E. environment for rookie investors? 

If your an "investor" by the IRS/SEC definition of an investor, than you want certainty and easy because all your doing is placing $$$$ into a fund/organization to make little $$$$ babies who make more $$$$ babies and so on. That would look like strong rents with maybe a housing shortage that has no viable potential of easing any time soon. In summary, today. 

If your a "go-getter" who is not chillaxin on a mountain of cash with the last name of Heinz or Hilton, faced with having to use smarts and savy to leverage effort and knowledge into $$$$ then you'd want chaos, uncertainty, destruction, fear. Why? because stability does not breed opportunity, things are set with no need to deviate from status quo. Chaos and fear breeds opportunity, and for that young "grinder" they must do something different, smarter, more savy, more constructive, solve a problem in a new unique way. Again in short, today.