Invest now or wait for recession?
Rental Property Investor · Member since 2021 · 45 posts · 19 votes
Invest now or wait for recession?
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
4y@Marcos Carbi
Those who wait for lower prices never buys. They will continue to want to get a “better” deal.
If it’s a duplex and the numbers work and it cash flows. The lower the price goes the better the numbers look and someone will come in and buy it. While we are going to have a recession it does not mean that has prices will crash. Will they continue to go up 20% year - no, but it doesn’t mean they will crash. No one knows what the outcome to pricing is going to be.
To me if I see numbers that work, I will buy
7e investments53 Reviews
79 Replies
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes4y
@Marcos Carbi
Those who wait for lower prices never buys. They will continue to want to get a “better” deal.
If it’s a duplex and the numbers work and it cash flows. The lower the price goes the better the numbers look and someone will come in and buy it. While we are going to have a recession it does not mean that has prices will crash. Will they continue to go up 20% year - no, but it doesn’t mean they will crash. No one knows what the outcome to pricing is going to be.
To me if I see numbers that work, I will buy
7e investments53 Reviews - Rental Property Investor · Member since 2021 · 45 posts · 19 votes4y
You're definitely right, enough waiting around. Thank you, Chris!
- 4yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
You found a place where you get a good rate of return, buy it. You are doing this long term (not flipping). Prices may go down in which case buy more, but eventually they go up. Look at 2008 as an example. I had a condo when I was in university that I bought for $90K, tried to sell it when I was done but prices had dropped a bit ($85K-which was fine as I live there for a few years and it was a high price rent area, so I still would have come out ahead). I didn't sell it and I held on to it for many years. I sold it about 8-9 years ago for ~$240K.
- Realtor · Fort myers · Member since 2021 · 33 posts · 25 votes4yIf you are financing then rates will only be higher if you wait for the price drop so then that could eat into your cash flow paying more to borrow less. We are projected to only see about 15-20% price decrease in the swfl area but with multi family could be even less because the rental demand here is so strong and will more than likely remain that way for sometime to come. I agree with the previous posts if the numbers work then go for it!
Quote from @Marcos Carbi:
Hey guys,
I'm thinking of going in on a duplex in a great, growing area of Fort Myers, FL. $380k, 2003 build, $30k of CapEx (paint, roof, AC, water heater), $3,300 monthly rent, $500 cash flow, 5% CoC return with a 6.125% rate.
I want to send an offer but my only dilemma is this recession we’re in/heading towards. The market the property is in is hot and has a lot of demand, but I wouldn’t want to get into it just to see the same duplex sell for much lower 6 months from now. What’re your thoughts? Should I go for it?
I’m reading a bunch of different articles on the future of multi-family homes so Im not sure what to think. Should I be waiting for lower prices? A part of me believes multi-family investments won’t be affected too much given they are investors with money, not primary home buyers.
I would tremendously appreciate your advice, thank you!
- Rental Property Investor · Russellville, AR · Member since 2014 · 688 posts · 509 votes4y
No time like the present! If it cash flows, go for it! Don't let fear run your life!!
- 4yPeter MckernanBusiness MemberResidential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
Quote from @Marcos Carbi:
Hey guys,
I'm thinking of going in on a duplex in a great, growing area of Fort Myers, FL. $380k, 2003 build, $30k of CapEx (paint, roof, AC, water heater), $3,300 monthly rent, $500 cash flow, 5% CoC return with a 6.125% rate.
I want to send an offer but my only dilemma is this recession we’re in/heading towards. The market the property is in is hot and has a lot of demand, but I wouldn’t want to get into it just to see the same duplex sell for much lower 6 months from now. What’re your thoughts? Should I go for it?
I’m reading a bunch of different articles on the future of multi-family homes so Im not sure what to think. Should I be waiting for lower prices? A part of me believes multi-family investments won’t be affected too much given they are investors with money, not primary home buyers.
I would tremendously appreciate your advice, thank you!
If it works out to be a good deal, I would buy it. As long as it cashflows and you have some reserves then you will be good to go, the thing about waiting is that you can wait and never get that truly right deal for what you want. I remember back in 2017 I heard all this classic news talk from economists to other people talking about soon to be a recession. Well, I held off for investing in my own portfolio until 2019, so basically two a 1.5 year break thinking that there was going to be a big downturn and ultimately that was a wrong move of course since I would have had a ton more equity!! We are still buying now and just making sure the cashflow is right and the fundamentals are right.
The McKernan Group4.957 Reviews - Real Estate Broker · Cape Coral, FL · Member since 2014 · 382 posts · 300 votes4y
I'm no economist but the recent job numbers were better than expected. That's not the cure-all that will prevent a recession but it's a positive bit of news.
- 4yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
seems to me the only way these small multi's go down in value is if they have a problem being rented or rents go down..
if you dont think thats going to happen then why would someone lower the price of their rental ?
also credit gets tougher in a down turn many who are thinking of waiting might find themselves in a market were financing is very tough and they miss out completely.
- 4yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
@Marcos Carbi forget trying to predict what's going to happen at a macro level and let's look at this deal.
What are the numbers? You said "cash flow $500" - not sure I buy that at purchase price $380K.
What are the expenses?
Would you live in it or rent both units?
And if it's a good deal, who cares what happens in 6 months?
- Investor · Las Vegas, NV · Member since 2020 · 153 posts · 136 votes4yInvest now with buffer room for the correction we are going through. If you buy at the right price, you are able to withstand market downswings. If you wait until a "recession hits," the opportunities you see now will be getting scooped up by huge hedge funds who move with speed and tons of money.
Get started where you can. Wish you the best, bro. - Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes4y
If all I could get was a 5% CoC rate of return I wouldn't invest in real estate period.
- Rental Property Investor · Member since 2021 · 45 posts · 19 votes4y
Quote from @Theresa Harris:
You found a place where you get a good rate of return, buy it. You are doing this long term (not flipping). Prices may go down in which case buy more, but eventually they go up. Look at 2008 as an example. I had a condo when I was in university that I bought for $90K, tried to sell it when I was done but prices had dropped a bit ($85K-which was fine as I live there for a few years and it was a high price rent area, so I still would have come out ahead). I didn't sell it and I held on to it for many years. I sold it about 8-9 years ago for ~$240K.
You're exactly right. I'm in it to build generational wealth, not flip! Thank you!
- Rental Property Investor · Member since 2021 · 45 posts · 19 votes4y
@Yvonne Gallegos Very true, thank you for the insights! Would you mind sharing where that projected data is from, please?
- Warsaw, IN · Member since 2017 · 229 posts · 270 votes4y
@Marcos Carbinwjay what @Chris Seveney said.
The only caveat to add is that if it works today at 6.125% apr, buy, hold, and then it will work better in 18-24 months when you refi to a lower rate after the recession has come and gone, and rates are lowered to “stimulate” the economy after the recession. You might be able to pull cash out then too.
Folks haven’t discussed it much on this forum, but you can “modify” your loans. This is where you pay a loan processing fee and get a new apr on your loan.
In my case, I had a rental at 5.125% (bought in early 2019) -for a $1000 fee I modified the loan into a 4.0% apr last year when rates were ridiculously low. It saves me $48/month-and will for the next 4 yrs (DSCR loan, rate resets to prime + 1 every 60 months).
Your lender might use comps rather than demanding an appraisal. This is a short term example of the power of REI, and why so many here are so in favor of buying deals that work and meet their criteria today.
Good luck!
- Rental Property Investor · Member since 2021 · 45 posts · 19 votes4y
@Peter Mckernan Great, thank you, Peter! It's definitely easy to let the noise scare you as these are big investments (at least for me haha). Better late than never, happy for you my man!
- Rental Property Investor · Member since 2021 · 45 posts · 19 votes4y
@Nicholas L. Sure thing!
It's a 6/4/2 duplex (3/2/1 per unit) built-in 2003. It's in great condition and in a great area with very high rental demand. I would be renting both units at $1,650 for a total of $3,300 a month. Tenants pay all utilities, lawn care, etc. I would be putting around $30,000 of initial CapEx for roof replacement, AC replacement, new water heaters, and paint (they're all in working conditions but overdue for a change). Here is my break down:
$380K with 20% down (will try to negotiate down to $370K for CapEx)
Rent: $3,300
Total Expenses: $2,826
- $1,847 Mortgage (6.125% DSCR Rate)
- $400 Taxes
- $150 Home Insurance
- $231 (7% repair and maintenance due to initial CapEx investment)
- $99 (3% vacancy high rental demand)
- $99 (3% CapEx due to initial CapEx investment)
Cash Flow: $473/mo
CoC ROI: 4.86%
Thoughts? @Eric James I know the CoC return is quite low but that is because I'm a 22 year old with no job, so my interest rate is quite high. If it were my mom investing at a 4% rate, she would have a 9% CoC return. I'm also sacrificing cash flow for great appreciation, and a newer peroperty. I'm already invested in the stock market, now I want to diversify to real estate, plus I have a passion for it. I also want to get a short term rental which will be my high cash flowing asset. Nonetheless, my main goal is to build generational wealth! Eric, if you have better all around investments or advice, I would love to connect!
- Rental Property Investor · Member since 2021 · 45 posts · 19 votes4y
@Juan V Lopez Most definitely. Thank you, Juan! Wish you the best as well!
- Rental Property Investor · Member since 2021 · 45 posts · 19 votes4y
@Nick Barlow Definitely, that's the plan! That's very interesting, I didn't know that - thank you for the knowledge. Do all DSCR rates reset every 60 months? Or is that an individualized component of your loan terms? Thanks!
- 4yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
@Marcos Carbi OK - good breakdown. So you're planning to self-manage? I always recommend that even if you start that way, you budget for property management. That's another 8-12% of gross rents.
- 4yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Marcos Carbi:
@Nicholas L. Sure thing!
It's a 6/4/2 duplex (3/2/1 per unit) built-in 2003. It's in great condition and in a great area with very high rental demand. I would be renting both units at $1,650 for a total of $3,300 a month. Tenants pay all utilities, lawn care, etc. I would be putting around $30,000 of initial CapEx for roof replacement, AC replacement, new water heaters, and paint (they're all in working conditions but overdue for a change). Here is my break down:
$380K with 20% down (will try to negotiate down to $370K for CapEx)
Rent: $3,300
Total Expenses: $2,826
- $1,847 Mortgage (6.125% DSCR Rate)
- $400 Taxes
- $150 Home Insurance
- $231 (7% repair and maintenance due to initial CapEx investment)
- $99 (3% vacancy high rental demand)
- $99 (3% CapEx due to initial CapEx investment)
Cash Flow: $473/mo
CoC ROI: 4.86%
Thoughts? @Eric James I know the CoC return is quite low but that is because I'm a 22 year old with no job, so my interest rate is quite high. If it were my mom investing at a 4% rate, she would have a 9% CoC return. I'm also sacrificing cash flow for great appreciation, and a newer peroperty. I'm already invested in the stock market, now I want to diversify to real estate, plus I have a passion for it. I also want to get a short term rental which will be my high cash flowing asset. Nonetheless, my main goal is to build generational wealth! Eric, if you have better all around investments or advice, I would love to connect!
No one is getting 4% today.. and the rate U quote is actually very good in todays market and at 22 great job.. find one of these to live in as well.
- Rental Property Investor · Member since 2021 · 45 posts · 19 votes4y
@Nicholas L. Yes sir, I plan to self-manage for a long, long time, but it's definitely a good idea to budget it in. Any other advice for a rookie investor? I appreciate you!
- Rental Property Investor · Member since 2021 · 45 posts · 19 votes4y
@Jay Hinrichs Very true, thanks Jay! I would love to house hack with friends but I live in Miami, FL and the market here is very crazy. It is definitely something I'm open to though!
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes4y
Quote from @Marcos Carbi:
@Nicholas L. Sure thing!
It's a 6/4/2 duplex (3/2/1 per unit) built-in 2003. It's in great condition and in a great area with very high rental demand. I would be renting both units at $1,650 for a total of $3,300 a month. Tenants pay all utilities, lawn care, etc. I would be putting around $30,000 of initial CapEx for roof replacement, AC replacement, new water heaters, and paint (they're all in working conditions but overdue for a change). Here is my break down:
$380K with 20% down (will try to negotiate down to $370K for CapEx)
Rent: $3,300
Total Expenses: $2,826
- $1,847 Mortgage (6.125% DSCR Rate)
- $400 Taxes
- $150 Home Insurance
- $231 (7% repair and maintenance due to initial CapEx investment)
- $99 (3% vacancy high rental demand)
- $99 (3% CapEx due to initial CapEx investment)
Cash Flow: $473/mo
CoC ROI: 4.86%
Thoughts? @Eric James I know the CoC return is quite low but that is because I'm a 22 year old with no job, so my interest rate is quite high. If it were my mom investing at a 4% rate, she would have a 9% CoC return. I'm also sacrificing cash flow for great appreciation, and a newer peroperty. I'm already invested in the stock market, now I want to diversify to real estate, plus I have a passion for it. I also want to get a short term rental which will be my high cash flowing asset. Nonetheless, my main goal is to build generational wealth! Eric, if you have better all around investments or advice, I would love to connect!
For some people a safe 5% return may be what they are looking for. I'm willing to do more work with value add real estate to get higher returns.
- Investor · Member since 2021 · 591 posts · 695 votes4y
@Marcos Carbi timing the market is notoriously difficult (and research generally shows that even experts who try to time the market usually get it wrong).
My philosophy is: If the property pencils out right now, and fits within your goals, then waiting for future market changes seems silly. For instance, if you know you can get $1000/month cashflow on a property right now, it seems ill-advised to wait in hopes that the market will tank at some point in the future and you'll be able to get $2000/mo cashflow on some other property..."a bird in the hand is worth two in the bush", as they say.
It is possible to know whether a property will cashflow right now (within a reasonable margin of error), but Nobody knows what the market will do in 6 months, 12 months, 2 years, etc.
Also, you mentioned house hacking. In my experience, house hacking is the best way for a new investor to get started.
With a house hack, you get the best mortgage terms with an owner/occupant mortgage. You get the experience of buying a property, staging a property, screening tenants, managing a property, and being a landlord (the lessons you'll learn here will be invaluable). Because you'll be living in the property, you'll be able to quickly identify and respond to maintenance tasks/repairs (plus, living at the property will teach you about the property's various quirks and patterns that will help you manage it more effectively in the future when you move out...experts know that properties are almost like living entities, in the sense that they have patterns of problems, decay, etc.--and living in the property is the best way to learn about those patterns). As you learn these patterns of problems and deterioration in your property, it will teach you what to look out for, and what to avoid/mitigate when you begin searching for your next property. If you buy the right property, you will get cashflow and (hopefully) appreciation. If you manage the property correctly, you'll be building a network of tenants who like you, and who will want to rent other properties from you again in the future. You get the tax benefits of owning a property. You'll learn about how to interact with your community as a landlord (interacting with your neighbors, the local municipality, local businesses that can help you manage the property, etc.)--and these connections will be very valuable as you grow your portfolio (when you hit the big leagues, you'll need a contact list of armies of contractors, electricians, plumbers, neighbors, city officials, zoning officials, inspectors, landscapers, PM's, agents, mortgage brokers, etc., etc. --who are all assisting you in growing and managing your portfolio) . So, you get all these advantages, but, you avoid the numerous and significant risks of more advanced and complicated strategies like BRRRR'ing, flipping, wholesaling, etc.
In a nutshell, house hacking a very excellent risk/reward ratio when done correctly, and it's a relatively low-risk way for a new investor to learn many of the invaluable lessons that they need to successfully buy and manage more properties in the future...For these reasons, I view house hacking as one of life's "cheat codes" for laying the foundation of what will hopefully become a successful real estate portfolio.
Plus, as the Great Warren Miller said about becoming a ski bum: "every year you wait to do it, makes you one year older when you do do it" ...so jump in while you're young!
Good luck out there!
- 4yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
@Marcos Carbi well, if you're not planning on living there, you're tying up a bunch of cash. 20% down + repairs + closing costs... seems like that's over $100K outlay here. But only you can know if something fits your goals - if this property fits your goals, great. One consideration is the velocity of your money. I think that's what @Eric James is saying.
Specific recommendations if you move forward - screen tenants well, enforce the lease, and be sure the budget supports property management - you don't want to self-manage forever.
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