Invest now or wait for recession?

Invest now or wait for recession?

Rental Property Investor · Member since 2021 · 45 posts · 19 votes

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!

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Chris SeveneyBusiness Member
Moderator
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

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  • Real Estate Agent · Columbus, OH · Member since 2016 · 593 posts · 664 votes
    4y

    I'm a local investor in Columbus OH and I'm a big fan of dollar cost averaging in all aspects of investing. My plan is to keep buying. During hot markets I'll buy good deals and when things cool off I plan to buy great deals. DCA takes market timing out of things.

  • Rental Property Investor · Port St Lucie, FL · Member since 2019 · 150 posts · 79 votes
    4y

    @Marcos Carbi definitely a HOT area. What recession 🤷‍♂️ if the numbers work buy it. As interest rates rose more people will have to rent. If you don’t jump

    On it I will. Go for it

  • Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    4y

    Try running a projection on your Internal Rate of Return (IRR)

  • Member since 2019 · 7k+ posts · 4k+ votes
    4y

    The only problem that i see is there's potential oversupply of MF in FL in the next year or two. But if I were you I will just buy.

  • Rental Property Investor · Member since 2021 · 45 posts · 19 votes
    4y

    @Leo R. You're exactly right Leo, thank you! It's easy to get caught up in these market projections and let them hold you back. If the deal is right, I'm going for it!

    As you lay out, house hacking is definitely an amazing strategy with tremendous benefits. My only dilemma is that I don't know where I'm heading in life, or where I want to be. I just graduated college and moved back home to Miami. I would love to live in an apartment with my friends sometime soon but everything is so overpriced. I also want to own a high cash-flowing STR to cover my everyday expenses. Maybe I can house-hack an STR?

    Nonetheless, you've inspired me to do more research on house-hacking and truly explore my options; quite frankly, it is a cheat code!

    P.S. Love that Warren Miller quote. 

    Thank you my man. Best of luck to you as well!

  • Rental Property Investor · Member since 2021 · 45 posts · 19 votes
    4y

    @Bob Anthes Hahah, thanks for the encouragment Bob, I needed it! I sent my offer yesterday, waiting to hear back!

  • New to Real Estate · Allentown, PA · Member since 2019 · 62 posts · 19 votes
    4y
    Quote from @Marcos Carbi:

    You're definitely right, enough waiting around. Thank you, Chris!


     Make sure you have enough cash in reserve, like instead of 10% cash in reserve try aim for 30%.

  • Jake YuskaitisBusiness Member
    Lender · New Jersey, USA · Member since 2022 · 254 posts · 67 votes
    4y

    Like other have said in the thread, if you wait around you will never buy. If it cash flows then it puts money in your pocket. If the house retaining value is the issue, use it for cash flow now and sell it when it gets the value you want.

  • Investor · Goodyear, AZ · Member since 2016 · 31 posts · 50 votes
    4y

    The marathon continues....get in the game! Long term mentality

  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    4y

    @Marcos Carbi. Why not do both? I am investing now and waiting for a recession so I can invest more then.

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  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    What @Matthew Irish-Jones said^^^^ Never wait around for the market. There are too many great deals out there every single day. If you wait, you miss out on  all of them.

    What if the 'recession' never arrives? What if we go into a hyper-inflation period instead? Or stagflation? Or whatever?

    If I had a dollar for every recession that was supposed to come along..... :-)

  • Remington LymanBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
    4y
    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!

    I started investing in Columbus, Ohio in 2017. I do not plan on trying to time the market. I am just going to keep buying through the peaks and valleys

  • Member since 2019 · 7k+ posts · 4k+ votes
    4y

    If you can house hack an STr, that's actually the best strategy as you have potential to make money while working on the w2, tax benefits of reducing w2 income while becoming owner/pm of an str.

  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    4y

    Time in the market > Timing the market.

    The recession has probably already begun but there's still a huge housing shortage so I don't think real estate is going to be hit nearly as hard as the rest of the economy. I'm not a fan of waiting for the market to turn. I have a friend who has been waiting since 2015 and is, well, still waiting. In a volatile economy like this, I would definitely be careful and demand only really solid deals. But I definitely wouldn't just sit on the sidelines.

  • Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
    4y
    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!


     I have only regretted the deals I passed on or did not try harder to get. If you think about it most people will go without a lot before they go without their house. I think you should go for it. 

  • Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes
    4y
    Quote from @Nick Barlow:

    @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.


     Wow Nick, you know what interest rates are going to be in 18 months? Can I get some of whatever you're smoking?

  • WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    4y
    you can get a better return buying ibonds right now. with that much cash outlay ($100k+) for $400/mo (at best), it's a tough buy. imho, of course.
    https://www.treasurydirect.gov...
  • Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes
    4y
    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!


    You're bringing 20% down and you are still only cash flowing $500 a month on $3300 rent? What do the taxes/insurance look like on this one? People who are telling you to focus on the numbers are correct. Factor in vacancies and repairs and if your cash flow still looks healthy, go for it. Nobody on these forums or elsewhere can really predict where the market is going (including you and me). That said, 5% CoC seems low, but If you said 5% cap rate in an area that's growing rapidly, then I would say fine. Double-check your numbers or post them here so we can check your work for you.

    I noticed that you said new roof, AC, and water heater. Just be aware that none of those improvements (while perhaps necessary) are going to increase the amount of rent you can ask for. So that's probably why your CoC is weaker.

  • Rental Property Investor · Lehigh Valley, PA · Member since 2017 · 200 posts · 191 votes
    4y

    Why would MF properties go down?  Are MF invertors waiting to sell at lower prices while rents (ROIs) are shooting up?

    Its all math. If it cash flows buy. 

  • Investor · Millburn, NJ · Member since 2018 · 141 posts · 100 votes
    4y

    We bought a few in 2020, and even one earlier this year when the interest rate was low. Right now we are sort of waiting and just observing the market. Where we are, the market def has cooled and supply has increased, unless it's a great deal, we are willing to wait for a bit. We don't believe we can time the market perfectly, but to buy it when it's going down is def better than buying it at the peak..... Yes, the rate may go higher, but we can put more capital down and refi later. You have to consider your own financial situation and risk tolerance. All realtors will tell you it's good time to buy anytime.   

  • Investor · Kansas City, MO · Member since 2020 · 400 posts · 278 votes
    4y

    You can always wait until prices go lower, but then you risk never buying anything. If the deal works and it works for you and in a strong enough market, I'd buy the deal. You'll never know when the "right" time is. Also recessions have had mixed impacts on housing and prices. Historically low interest rates follow a recession so there's also solid evidence to believe a lower interest rate environment is on the horizon as well which typically will increase pricing. 

  • Investor · Golden, CO · Member since 2017 · 56 posts · 57 votes
    4y

    Marcos,

    I didn't even have to read the details of your post.  Invest now.  The best time to buy real estate is 20 years ago, the next best time is today.  If you have money to invest, get it invested, otherwise you are losing money on it.  

    Even if the duplex goes down in value temporarily, what do you care, you should be cash flowing on it.  Interest rates are going to go up, and over time, past the 6 month period, your investment will continue to rise.  Now is the time! 

    Good luck!

  • Investor · Member since 2021 · 591 posts · 695 votes
    4y

    @Marcos Carbi yes, it is possible to house hack a STR. For instance, if you find a duplex that's in a good STR area, you could live in one unit while STR'ing the other unit (this would make your management of the STR much easier, as well--since you would be living right next door).

    If you wanted to really max out your cashflow, get a duplex that has 3-4 bedrooms in one unit (where you'll live and rent out the rooms to long term tenants), and the other unit is a STR...doing that approach might really help your numbers pencil out. ...you could do similar strategies with a triplex, fourplex, etc...

    If you're highly motivated and have the time and energy to do something like that, it would not only give you all the benefits of househacking that I described in my previous post, but it would also give you an education in STR (which is a different beast).

    However, I personally would not try this strategy if I didn't know for sure that the STR unit could also cashflow as a MTR or LTR if needed. Always consider the possible exit strategies before you buy a property--I try to avoid buying properties that only have only one exit strategy or one use, because that's too much risk for me. ...If you found yourself in over your head with the management of the STR (which is much more time intensive to manage than a LTR), or if the STR market stalls and you have too much vacancy, you could pull the rip cord and turn it into a LTR (which would lower your cashflow, but would also free up a lot of your time, and lower your exposure to the numerous risks of STRs)...but if your STR only works as a STR, then you could easily find yourself between a rock and a hard place...know your exit strategies, and have sufficiently safe exit strategies to protect yourself from worst-case scenarios before you buy a property.

    Having said all that, the househack/STR strategies I described above would usually be significantly riskier, and significantly more challenging that just buying a normal house and house hacking it...

    Consider these two scenarios:

    1. You buy a duplex and do the househack/STR strategy I described above. The STR eats up a ton of your time and money: buying furniture, staging it, getting professional photos for AirBNB, managing the AirBNB inquiries and reservations, responding to guest complaints and reviews, cleaning and re-stocking the unit after each stay (or managing and paying for a cleaner/re-stocker), switching lock codes after every stay, etc., etc. Because you have different strangers staying in your STR every few nights, you are exposed to an enormous amount of risk (e.g., property damage, an incompetent guest leaves the stove on or the property unlocked, a guest brings a child to the property who hurts themselves and the guest files a lawsuit, etc., etc.). The economy tanks, and now nobody is vacationing, so you have tons of vacancy and you're bleeding cash. The city bans STRs, and now you're operating illegally. etc., etc. Also, on top of all these potential headaches, you're also managing your house hack in the neighboring unit--which is a whole other set of headaches. ....I'm not saying you can't run a successful househack / STR, I'm saying that the STR will typically involve much more time intensive management, and much more risk than a well-executed LTR or househack. All things being equal, the chances of failure and/or burnout are higher with a STR than a LTR or LTR house hack. If you fail, or if you burn yourself out, it's very likely that you will abandon real estate all together (and I'm not singling you out--most people who have a really bad experience in real estate understandably abandon real estate and move on to more traditional W2 jobs, which can be far less stressful).

    2. OR, you buy a typical house and house hack it. You get all the benefits that I described in my previous post. Because house hacking is a fairly straightforward strategy with relatively few moving pieces, you actually succeed: the property cashflows well and appreciates, and you don't find yourself in over your head with time intensive management, and all the aforementioned headaches of STRS. Because you succeed with the househack, you are well-positioned, and also highly motivated to go after another property...rinse and repeat, and in 5-6 years, you have 5-6 cashflowing, (hopefully) appreciating, relatively easy to manage LTR single family homes.  ...or, perhaps you go into STRs after you househack--in which case, you will be much better-positioned and much more well-prepared to succeed with the STR (because you'll have the invaluable experiences gained from your previous househack).

    In skiing, we don't take beginners down double black diamond trails--doing that would endanger them and other people in the area. Also, there's virtually no chance that a beginner will succeed on a double black diamond (and it's very likely they'll hurt or even kill themselves). We start beginners off on easy terrain where they actually have a chance of learning, succeeding, and becoming motivated to learn and succeed even more (and with time, they may succeed enough to be ready for that double black diamond). We should operate in real estate the same way.  

    I *cringe* when I see folks with zero real estate experience talk about trying to wholesale syndicate rehab flip a 500 unit portfolio in 10 different cities. Do the thing that's appropriate for your level of experience, do the thing that you're likely to succeed at first, and then gradually move up to slightly more and more advanced techniques... but, to quote South Park: if you try to ski a double black diamond without first mastering the green circles, then the blue squares, and then the black diamonds, "you're gunna have a bad tiiiiime". 

    Good luck out there!

  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    4y

    Start as soon as you can. This is a marathon and one property won't get you FI or wealth. Buy right now so it cashflows and keep buying whenever you're able.

  • Patrick DruryBusiness Member
    Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes
    4y

    @Marcos Carbi
    There is always going to be something to discourage people from investing in real estate. It could be the rates, prices, recession, etc. At the end of the day if the deal makes sense, do it. People that are waiting for another recession just limit themselves by continually waiting around restricting growth, whereas other people who find opportunities are building their portfolios up when they find deals that make sense. 

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