Invest now or wait for recession?

Cape Coral, Florida
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Invest now or wait for recession?

Marcos Carbi
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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  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ 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!


     Ok, look, your completely over-thinking this, big time! 

    Keep this nugget in mind; the entire '08' crash came from the MBS investment scams being played out of labeling junk as AAA via packaging 4-60% of junk with a sprinkling of AAA kind of like a nice cream-cheese frosting on top of a big cow-pie. It was obvious what would happen, especially when there was tranches on tranches for any 1 MBS (in simple terms picture going to a horse track and make a bet on a horse winning, then your buddy Fred places a bet on your bet coming through, and Phil places a bet on Fred's bet coming through, and that guy Bob in the corner wants in because everyone's getting in so he bet's on Fred's, Cindy bet's on Bob's etc etc etc, too degree of dozens layered on dozens, THAT was what happened in '08", 1 fell so all fell). 

    So when look back at '08' it's a though of what muppet ever thought it would work out well, right. Ok, well in mid '08' there was like 4 people in all the world of investment finance who were saying "Told Ya So", out of the thousands and thousands in the industry. 

    So when something so obvious to crash, was only recognized and accurately forecasted by a barber-shop quartet, how safe and certain are you to wait for the next drop, and how accurately it will be forecasted and projected? It's nutz to try and time such, if you can with accuracy RUN to get a lotto ticket today because odd's of predicting that are better then predicting market drops. 

    All you have is today, we know what we know and that is all that we know, so make contingencies for just that, contingency, the what-if's, but act upon what is factually known. What-if-action is NO action. 

    1Reply
  • Sebastian Giraldo
    REALTOR, Investor, and Rehab Expert · Miami Beach, FL · Member since 2015 · 196 posts · 74 votes
    4y

    Its never a bad time to buy the right piece of real estate!!

    0Reply
  • Zac Stiles
    Lender · UT · Member since 2022 · 28 posts · 13 votes
    4y

    @Marcos Carbi you cite your concerns about the property being worth less in 6 months, does that mean 6 month is your goal timeline for this property?

    If you need the property value to be at a certain figure within 6 to 12 months then I understand asking more of a question. If you are buying for a long-term strategy such as 5 years plus, then I think it's a no-brainer to buy any properties you can get your hands on.

    0Reply
  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    4y

    @Marcos Carbi wait! So there’s more deals for us ;)

    1Reply
  • Woody AboumradPro Member
    Investor · Cleveland, OH · Member since 2020 · 2 posts · 1 vote
    4y

    @Marcos Carbi Marcos, what areas are you looking in Fort Myers? I'm more familiar with Naples but I'm looking to buy in FM.

    0Reply
  • Nicholas Coulter
    Real Estate Agent · Southern California · Member since 2019 · 681 posts · 281 votes
    4y

    @Marcos Carbi I think its always a great time to buy a cash flowing asset with upside potential! Rent typically doesn't drop in a recession and where you are investing has a shortage of available homes to purchase and rent!

    0Reply
  • Marcos Carbi
    OP
    Rental Property Investor · Member since 2021 · 45 posts · 19 votes
    4y
    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!

     @Michael K. Hey Michael, please see above! Yes, the cash flow is quite low but that is mainly due to my high-interest rate. I project property taxes to be around $400/month ($286/month in 2021). The idea is to cash out refinance in 2-3 years. 

    1Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    4y

    @Marcos Carbi I don't know if you mentioned this previously, but you're hoping to cash out refinance in 2-3 years to either lower your rate or pull cash out? This is not something you should count on being able to do - and many cash-out refinances have expensive fees associated with them. Your DSCR loan might also have a penalty associated with doing this in the first ~5 years.

    0Reply
  • Marcos Carbi
    OP
    Rental Property Investor · Member since 2021 · 45 posts · 19 votes
    4y

    @Nicholas L. Yea, I'm not counting on it but it is definitely something I'm interested in. It would mainly be to lower my rate but I don't mind waiting 5+ years. I will confirm the DSCR loan terms with my lender. Thanks!

    0Reply
  • Jeff Davis
    Specialist · Spring, TX · Member since 2013 · 8 posts · 4 votes
    4y

    @Marcos Carbi

    If the numbers work, then they work. A couple questions to ask yourself. Have you tested the cash flow in reduced rent environments? Do you have more than one exot strategy? Even in a down market, if it cash flows then the property was a win! I wrote an artie on the subject:

    https://www.bridgestoneinvest.com/investing-in-a-time-of-uncertainty/

    Good luck!!

    0Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    4y

    With that attitude you will never buy. I had a few "clients" who always thought market was too expensive even in 2018, etc. those people ended up never investing. If the deal cashflows and makes sense to you just buy it. Timing the market is a losing game. I personally would love to see it fall as work mainly with buyers but highly doubt it happens, if anything I just expect a bit more negotiating room for buyers which has already somewhat occured. 

    0Reply
  • Chris John
    Member since 2020 · 671 posts · 937 votes
    4y

    If I'm seeing this right it's going to be over 100k out of pocket to make 6k, for around a 4-6% return.  Stocks average 10-11% and are on sale right now.  Personally,  I'd park that money in equities to maintain liquidity and wait to see what happens (unless you plan on living in this property.  That might change my opinion).

    Good luck!;

    0Reply
  • Michael K.
    Investor · Chicago, IL · Member since 2018 · 352 posts · 175 votes
    4y
    I didn't realize that you had already factored in capex/vacancy/repair. If you can still cashflow ~$500/month with those in place I think it's a decent first deal. Pull the trigger.
    0Reply
  • Matt Bishop
    Rental Property Investor · Dallas, TX · Member since 2020 · 161 posts · 88 votes
    4y

    @Marcos Carbi, where do you live? Are you experiencing a recession, there? I am not aware of any recession except in the false and misleading "click bait" on the internet. It's like the cover of the National Inquirer magazine at the Grocery store. All lies.

    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Quote from @Matt Bishop:

    It's like the cover of the National Inquirer magazine at the Grocery store. All lies.

    Aw c'mon, they occasionally get something right....
    0Reply
  • William Joel Idleman
    Financial Advisor · San Antonio Texas · Member since 2022 · 100 posts · 53 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've personally made this same mistake.  The best time to invest is when YOU are ready!  This specific deal sounds like you can hold it long term.  If that's the case then get after it!  Investing as a whole is more about time IN the market, not timING the market.

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    4y

    Prices rose during 8 of the last 10 recessions. So I wouldn't count on a recession bringing lower prices.

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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    4y

    @Marcos Carbi

    did you make an offer?

    0Reply
  • Andres Calderon
    Investor · Miami, FL · Member since 2014 · 50 posts · 36 votes
    4y

    @Marcos Carbi From personal experience and coming from a family that does both commercial and residential real estate I suggest using a simple strategy we use to filter properties to even see if they are of interest. Take the gross, Knock 50% right off from the start and run your numbers with what is left. I see many investors make the "numbers fit". Don't. If your numbers work by knocking off half the gross it's a good deal. Most don't do this because it will throw about 75% of the properties you come across right out of the window so people get frustrated and settle with what they find. By doing that you are subject to the volatility of the market and at a much higher risk of losing money on a deal. Hope this helps you filter out what is a good and mediocre "deal".

    1Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    4y
    Quote from @Matt Bishop:

    @Marcos Carbi, where do you live? Are you experiencing a recession, there? I am not aware of any recession except in the false and misleading "click bait" on the internet. It's like the cover of the National Inquirer magazine at the Grocery store. All lies.

    Historically, a recession is defined on a national level as two consecutive quarters of negative year-over-year economic growth. Using that definition, we've already had 2022Q1 negative GDP and the second quarter is estimated to be negative by reliable indicators of the Atlanta Fed GDPNow real GDP estimate. It's July 17, 2022, and we'll know 2022Q2 GDP in a few weeks. 

    The bottom line: we are in a recession now. No lie. 

    1Reply
  • Jack Swank
    Contractor · California, CA · Member since 2020 · 32 posts · 27 votes
    4y

    Only but when numbers work. You don’t have a Cristal ball to predict anything. Deals are to be had in a good or bad economic time.

    1Reply
  • Eric FernwoodBusiness Member
    Realtor · Las Vegas, NV · Member since 2014 · 992 posts · 1k+ votes
    4y

    Hello @Marcos Carbi,

    Whether we will have a soft, hard, or no recession depends on which “expert” you listen to. Also, the “experts” provide national opinions, as if every location in the US is the same. Every location is different. Real estate is local. You need to understand the economies of each location and their susceptibility to economic turbulence. Also, some tenant pools are more prone to be laid off than others, even in the same location.

    Whether to invest now or wait depends on your goals. If your goal is to buy inexpensive properties, then waiting is a good option. Prices are already falling in many locations, and more will follow.

    If your goal is acquiring dependable passive income, I only advise waiting if you believe one of the two conditions is likely to occur.

    • Interest rates will decrease significantly in the near future. I see this as unlikely since the inflation rate just increased (officially) to 9.1% (07/13/2022). Until inflation is under control, I see no likelihood that interest rates will fall significantly.
    • Prices will drop significantly in the near future. In many locations, this is already occurring. But not in locations where pre-COVID demand drove up prices faster than the current inflation rate (Las Vegas is an example). Price and rent increases in such locations were driven by actual demand, not by pandemic effect or speculation. Such locations might slow down, but I do not expect a significant decrease in prices or rents due to ongoing demand.

    What is the downside of waiting?

    • Lost appreciation - Appreciation is where you make the most money and how you grow your portfolio with the least capital.
    • Higher prices and higher interest rates - Due to the demand, prices will continue to increase and until inflation is under control, so will interest rates. Waiting will cost you more money.

    In short, the decision to wait or act now depends on your goal and the market (and tenant pool) you are investing into.

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

    @Nicholas L. Yessir, currently under contract and negotiating! 

    I'll keep you updated on how it goes.

    0Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    4y

    @Marcos Carbi

    OK - good luck and keep us posted.

    0Reply
  • Marcos Carbi
    OP
    Rental Property Investor · Member since 2021 · 45 posts · 19 votes
    4y

    @Eric Fernwood Hey Eric, thank you for your advice! You're definitely right - after thinking about it for many, many hours I've decided to stop waiting around and pull the trigger. I really like this market, the tenants, and its potential. I appreciate your thought provoking input.

    0Reply
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