3% Rates - You either got in, or you didn't!

Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes

Today's market is much different from the market we have seen in the past 3 years

Interest rates were at an all time low for too long. This gave many people the opportunity to buy in at historically low rates.

This caused prices to go up, while keeping many people in affordable payments.

Now people don't want to let go of those rates. They are holding onto their properties like golden eggs. I don't blame them!

This is causing the supply to go way down, and in some markets even though the demand is low, the supply is not keeping up with the limited demand.

Anything that is well taken care of, in a nice and desirable area is flying off the market at even higher prices than before

This is making it extremely difficult for first time home buyers and for investors who want to see their numbers works.

Throw in the 7% interest rate, and half of the deals are dead in the water, even below asking price.

This is making it difficult for people to pull the trigger on buying Real Estate.

Another aspect of it is FOMO.

Your buddy bought a 400k house with a 3% rate. It's beautiful, everything you ever dreamed of and you want one too. But now you have to pay 450k for it at a 7.125% rate.

How does that make you feel?

Probably not good...

Until people realize that 3% rates were a "either you got in or didn't get in" kind of thing, people will find it difficult to buy.

Everyone feels good about buying a house at a 3% rate.

So if you're looking to buy a house or an investment property, you have to face reality and what the market is today.

It's likely that we won't ever see those kinds of rates.

Buy the home because you love it and you can afford it.

Buy the investment for a long term hold in a strong area. Make sure it is at least covering your expenses.

Today is not yesterday! And tomorrow you might be thinking: "I wish I bought more Real Estate when rates were 7% LOL!"

Rates can only go down or up.

If rates go down, you can refinance

If rates go up, you would've wished you took out more debt

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Alan Asriants - New Century Real Estate 591 Reviews

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Jake AndronicoBusiness Member

Realtor · Reno, NV · Member since 2019 · 1k+ posts · 938 votes

Such a good quote:

"Rates can only go down or up.

If rates go down, you can refinance

If rates go up, you would've wished you took out more debt"

Thank you for putting these wide words out there! Couldn't agree more.

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Alan AsriantsBusiness Member
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Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
3y
Quote from @Henry Lazerow:

Inventory is ticking up and if rates stayed this high I definitely could see prices falling in many areas. This is coming from someone who did refi at 3% lol I am still buying and just offered on a place today that cashflows but its way way way harder and worse deals now forsure.

Finding cash flow is extremely difficult in my market, unless you're looking in D class area. I think prioritizing appreciation and location is most important now. Hard to pull the trigger when there is barley any cashflow
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Alan AsriantsBusiness Member
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Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
3y
Quote from @Andrew Syrios:

Yeah, the 3% (or in some cases, 2%) rates from 2021 to the first half of 2022 have become like a weird caste system or something like that

They held rates too low for too long. Everyone bought in and now everyone is hoarding them
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Alan AsriantsBusiness Member
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Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
3y
Quote from @Vlad B.:

Quote from @Henry Lazerow:

Inventory is ticking up and if rates stayed this high I definitely could see prices falling in many areas. This is coming from someone who did refi at 3% lol I am still buying and just offered on a place today that cashflows but its way way way harder and worse deals now forsure.

Exactly what I'm seeing too... With the rates I offered 7% over asking on a SFR, and a MF and it would break even with 35% down payment.....and I was outbid. 5-10 years down the road, sure. But what is the thought process with no cash flow and no crystal ball?

I think there is a bigger issue and bigger picture here.
Forums like these are great and online content is awesome too, but the unfortunate part is that so many got into the RE game. People are sacrificing more and more to just get the property and there is a lot of people willing to do it
For inflation reasons, tax reasons, etc
The RE industry is changed. Look at LA and NY, those properties haven't cash flowed for a long time. We are starting to see properties outside of those areas in similar positions.
Soon most of the US will be like NY and LA.
People will be forced to buy more inland for better deals
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Alan AsriantsBusiness Member
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Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
3y
Quote from @Colleen F.:

@Alan Asriants You could be in the 1980's where there were historically high rates topping at 16.6.% makes these look tame. Just run the numbers and be sure what works for you. I think people will take time to adjust to rates where money isn't practically free. However,people are holding on to houses aquired at the low rate and that combined with less people downsizing results in less available inventory. Not sure when the tipping point will be.

100%
People are shocked. Until people realize that the rates are here to stay and prices won't dip, there will be this "stalemate" period in RE.
I think in another year we will see more people entering the market again
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Alan AsriantsBusiness Member
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Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
3y
Quote from @Carlos Ptriawan:

Quote from @Colleen F.:

@Alan Asriants You could be in the 1980's where there were historically high rates topping at 16.6.% makes these look tame. Just run the numbers and be sure what works for you. I think people will take time to adjust to rates where money isn't practically free. However,people are holding on to houses aquired at the low rate and that combined with less people downsizing results in less available inventory. Not sure when the tipping point will be.

Why the inventory is very low is because most SF is owned by OO. And 90% of OO has 75%LTV or less. They would never move. The problem is actually more into next generation especialy when this GenZ is reaching 25-30 y.o.
In many cities in USA, purchasing home as first time *can* only be possible if both husband and mom is working. So if they're married at 26-28 they could only apply for mortgage at 30-35.
Having said that, home ownership would become more luxurious item in the future,esp in west and east coast where avg home is 1 million. Literally, family can only purchase a house only if they could get help from their previous generation parent. If not most are screwed and end up as renter forever as good salary is hard to catch these days.

Having said that, acquiring more property in good place is giving us more advantage down the line than even chasing a gold mine.
This is why price keeps rising.

Agreed! If you are in a position to buy appreciating assets in solid locations now, you could be parking your money into a goldmine.
As time goes on, it will be harder and harder to buy those deals
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Alan AsriantsBusiness Member
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Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
3y
Quote from @V.G Jason:

If you're investing, from a position of strength, just dollar cost average your way in. You will win some, lose some. Don't get caught in timing; it's more important where & what you're investing in rather than when. You'll get lucky sometimes, unlucky in others. But again, if you're in a position of strength, it's immaterial. You'll always be net winning.
I'm curious to when rates come back down to say 5%-ish, and when they do, how the housing market looks then. I think the seasonality will always play a factor(a little crash end of q4, top of q1, and a rise from late q1 into early q3) but that's par for the course. I'm talking high macro level, do we see less(er) appreciation in house values due to the underlying mortgage cost(for primaries) & do we see lots of people truly holding due to rate and trying to get out as soon as they can(for a variety of reasons). Will that supply factor kill the year or two previous of it's appreciation? I don't know, it's really interesting to see.

I think people will hold on to their low rates as long as possible until there is a necessity. The rates were too low for too long. Many people bought it
Now there is a majority holding their real estate and not letting go.
If they are letting go of good RE, its sold at a premium. This can be the case for a while or might just be the new trend
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Alan AsriantsBusiness Member
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Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
3y
Quote from @Nick Robinson:

I would be very cautious buying RE right now. If you’re buying any RE right now it has to be CF positive using conservative underwriting. When the yield curve inverts that’s a precursor to a recession every time. Just b/c we have not had one yet does not mean it is wrong. Recessions do not happen all at once they build over time. Why would you even risk buying assets before a recession? The bond market has been projecting low growth and inflation potential. The fed raised the funds rate 525bps and the 10yr only went up 210bps.
The bonds are telling you it was never inflation it was intervention by central planners. Shut down the world economy that caused supply shocks at the same time you have government stimulus which artificially raised demand. So it was closer to the late 1940s where there is a transitory spike in inflation. It is not like the 70s which saw a secular rise in inflation b/c lending kept increasing. Banks have been lending less since Feb. how can you have inflation w/ a decrease in lending? You may ask what is the difference the price of goods is still going up. The big difference is as that stimulus is taken out of the system the prices will come back down. Not necessarily to the same level they had been but they will still come down.
If you look at case Schiller home prices since 1900 there is a clear historic trend line. During the GFC it brought houses back to that trend line. If you look at Milton Friedman plucking model to get back to trend we would need to see deflation to get back to the historical trend line unless you believe something has forever changed the system.

The rental market has softened and we are seeing rents flat to negative. Vacancy rates are on the rise and the amount of units on the market is increasing. In the CPI shelter is the largest and a lagging component. If you look at service prices less rent over the last 6mo annualized it comes out to .6%!! We are getting close to a credit event. To make the rental market worse we have seen a record number of Multifamily Housing Units under construction at the same time vacancy is increasing. Not to mention the median rent nationwide is about a $1000 less than the median mortgage with 20% down. Monthly payments have to come down which likely will be a mixture of price and rates.

Like others have mentioned we haven’t even brought up $1.6T of commercial loans need to be rolled over. We all know at minimum a lot of syndicators ran very aggressive #s and we are already seeing capital calls. Add in student debt payments start in September that avg. $400/mo per person. So demand is already crashing and more discretionary money is going to go towards student bills. Yeah I am going to sit this one out. Just like in all recessions there will be a premium for safe liquid assets. Long term bonds and Precious metals. If history plays out PM will crash initially then take off.

nice analysis. Havent considered some of these points before.
I do thing that something did change the system forever - INFORMATION
Too many people know about Re and investing.
I think only a crazy crash or extreme dip in rental values could change this, but again, then everyone will be bidding and buying up.
I think there is too much info out there for anything to dip substantially
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Henry Lazerow
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
3y
@Alan Asriants
I thought Pittsburgh was really cheap high cashflor area? Did prices appreciate and rents not follow so it doesn’t cashflow now? I saw that with some indiana areas near me that historically were high cashflow.
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Alan AsriantsBusiness Member
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Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
3y
Quote from @Henry Lazerow:

@Alan Asriants
I thought Pittsburgh was really cheap high cashflor area? Did prices appreciate and rents not follow so it doesn’t cashflow now? I saw that with some indiana areas near me that historically were high cashflow.

Im in the Phila area
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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y
Quote from @Nick Robinson:

I would be very cautious buying RE right now. If you’re buying any RE right now it has to be CF positive using conservative underwriting. When the yield curve inverts that’s a precursor to a recession every time. Just b/c we have not had one yet does not mean it is wrong. Recessions do not happen all at once they build over time. Why would you even risk buying assets before a recession? The bond market has been projecting low growth and inflation potential. The fed raised the funds rate 525bps and the 10yr only went up 210bps.
The bonds are telling you it was never inflation it was intervention by central planners. Shut down the world economy that caused supply shocks at the same time you have government stimulus which artificially raised demand. So it was closer to the late 1940s where there is a transitory spike in inflation. It is not like the 70s which saw a secular rise in inflation b/c lending kept increasing. Banks have been lending less since Feb. how can you have inflation w/ a decrease in lending? You may ask what is the difference the price of goods is still going up. The big difference is as that stimulus is taken out of the system the prices will come back down. Not necessarily to the same level they had been but they will still come down.
If you look at case Schiller home prices since 1900 there is a clear historic trend line. During the GFC it brought houses back to that trend line. If you look at Milton Friedman plucking model to get back to trend we would need to see deflation to get back to the historical trend line unless you believe something has forever changed the system.

The rental market has softened and we are seeing rents flat to negative. Vacancy rates are on the rise and the amount of units on the market is increasing. In the CPI shelter is the largest and a lagging component. If you look at service prices less rent over the last 6mo annualized it comes out to .6%!! We are getting close to a credit event. To make the rental market worse we have seen a record number of Multifamily Housing Units under construction at the same time vacancy is increasing. Not to mention the median rent nationwide is about a $1000 less than the median mortgage with 20% down. Monthly payments have to come down which likely will be a mixture of price and rates.

Like others have mentioned we haven’t even brought up $1.6T of commercial loans need to be rolled over. We all know at minimum a lot of syndicators ran very aggressive #s and we are already seeing capital calls. Add in student debt payments start in September that avg. $400/mo per person. So demand is already crashing and more discretionary money is going to go towards student bills. Yeah I am going to sit this one out. Just like in all recessions there will be a premium for safe liquid assets. Long term bonds and Precious metals. If history plays out PM will crash initially then take off.

If you're buy RE now on the basis of CF on very conservative underwriting, you're buying "affordable" housing areas. Arguably the worst two-way investment for real estate, commercial or residential.

Right now, with high rates, the top end properties(B+ to A+) are the best deals. No, they won't cash flow today but they will in 3-5 years(or you can pay more down). Those areas are going to be even less available over time, rental growth will catch up quicker than likely expected, vacancy will be less of an issue, and tenant quality will be the best you can find. And most importantly, the underlying parcel of land will appreciate higher than that C to B- property, which means the cost to build + land>>>>>> your purchase price.

The question is can you subsidize it, if the answer is no. Then don't invest in RE. Right now if you sit there and DCA $500/mo in your Schwab account or something, but you can't do that for REI, then that's where I get confused. If rates go down, you never re-finance, you recast. Or you scale, sell down, pay off and try to get close to $0 debt and just manage free cash flow. If you think RE is a cash flow mechanism upon the start, you're just an '08-'22 investor. REI is never cash flow day 1, and never easy cash flow. If it is then you invested at an absolute, and undeniably, rarity of times.
Historical trends mean absolutely nothing and are a really misguided way of looking at the future. History rarely repeats itself in similar fashion, sure there are lessons to learn and things to avoid. We have money printing, remote working, the most children-less generation upon us, and the most precarious natural disaster period(not in quantity of events but in difference of events). For the Woodruff guy or whatever his name was that ridiculed my view on that, you ever expect a California Cat3/4 Hurricane in August or a wildfire in Hawaii, this stuff isn't predicable. It's going to change the quality of your investment and where you need to be positioned. I digress though, back to my point. Covid did 12-20 years of appreciation in two, literally. Extremely low rates won't come back until another recession, and even then maybe not that low. Right now, on a 15- year look back, looks like the absolute worst time to invest. I believe on a 15-year forward look, you'll look like that this was the best time to invest. It's usually how it works, but how you invest should completely change. These guys that invested pre-Covid that were collecting pennies and exposing themselves to dollars did it all wrong. You buy quality over quantity, limit exposure, scale to a degree & payoff depending on risk tolerance. Not buy every little ******** property that cash flows $200/mo, appreciation is trash and the city is shrinking.
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Alan AsriantsBusiness Member
OP
Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
3y
Quote from @V.G Jason:

Quote from @Nick Robinson:

I would be very cautious buying RE right now. If you’re buying any RE right now it has to be CF positive using conservative underwriting. When the yield curve inverts that’s a precursor to a recession every time. Just b/c we have not had one yet does not mean it is wrong. Recessions do not happen all at once they build over time. Why would you even risk buying assets before a recession? The bond market has been projecting low growth and inflation potential. The fed raised the funds rate 525bps and the 10yr only went up 210bps.
The bonds are telling you it was never inflation it was intervention by central planners. Shut down the world economy that caused supply shocks at the same time you have government stimulus which artificially raised demand. So it was closer to the late 1940s where there is a transitory spike in inflation. It is not like the 70s which saw a secular rise in inflation b/c lending kept increasing. Banks have been lending less since Feb. how can you have inflation w/ a decrease in lending? You may ask what is the difference the price of goods is still going up. The big difference is as that stimulus is taken out of the system the prices will come back down. Not necessarily to the same level they had been but they will still come down.
If you look at case Schiller home prices since 1900 there is a clear historic trend line. During the GFC it brought houses back to that trend line. If you look at Milton Friedman plucking model to get back to trend we would need to see deflation to get back to the historical trend line unless you believe something has forever changed the system.

The rental market has softened and we are seeing rents flat to negative. Vacancy rates are on the rise and the amount of units on the market is increasing. In the CPI shelter is the largest and a lagging component. If you look at service prices less rent over the last 6mo annualized it comes out to .6%!! We are getting close to a credit event. To make the rental market worse we have seen a record number of Multifamily Housing Units under construction at the same time vacancy is increasing. Not to mention the median rent nationwide is about a $1000 less than the median mortgage with 20% down. Monthly payments have to come down which likely will be a mixture of price and rates.

Like others have mentioned we haven’t even brought up $1.6T of commercial loans need to be rolled over. We all know at minimum a lot of syndicators ran very aggressive #s and we are already seeing capital calls. Add in student debt payments start in September that avg. $400/mo per person. So demand is already crashing and more discretionary money is going to go towards student bills. Yeah I am going to sit this one out. Just like in all recessions there will be a premium for safe liquid assets. Long term bonds and Precious metals. If history plays out PM will crash initially then take off.

If you're buy RE now on the basis of CF on very conservative underwriting, you're buying "affordable" housing areas. Arguably the worst two-way investment for real estate, commercial or residential.

Right now, with high rates, the top end properties(B+ to A+) are the best deals. No, they won't cash flow today but they will in 3-5 years(or you can pay more down). Those areas are going to be even less available over time, rental growth will catch up quicker than likely expected, vacancy will be less of an issue, and tenant quality will be the best you can find. And most importantly, the underlying parcel of land will appreciate higher than that C to B- property, which means the cost to build + land>>>>>> your purchase price.

The question is can you subsidize it, if the answer is no. Then don't invest in RE. Right now if you sit there and DCA $500/mo in your Schwab account or something, but you can't do that for REI, then that's where I get confused. If rates go down, you never re-finance, you recast. Or you scale, sell down, pay off and try to get close to $0 debt and just manage free cash flow. If you think RE is a cash flow mechanism upon the start, you're just an '08-'22 investor. REI is never cash flow day 1, and never easy cash flow. If it is then you invested at an absolute, and undeniably, rarity of times.
Historical trends mean absolutely nothing and are a really misguided way of looking at the future. History rarely repeats itself in similar fashion, sure there are lessons to learn and things to avoid. We have money printing, remote working, the most children-less generation upon us, and the most precarious natural disaster period(not in quantity of events but in difference of events). For the Woodruff guy or whatever his name was that ridiculed my view on that, you ever expect a California Cat3/4 Hurricane in August or a wildfire in Hawaii, this stuff isn't predicable. It's going to change the quality of your investment and where you need to be positioned. I digress though, back to my point. Covid did 12-20 years of appreciation in two, literally. Extremely low rates won't come back until another recession, and even then maybe not that low. Right now, on a 15- year look back, looks like the absolute worst time to invest. I believe on a 15-year forward look, you'll look like that this was the best time to invest. It's usually how it works, but how you invest should completely change. These guys that invested pre-Covid that were collecting pennies and exposing themselves to dollars did it all wrong. You buy quality over quantity, limit exposure, scale to a degree & payoff depending on risk tolerance. Not buy every little ******** property that cash flows $200/mo, appreciation is trash and the city is shrinking.

Agreed here. Quality over quantity. So many wholesalers and agents out here pushing C-D class properties claiming that they are cash cows etc.
Half of these properties are sitting vacant unable to get rented at their horrible projection
People bought into risky assets that dont live up to their projected rental amounts.
Their appreciation will be slow, and rent is highly capped due to affordablitlity.
Buying in A-B areas poses less risk. Sure on paper the investment is worse, but in the long run as you pointed out, you will see benefit from your investment. Doesn't mean I am preaching to buy and everyone should be buying bad deals
No... but I can't predict the future, nor can I forecast any trends. But if you look at costal cities, none of their investments really make sense. So the earlier you buy, generally speaking the better your numbers will pencil out in the future. But you will benefit from appreciation.
People in these areas will be able to afford increases in rent and people want to move to strong areas and will pay more to live there.
RE is not just projected numbers on a piece of paper, it is much more than that. Sure numbers have to work. But where you invest is the most important part of the equation
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Brandon Stone
Member since 2018 · 13 posts · 12 votes
3y
Quote from @Scott E.:

I am so stoked that my primary is locked in at 2.875%. I bought it in Jan 2019 before the big run-up in prices. Then refinanced when rates were almost at their bottom.

But here's the thing... I do not have FOMO for those that bought at the peak pricing and locked in those low rates. Yes those buyers might have locked in a 2.5% interest rate, but at least in my market, they also WAY overpaid for their homes.

We're talking big losses. Somebody who paid $800,000 retail pricing for a house at the peak would be lucky to sell that same house for $700,000 today (which means they net even less after paying commissions). So yes they might have a crazy low interest rate, but they also are horribly upside down on their investment.

I guess my lesson learned here is that you need to try to buy below retail or buy value add deals, all the time. In any market. Regardless of where rates are at or any other factor. That's the only way to insulate yourself from a downturn like this.
What market are you in? This couldn’t be less true for the majority of America
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Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Brandon Stone:

Quote from @Scott E.:

I am so stoked that my primary is locked in at 2.875%. I bought it in Jan 2019 before the big run-up in prices. Then refinanced when rates were almost at their bottom.

But here's the thing... I do not have FOMO for those that bought at the peak pricing and locked in those low rates. Yes those buyers might have locked in a 2.5% interest rate, but at least in my market, they also WAY overpaid for their homes.

We're talking big losses. Somebody who paid $800,000 retail pricing for a house at the peak would be lucky to sell that same house for $700,000 today (which means they net even less after paying commissions). So yes they might have a crazy low interest rate, but they also are horribly upside down on their investment.

I guess my lesson learned here is that you need to try to buy below retail or buy value add deals, all the time. In any market. Regardless of where rates are at or any other factor. That's the only way to insulate yourself from a downturn like this.
What market are you in? This couldn’t be less true for the majority of America

Lets define peak.
Peak of the market is Q2 2022.

But now we are in Q3 2023, most houses at very least, is 85-96% in term of price very close to Q2 2022.
I myself sell my lower rate SF and purchase new SF with higher rate, but that's not problem.
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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y
Quote from @Alan Asriants:

Quote from @V.G Jason:

Quote from @Nick Robinson:

I would be very cautious buying RE right now. If you’re buying any RE right now it has to be CF positive using conservative underwriting. When the yield curve inverts that’s a precursor to a recession every time. Just b/c we have not had one yet does not mean it is wrong. Recessions do not happen all at once they build over time. Why would you even risk buying assets before a recession? The bond market has been projecting low growth and inflation potential. The fed raised the funds rate 525bps and the 10yr only went up 210bps.
The bonds are telling you it was never inflation it was intervention by central planners. Shut down the world economy that caused supply shocks at the same time you have government stimulus which artificially raised demand. So it was closer to the late 1940s where there is a transitory spike in inflation. It is not like the 70s which saw a secular rise in inflation b/c lending kept increasing. Banks have been lending less since Feb. how can you have inflation w/ a decrease in lending? You may ask what is the difference the price of goods is still going up. The big difference is as that stimulus is taken out of the system the prices will come back down. Not necessarily to the same level they had been but they will still come down.
If you look at case Schiller home prices since 1900 there is a clear historic trend line. During the GFC it brought houses back to that trend line. If you look at Milton Friedman plucking model to get back to trend we would need to see deflation to get back to the historical trend line unless you believe something has forever changed the system.

The rental market has softened and we are seeing rents flat to negative. Vacancy rates are on the rise and the amount of units on the market is increasing. In the CPI shelter is the largest and a lagging component. If you look at service prices less rent over the last 6mo annualized it comes out to .6%!! We are getting close to a credit event. To make the rental market worse we have seen a record number of Multifamily Housing Units under construction at the same time vacancy is increasing. Not to mention the median rent nationwide is about a $1000 less than the median mortgage with 20% down. Monthly payments have to come down which likely will be a mixture of price and rates.

Like others have mentioned we haven’t even brought up $1.6T of commercial loans need to be rolled over. We all know at minimum a lot of syndicators ran very aggressive #s and we are already seeing capital calls. Add in student debt payments start in September that avg. $400/mo per person. So demand is already crashing and more discretionary money is going to go towards student bills. Yeah I am going to sit this one out. Just like in all recessions there will be a premium for safe liquid assets. Long term bonds and Precious metals. If history plays out PM will crash initially then take off.

If you're buy RE now on the basis of CF on very conservative underwriting, you're buying "affordable" housing areas. Arguably the worst two-way investment for real estate, commercial or residential.

Right now, with high rates, the top end properties(B+ to A+) are the best deals. No, they won't cash flow today but they will in 3-5 years(or you can pay more down). Those areas are going to be even less available over time, rental growth will catch up quicker than likely expected, vacancy will be less of an issue, and tenant quality will be the best you can find. And most importantly, the underlying parcel of land will appreciate higher than that C to B- property, which means the cost to build + land>>>>>> your purchase price.

The question is can you subsidize it, if the answer is no. Then don't invest in RE. Right now if you sit there and DCA $500/mo in your Schwab account or something, but you can't do that for REI, then that's where I get confused. If rates go down, you never re-finance, you recast. Or you scale, sell down, pay off and try to get close to $0 debt and just manage free cash flow. If you think RE is a cash flow mechanism upon the start, you're just an '08-'22 investor. REI is never cash flow day 1, and never easy cash flow. If it is then you invested at an absolute, and undeniably, rarity of times.
Historical trends mean absolutely nothing and are a really misguided way of looking at the future. History rarely repeats itself in similar fashion, sure there are lessons to learn and things to avoid. We have money printing, remote working, the most children-less generation upon us, and the most precarious natural disaster period(not in quantity of events but in difference of events). For the Woodruff guy or whatever his name was that ridiculed my view on that, you ever expect a California Cat3/4 Hurricane in August or a wildfire in Hawaii, this stuff isn't predicable. It's going to change the quality of your investment and where you need to be positioned. I digress though, back to my point. Covid did 12-20 years of appreciation in two, literally. Extremely low rates won't come back until another recession, and even then maybe not that low. Right now, on a 15- year look back, looks like the absolute worst time to invest. I believe on a 15-year forward look, you'll look like that this was the best time to invest. It's usually how it works, but how you invest should completely change. These guys that invested pre-Covid that were collecting pennies and exposing themselves to dollars did it all wrong. You buy quality over quantity, limit exposure, scale to a degree & payoff depending on risk tolerance. Not buy every little ******** property that cash flows $200/mo, appreciation is trash and the city is shrinking.

Agreed here. Quality over quantity. So many wholesalers and agents out here pushing C-D class properties claiming that they are cash cows etc.
Half of these properties are sitting vacant unable to get rented at their horrible projection
People bought into risky assets that dont live up to their projected rental amounts.
Their appreciation will be slow, and rent is highly capped due to affordablitlity.
Buying in A-B areas poses less risk. Sure on paper the investment is worse, but in the long run as you pointed out, you will see benefit from your investment. Doesn't mean I am preaching to buy and everyone should be buying bad deals
No... but I can't predict the future, nor can I forecast any trends. But if you look at costal cities, none of their investments really make sense. So the earlier you buy, generally speaking the better your numbers will pencil out in the future. But you will benefit from appreciation.
People in these areas will be able to afford increases in rent and people want to move to strong areas and will pay more to live there.
RE is not just projected numbers on a piece of paper, it is much more than that. Sure numbers have to work. But where you invest is the most important part of the equation
Only fitting a guy with your last name is on my same train of thought.
0 Reply
V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y
Quote from @Carlos Ptriawan:

Quote from @Brandon Stone:

Quote from @Scott E.:

I am so stoked that my primary is locked in at 2.875%. I bought it in Jan 2019 before the big run-up in prices. Then refinanced when rates were almost at their bottom.

But here's the thing... I do not have FOMO for those that bought at the peak pricing and locked in those low rates. Yes those buyers might have locked in a 2.5% interest rate, but at least in my market, they also WAY overpaid for their homes.

We're talking big losses. Somebody who paid $800,000 retail pricing for a house at the peak would be lucky to sell that same house for $700,000 today (which means they net even less after paying commissions). So yes they might have a crazy low interest rate, but they also are horribly upside down on their investment.

I guess my lesson learned here is that you need to try to buy below retail or buy value add deals, all the time. In any market. Regardless of where rates are at or any other factor. That's the only way to insulate yourself from a downturn like this.
What market are you in? This couldn’t be less true for the majority of America

Lets define peak.
Peak of the market is Q2 2022.

But now we are in Q3 2023, most houses at very least, is 85-96% in term of price very close to Q2 2022.
I myself sell my lower rate SF and purchase new SF with higher rate, but that's not problem.
It's really hit or miss. See some houses in the cities I invested gone higher, some lower and in near-ish neighborhoods. I have one house I got under contracted Feb '23, it's still pending due to some city reasons but the appraisal estimate is now $70k over. The area has blown up since, most houses get multiple bids(sometimes all cash). The house next door to it sold for $40k more back in May '23, and it's 1 br/1ba less, 300sq ft smaller. The most recent sale is about $90k over what I paid, and it's 1 bedroom smaller but 150 sq ft bigger.

Then in another area, I put an all cash offer on a quadplex for $600 said he wouldn't take anything less than $700--this was back in Apr '23-- and was listed at $730. Now it's listed $580 as of this morning. I think we're definitely going to find some more pockets of roughness, just curious what will define the bottom cause the peak was established. I think the bottom, in general, might be Q4 22 but I could be wrong.
1 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @V.G Jason:

Quote from @Carlos Ptriawan:

Quote from @Brandon Stone:

Quote from @Scott E.:

I am so stoked that my primary is locked in at 2.875%. I bought it in Jan 2019 before the big run-up in prices. Then refinanced when rates were almost at their bottom.

But here's the thing... I do not have FOMO for those that bought at the peak pricing and locked in those low rates. Yes those buyers might have locked in a 2.5% interest rate, but at least in my market, they also WAY overpaid for their homes.

We're talking big losses. Somebody who paid $800,000 retail pricing for a house at the peak would be lucky to sell that same house for $700,000 today (which means they net even less after paying commissions). So yes they might have a crazy low interest rate, but they also are horribly upside down on their investment.

I guess my lesson learned here is that you need to try to buy below retail or buy value add deals, all the time. In any market. Regardless of where rates are at or any other factor. That's the only way to insulate yourself from a downturn like this.
What market are you in? This couldn’t be less true for the majority of America

Lets define peak.
Peak of the market is Q2 2022.

But now we are in Q3 2023, most houses at very least, is 85-96% in term of price very close to Q2 2022.
I myself sell my lower rate SF and purchase new SF with higher rate, but that's not problem.
It's really hit or miss. See some houses in the cities I invested gone higher, some lower and in near-ish neighborhoods. I have one house I got under contracted Feb '23, it's still pending due to some city reasons but the appraisal estimate is now $70k over. The area has blown up since, most houses get multiple bids(sometimes all cash). The house next door to it sold for $40k more back in May '23, and it's 1 br/1ba less, 300sq ft smaller. The most recent sale is about $90k over what I paid, and it's 1 bedroom smaller but 150 sq ft bigger.

Then in another area, I put an all cash offer on a quadplex for $600 said he wouldn't take anything less than $700--this was back in Apr '23-- and was listed at $730. Now it's listed $580 as of this morning. I think we're definitely going to find some more pockets of roughness, just curious what will define the bottom cause the peak was established. I think the bottom, in general, might be Q4 22 but I could be wrong.

each market seems like having different trajectory:

Milwaukee, peak is even now , Q3 2023 = Q2 2022
https://www.redfin.com/city/35759/WI/Milwaukee/housing-marke...

San Jose, Q3 2023 is 95% equal to peak of Q2 2022:
https://www.redfin.com/city/17420/CA/San-Jose/housing-market

Austin, Q3 2023 is 90% equal to peak of Q2 2022:
https://www.redfin.com/city/30818/TX/Austin/housing-market

Looks like from now on, every city and block would have follow their own supply-demand rationale rather than typical uptrend seasonality of Q1-Q2 ; but looking from the three charts above, the bottom is already gone 9 months ago.

What is interesting is this week the rate is even higher where Fed is trying to push the rising home cost. They already failed in 2022, lets see if they can do it now LOL. This month we have the lowest number of mortgage application, even lower than GFC 08
1 Reply
Garrett Brown
Lender · San Antonio, TX · Member since 2023 · 19 posts · 9 votes
3y
Quote from @Scott E.:

I am so stoked that my primary is locked in at 2.875%. I bought it in Jan 2019 before the big run-up in prices. Then refinanced when rates were almost at their bottom.

But here's the thing... I do not have FOMO for those that bought at the peak pricing and locked in those low rates. Yes those buyers might have locked in a 2.5% interest rate, but at least in my market, they also WAY overpaid for their homes.

We're talking big losses. Somebody who paid $800,000 retail pricing for a house at the peak would be lucky to sell that same house for $700,000 today (which means they net even less after paying commissions). So yes they might have a crazy low interest rate, but they also are horribly upside down on their investment.

I guess my lesson learned here is that you need to try to buy below retail or buy value add deals, all the time. In any market. Regardless of where rates are at or any other factor. That's the only way to insulate yourself from a downturn like this.
is scottsdale market really that bad that prices are below what they were in 2019-20? thats crazy.

got lucky here in SA bought in 2021 at 2.75% and the housing prices here still went through the roof for another year or so to where we would probably net 70-80k over what we bought it for if we sold now, so i guess it all just depends on the market.

i think one thing i learned and wish i did though is bought a more below market value starter home that needed work vs turn key so had more chance to add value ourselves .

1 Reply
Scott E.
Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
3y
Quote from @Garrett Brown:

Quote from @Scott E.:

I am so stoked that my primary is locked in at 2.875%. I bought it in Jan 2019 before the big run-up in prices. Then refinanced when rates were almost at their bottom.

But here's the thing... I do not have FOMO for those that bought at the peak pricing and locked in those low rates. Yes those buyers might have locked in a 2.5% interest rate, but at least in my market, they also WAY overpaid for their homes.

We're talking big losses. Somebody who paid $800,000 retail pricing for a house at the peak would be lucky to sell that same house for $700,000 today (which means they net even less after paying commissions). So yes they might have a crazy low interest rate, but they also are horribly upside down on their investment.

I guess my lesson learned here is that you need to try to buy below retail or buy value add deals, all the time. In any market. Regardless of where rates are at or any other factor. That's the only way to insulate yourself from a downturn like this.
is scottsdale market really that bad that prices are below what they were in 2019-20? thats crazy.

got lucky here in SA bought in 2021 at 2.75% and the housing prices here still went through the roof for another year or so to where we would probably net 70-80k over what we bought it for if we sold now, so i guess it all just depends on the market.

i think one thing i learned and wish i did though is bought a more below market value starter home that needed work vs turn key so had more chance to add value ourselves .

Yeah there are parts of Scottsdale that are that bad. The biggest issue is that on top of the crazy run up in prices we had, people were paying well over appraised value for turn key homes. I sold 3 flips during that window, and 2 of them sold to out of state buyers for over the appraised value.
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