Buy now or wait.

[Nicholas Foy]

Hi everyone,

   I own a single family rental in Seguin, TX and I’m looking to keep adding more rental properties. I am interested in single family and multi-unit properties.  I currently have 45k in cash and I save about 2,500-3,000 dollars a month to put towards buying another property. Getting a second property has been extremely hard with the rate hikes and current environment. Do you think it would be wise to keep saving up and wait about 6-12 months or continue to pursue properties now? Thanks!

[Caleb Brown]

Analyze properties now and put offers on ones that makes sense. If it takes a little to find one that's okay

[Caleb Brown]

Analyze properties now and put offers on ones that makes sense. If it takes a little to find one that's okay

[Sergei Gremeniuk]

I would continue to look and use high rates as a bargaining chip to get to pricing that makes sense to you. When rates start to go gradually down, competition will only increase IMHO. 

[Chris Seveney]

@Nicholas Foy

I would keep your money liquid but earning interest, continue to evaluate and wait for deals. They are going to be coming in the next 12-24 months.

[Alecia Loveless]

@Nicholas Foy I’d continue using whatever methods you usually use to scour your target markets as frequently as possible and analyze as many deals as you see that might look like they’ll make you the cash flow or appreciation or whatever metric you are looking to achieve when you invest. This way you’ll continue to become more knowledgeable about the neighborhoods you’re looking to invest in, you’ll become more adept at identifying great deals quickly and you may find something to buy.

If not, you’re building your cash fund every month while staying active and preparing for that deal to come up when maybe you have $75,000 saved to invest with instead of where you’re at now.

But keep on top of your market(s) and if you’re working with a realtor or two keep communicating with them every so often so they know to keep looking for deals for you.

[Benjamin Aaker]

Keep looking. The increasing rates means you will need to pay less for that great property you find. Keep making offers. It's a shock to sellers right now that buyers can't pay as much. If you do your research and buy right, you can find great deals, even in this market.

[Eric Fernwood]

Hello @Nicholas Foy,

Waiting to buy a property only makes sense if interest rates and/or property prices decrease significantly, leading to a significant decrease in your acquisition cost and debt service.

Interest Rates

The Fed last increased the interest rate by 0.25%. And, according to what I read, there may be another interest rate increase in the near future. Out of curiosity, I calculated how much a 0.25% increase in interest rate increases the monthly debt service on a $350,000 property. See the screenshot below.

In this example, each .25% increase in interest rate increases your debt service by about $46/Mo. So, waiting for interest rates to fall does not seem to be a good option.

Increasing Property Prices

I know nothing about the Seguin real estate market. So, you will have to determine if and how rapidly property properties are increasing. If prices are rising, waiting will cost you more.

Interest Rate Buy-Down Tactic

Once we get a property under contract, we obtain interest rate buy-down options from multiple lenders. We then move the loan to the lender with the best buy-down option. This, combined with other strategies, enables our clients to achieve a positive initial cash flow. Also, Nevada's low operating costs makes a huge difference.

Operating Cost Comparison

Overhead costs can have a large impact on profitability. For example, below is a comparison of state average property taxes and insurance for Texas, Florida, and Nevada.

Sources: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.To show the impact of taxes and insurance, I compared overhead costs on a $400,000 property in the three states.

Below is how much additional cash flow a property must generate in Texas and Florida to have the same net cash flow as a property in Nevada. 

A Texas property must generate $5,700 ($9,194 - $3,494) higher cash flow annually to compensate for the higher operating costs.

A Florida property must generate $2,123 ($5,617 - $3,494) more cash annually flow to compensate for the higher operating costs.

Overhead costs can have a large impact on cash flow.