Buying Rentals in an Uncertain Market
Last week I pulled the plug on the purchase of a fourplex during inspection because the numbers weren't going to work out if the RE market dropped much and the property needed rehab the owner didn't want to deduct for. (I dropped the offer substantially) Then I decided to wait a bit and watch the market a few months and "buy low" later.
Fast forward to yesterday and a better deal just fell into my lap. Better looking numbers, nicer unit, lower purchase price, etc. But in a "C" town nearby for sure instead of "B".
In my local market (Eastern Idaho) its tough to find 1% rental property most of the time, but this one actually meets the criteria.
My only hesitation is tying up cash now on deals if the deals are going to look much better in the coming months /years with the economic uncertainty. If values drop and rents actually need to drop in the coming months this deal goes from great to bearable...
I watch the forums and keep the pulse of the industry as well as I can. I see 3 schools of thought here:
1. Realtors of the group are still singing praises and telling everyone to buy.
2. The savvy and well capitalized investors are starting to smell blood in the water and are waiting for the feeding frenzy.
3. Many are in between, hoping to weather the storm and come out without losing everything they've worked hard to build.
I'd love to see what the general consensus is. Where do you fit in these three categories and what are you doing right now in the current market? Would you take a good deal now or wait until it gets better. I realize some have nearly unlimited amounts of cash and will take every good deal that comes along, but for the rest of us who need to be careful about our purchases what are your thoughts?
Thanks!
Most Popular Reply
@Joe Blakley My main concern is buying right now if the tenants are unable to pay. If things don't turn around quickly but instead get worse, all businesses closed for a couple months (think worst case scenario) most tenants will lose their income and therefore be unable to pay. Once of my tenants currently is in that situation who works at a casino which is no shut down until further notice.
For your class C property you are referring to, those tenants will likely be the worst hit. I have property in Arkansas where, even though the property is nice class B, the tenants still have to work to pay rent. If they can't work, they can't pay rent. And what I fear most is that maybe some can pay, but if one or two others in the same building can't and we work out something with them, the others will want to do the same which is bad for me.
With that. I am still looking and if I find something that is worth it I will still pull the trigger. The values dropping are not the main concern for me as much as the tenants having jobs that can pay rent. For that reason for larger purchases, like 20+ units, I will wait another month or two to see how things play out. I hope for the world's sake we are past the coronavirus effects by then and return to some normalcy.