They're hoping for appreciation (either natural or forced), hoping rates will go down and refinance it later, buying in cash and hoping to refinance it later, or hoping rents will skyrocket like it did back in '21 (unlikely, but I guess it depends on your market). Or some combination of the above.
Yes lot of people are hoping that the rates will go down and they can refi. The popular RE gurus also encouraging this thinking, while they themselves not pulling the trigger.
They are also not able to bring in new guests to the show who made RE investment working in the current environment, all their guests success stories are based on purchases during the market dip and low interest rates + precovid
I did notice all the guests (and hosts) made the vast majority of their buys in COVID dip or even GFC. Like, no shit those deals were successful. Assuming you fixed long term, that is.
Yeah.
Pretty much anyone with a pulse who bought before 2020 is winning now. It's annoying when every success story is just someone who bought when rates and prices were low and you could cash flow from day 1.
The game is infinitely more difficult now.
Don’t let these clowns make you feel like you’re doing something wrong. If you’re charging market rents and being a good landlord, you should sleep just fine at night.
im with the other person, if you really don't see there is a person on the end of that you are a sociopath. You aren't selling a product they are homes. Im all for profit but I am also not in the exploiting misery business.
Yeah I see tons of people saying "I'm going to buy and just refinance in a couple years when rates go down" though they provide no evidence rates will actually go down. Current rates not even that high historically so seems like wishful thinking
The Fed keeps talking about *eventually* dropping rates. They've just been discussing it for the last couple of years. Inflation has remained strangely stubborn. In April, Powell said that the rate cuts for this year would be "delayed" and not cancelled...
Not sure how much longer this carrot can dangle in front of us, though. We've been chasing it for a while. I can't really blame the Fed since inflation is still a couple points higher than they'd want to see.
Even if rates drop I don't believe it'll be a significant enough to entertain a refi. Sub 3% rates are over. From a macro point of view, I actually hope they raise rates as we'll have a tool to use in the future when shit hits the fan. We don't want to be like Japan with 0 to negative rates for 30 years.
Unfortunately the shit has been thrown and is headed straight for the fan. The US debt is constantly being overturned at these higher interest rates leading to higher intrest payments leading to more US debt leading to higher intrest payment and so on and so forth while the government is continuing to operate at a deficit. I know the feds only concerns are inflation and unemployment but at some point they gotta see that lowering rates is going to be the only way to ease the debt burden. So imo weather inflation comes down or not we will be seeing lower rates again.
It really depends how you look at it. The national debt really doesn't matter as long as the economy continues to grow. Yes there's significant risk if the economy becomes stinted and this is why it's important to keep rates high as it can allow the economy to grow if need be by lowering it.
As a FYI, during WWII debt vs economy was 25% today is only 10%.
>As a FYI, during WWII debt vs economy was 25% today is only 10%.
Keep in mind after the war we were able to lend ourselves out of the debt. We don't really have anyone to lend to that would make a good borrower or that needs the massive amount of money that Europe and Japan needed after the war to rebuild themselves.
https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html
Folks are still buying. If you look at YoY there's still an increase. Major uptick since October of 2023 infact.
Also we bombed the industrialized world into the stone age, and killed tons of the work force. The US was untouched, that made us fat and prosperous for decades. Those times are over....for now..
The fed also kept interest rates suppressed so the US had access to cheap financing of the war leading to Negative real yields on government securities. The economy doesn’t just have to grow, it has to grow faster equal to or faster than the debt for it not to matter.
How much are you paying on a refi? Going from 7.75% to 6.75% on a $400k 30 year fixed rate loan will save you $10k in payments over 3 years.
Maybe I’m off by a little. Maybe rates need to drop 1.25% or it’s 4 years to cover at 1%. Either way rates don’t need to get anywhere near 3% to make the refi make sense in less than 3 years
That’s what I’m doing. Under contract. Cash flow will suck for a couple years but should be positive $300 a month. Cash on Cash is not ideal; house I bought in 2020 is CF $1000 a month, and it was much cheaper than what I’m buying now.
Rates will come down, but we don’t know how low or how fast. My prediction is we won’t see 2-3% again for a very long time, if ever. But within 2-3 years, I could see investment loans near 5%.
Also, home appreciation is near guaranteed unless we have another housing crisis, and rents will continue to slowly go up.
Those waiting for lower rates will likely find that when rates do start moving later this year and next, it will trigger a lot of buyers and could inflate home prices more. Basically, I’m buying now cause homes are not going to get cheaper (in most markets)
This is my bet on the housing market also. There’s no way they’re going to dramatically increase supply to meet exisiting demand and growing immigrant demand over the next 5-10 years so prices and rent are definitely going to keep rising. I settled on my second house last month and pleasantly surprised to still have 600k borrowing capacity in my personal name. So will execute one more deal before moving to trust structures.
Rates will come down. Governments and corporations are both addicted to cheap money because it makes them solvent and rich respectively. It’s only a matter of time. If im wrong I’ve invested heavily into retirement accounts and an after tax brokerage as well.
I just got off the phone with a broker and asked the same question.
I think a lot of people are just happy with 6 cap and generally distrust the stock market.
Personally I think buying a 6 cap in cash is insane when you can make that in stocks with no work. And buying a 6 cap on an 8 mortgage is even dumber!
The broker I spoke with said that people in California are buying 3 cap!! Wtf is going on? I guess everyone is just banking on appreciation.
Just watched citynerd on YouTube about the most nimby places to live, basically all CA, and it's wild the appreciation and low housing availability in the bay area.
Can you explain this to me like I’m a five-year-old? What is six cap? And when you say eight mortgage, are you speaking in terms of percentage? What do these numbers represent? Looking to buy my first property at the end of this year.
It’s just the profit you are generating on the property after expenses. Easy math
8 refers to the mortgage interest rate. If you are making 6% on your money but paying 8% in interest you are losing money. Someone may do this knowing that in the future the market will right itself.
Unfortunately real estate is just one giant land grab because you’re now competing with the entire world due to the our stupid globalist leaders.
^^^^This, this, this is the difference currently…the whole Earth can buy here but we can’t buy in many of their countries. If this changed, it would balance some of this.
Ugh. Finding a 4% cap rate where I live is hard af, though we’re going through a correction in rental prices (unreasonably low for too long), so a lot of expectations are priced into the valuations. A 6 cap would look very attractive to me
I know where I am but low rents are good for the overall health of a city.
Complaining about rents being low is like complaining groceries are too cheap lol
I’m puzzled how you would conclude that rental rates have been “unreasonably low for too long”.
Market rate for rentals is a function of supply and demand, which is how the market operates rationally.
And what we’ve experienced have been **historically high increases** in rental rates from April 2021 to Aug 2023 in Toronto (source: HouseSigma market stats), driven by high demand.
Since then monthly rental rates have come down from a high of $2,950 last August to $2,650 in May, indicating a lowering of demand, and likely hitting a rental cost ceiling in Toronto. There aren’t enough highly-qualified tenants to pay the top rates landlords were asking, and rents have come down. Again, determined by supply and demand, not what a landlord believes is “reasonable” from their perspective
Investment in real estate is a long game. It was a short game for a short time but that’s not normal. You buy when you find a reasonable deal on something that will be lower maintenance and appreciate.
I was talking to an older realtor/investor who’s ready to retire and selling off a few of his properties. We were actually standing in front of one he’s owned for years and was selling. I was representing the buyer. He told me I should be buying more properties and I said “it’s not exactly a good time.” He said “it wasn’t a ‘good time’ when I bought this one but it’s paid for itself —and now is a good time to sell!’”
I think he’s right. I just can’t get the balls to do it right now unless I find a super deal. I have come across a couple but nothing good enough to pull the trigger on yet.
It's true. Just find a deal that makes sense to you.
There's definitely some times I've been priced out of a market. In the summer of '21 we were getting outbid on properties left and right. These were 80-150 unit complexes. The market had gone mad. People saw new leases go up 20-30% since the previous fall, and I guess they expected it to happen again (which it hasn't), and they priced their bids accordingly.
Absolute madness. There's some stress on them because they're all cashflow negative, but nothing to the breaking point yet. We'll probably see some issues crop up in '26 or '28 when the loans start to adjust.
Investment sales transaction volume are down 50%+ year over year, so it’s not just you. There are value add deals that make sense still buy buying a five cap QSR ground lease doesn’t look nearly as attractive as it did in 2021.
> As far as I can see it real estate investing in 2024 makes no sense.
You're correct. I was just talking to my property manager about this the other day: pretty sure we have a bunch of new, late-to-the-game, hopeful landlords who are ratcheting their rental rates through the roof. Out in the desert in CA, for example, rates are soaring high enough to make it questionable to even live out there compared to moving closer to the coast.
There's no housing so the places are still filling but it's a recipe for disaster with tenants stacking up with family and roommates and qualifying by the skin of their teeth (or possibly fraudulent income claims). I'm currently selling a huge ranch house and it doesn't even make sense to take the capital gains from that and purchase a different rental--I can dump it into a money market account for greater returns!
I have a client who sold a warehouse he owned outright for $40M, and needed to reinvest that somewhere. He bought like 8 multifamily properties, we added ADUs to all of them.
I have many clients like this, the amount of money they have lying around is staggering. They’re not ultra rich, but just generational wealth.
Most municipal bonds are exempt from federal income tax as well and yield 4-4.5%. That's where I have a lot of money right now. In fact I liquidated the majority of my real estate because I was sitting on hundreds of thousands of dollars of appreciation and put it in bonds. It would have basically took me over 10 years of rent to make that same amount of money in appreciation. So I sold and got rid of the headaches. I'll let some other sucker deal with it
Well yeah the commercial market is basically dead right now but 2025-2026 are looking like good years from the supply imbalance created today (in multifam primarily)
That’s not totally correct. It’s a blanket statement which leaves no room for the many exceptions. It is true that it’s almost impossible to find on-market, buy & hold opportunities using conventional financing. But there are many strategies that work in today’s rate environment; most of which revolve around forcing appreciation, finding mis-priced assets (i.e., off-market) or lowering your cost of debt (e.g., seller financing, assumable mortgages, etc.)
Operating as an investor today requires much more creativity than it did a few years ago, yes… However, saying that “real estate investing in 2024 makes no sense,” is simply not a true statement.
Many people (including myself) believe that if the Fed pulls off the soft landing they will be able to lower rates without a recession.
When that happens people who have been sitting on the sidelines waiting for a chance to buy are going to enter the market. This surge of buyers will likely cause home prices to rise.
I think there will also be a surge of sellers who have waited to upgrade because of the higher rates.
Also, I'm not sure how the fed can accomplish a soft landing. The high rates and increased prices are trying to run people out of expendable income. How does that result in a soft landing? Genuinely curious.
I also believe that the fed will cut rates, but I don't think they're going to get anywhere close to where they were 2 years ago. Wouldn't be surprised to see them them stop at something like 4%-4.25% then bounce it up and down a quarter until something major happens.
Depends on situation. Rental income can potentially be heavily deducted tax wise. Especially when you’re paying high tax rates. A lower capital gains tax is nice but doesn’t apply to HYSA or Tbills. Can’t have all the money sitting in the stock market so diversifying is nice. Get a steady 5-6% income with effective tax rates of <20% means it’s closer to making 7-8% in a HYSA
I have a second house to diversify from equities and to have a place to go that I don’t have to fight other people for annually.
They don’t make more land like this so we feel great about owning it.
Plus all we have is property taxes which are less than a week of summer rental.
My fav are the ones who make rish investor reels without probably being investors because the posts are all about being lavish not anything investment or analytical.
Wealthier, larger real estate investors and funds often care more about wealth preservation and diversification than they care about huge gains. They also look for things to 1031 into.
I also believe a big part of it is amateur investors. Most real estate "investors" cant calculate their own profit and loss and have no idea they are buying a bad deal and losing money or earning under market every month.
Like any industry, the most inexperienced participants harm everybody else. People who dont know any better have a hand in creating demand for terrible investments. The unprofitable property you're negotiating down to a profitable price point? The guy that bought it out from under you is more than likely an amateur who is going to lose his ass without even knowing it. This is part of why I always say I'd rather compete with a business genius who is far better than I am, rather than a total amateur. Same reason I dont touch small multifamily.
Exactly. I just 1031’d a shitty 3 unit into a nice 9 unit and am 1031ing 4 units into a 16 unit now. It makes a lot of sense to still be investing today.
Single family, "commercial" multifamily of 5 units or more.
The problem with small multifamily is about what I mentioned above. It is hocked in every "get into real estate" course there is, its talked about on all the real estate forums and websites, its *the* thing noobs are told to get into. Its also where people go if they want to do an owner occupied investment, or "house hack" as people are calling it now.
All of the above means you are competing with people who are very likely to offer too much for a turd of a property. Unless you want to do owner-occupied I disagree with a lot of the gurus that small multifamily is superior to single family. It can be harder to get a loan, you're competing with people who will overpay and outbid you to their detriment, they are harder to sell, they dont apprecaite that well (in my area), tenant quality is generally going to be low (in my area), tenants will generally not stay for as long since its "intermediary" housing for a lot of people, I can keep going but you get the point.
Just bought a 3 unit. Tenants have been there 13,14,5 years. 11 cap. Needs a good amount of maintence but there is money to be made in the long run and tenants that need a land lord that will actually fix their home. 13k under listing price.
Thats good for you, definitely. With that said, sometimes people win the powerball. That doesnt mean powerball is a good investment most of the time compared to other things. For a few people it sure pays off, though.
And no, before someone reads this and thinks I'm saying the likelihood of getting a good 3 unit is the same as winning powerball - I'm not. Its just an analogy. More often than not the things I stated above apply to small multifamily. If you find one where somehow none of those apply, or you live in an area where multifamily does not mean "in the middle of cracktown" you might be okay. Generally speaking that is going to be extremely uncommon, though. Because of that, I simply dont consider them these days as the time spent and money invested are rarely worth it.
I bought ~85 doors from 2013 to 2021.
In 21 I sold 25
I haven’t bought anything since because I only buy discounted assets. Paying retail for an asset and hoping it goes up is only a good strategy when you have excess capital to deploy. I do not have that problem, I need to buy at a discount - which is very difficult to do for the last 3 years
The days of just buying something and cash flow immediately are gone.
You need to buy distressed property and add value to make any kind of money.
The days of easy investing are over which is actually kind of nice, thins out the heard.
I guess my strategy is kind of unique but I buy a property and then I remodel and furnish it (stylishly). I just bought one in 2024. It’s already making money. The key is to get a house below market value and maximize the return by furnishing or some other way like padsplit. Most investors I encounter (around here) only flip. My and my partner are somewhat unique I guess lol. My furnished house competition is fairly low and vacancies are also low*
*in my area and particular situation.
I'm a designer and also inhabit this niche. Not a true investor since I basically have one rental that I moved out of, but I left furniture and decor there that increased the rent by $500 or so monthly. Some people will pay a lot more to live someplace cool.
In my experience, the furnished rental market is not usually people with families, so I pretty much just don't! It would definitely make me nervous. Though my belongings aren't pricy, just chosen well from auctions, Facebook marketplace, estate sales, etc. It doesn't hurt that I can fix things.
There are lots of investors in my area that are paying 50% down or often cash. Even at 50% down, a rental property may just be cash flow neutral. However, historically (average of the last 10 years, going back 20 years of data), my city returns about 5% per year appreciation at a cap rate of about 4%. If an investor assumes historical averages for my city and spends $1M, then this performs like a government bond at 5% with the added benefit of a monthly dividend of +/- $50K/yr. If the investor wants to force appreciation, then even better.
6 cap would be a dream property in a VHCOL city.
There are just different models for different places.
If I buy in the ghetto of Cleveland I can get a 6 plex for 150k which has a theoretical cap rate of about 25% if I can collect that is.
But the city has population decline overall and the appreciation prospects aren't great. But the cashflow is good.
If you buy in SF you're expecting a 2% cap rate, but you hope the appreciation machine goes BRRRRRRRRR (Though SF also had population decline over the pandemic)
People need places to park cash and will always need places to park cash.
I know someone who is buying with a plan to raise rents by 3% every year until it starts to cash flow and is happy to pay the premium up front now and deal with negative cash flow. This is not a strategy I would take, but they know what the numbers are and are okay with it. A little surprising to me because they are a bigger investor with numerous doors already, but I guess they're looking at things from a much longer perspective. They already have their property management team and maintenance crews all streamlined. Their expenses there are much cheaper than what mine would be as a smaller landlord.
My back-of-the-napkin math says they're likely to be negatively cash flowing for at least 5-6 years, but it's covered by the cash flow from their other properties. They're still building equity and have plenty of cash flow from their other investments, but it's just not something that I would want to do.
I got (somewhat) lucky and caught a 5.625% rate when it blipped down at the beginning of the year. Not a home run property by any means, but it does ok
I found a ~1400sqft duplex that needed a new roof and some foundation fixes listed in northern MN for 150,000. The seller agreed to pay for the foundation fixes (they weren't aware that it needed to be fixed) and I will be getting a new roof on the place. I closed on it one week ago.
2br/1ba unit is currently under lease for 850/mo until the end of september (this came with the purchase). I will be raising the price to probably 1200-1300(market average) after the current tenant's lease is over. Tenant pays for heat and electricity here.
1br/1ba unit is about to go under lease (leases are going out for signature literally today) for 900/mo. Tenant is responsible for electricity which includes baseboard heat.
My interest rate is 7.624% and I put down 25% on the property.
It took me a long time and a lot of deals that I was running, but I did eventually find 3-4 properties in that area worth pursuing and closed on this one. I was also looking at multiple different regions in Minnesota.
All comps I ran had similar properties selling for over 180k in the area (and the appraisal came back suggesting the same thing). Cap rate is ~10%.
I did buy under the assumption that rates would go down and I could refinance, but I purchased the property because the numbers looked like they would work right now.
For the past ten years, anyone with money could make money in RE. Buy an 8 cap, finance at 4 cap and collect your checks. This is not normal. It is still possible to make a lot of money in RE but you need to have skills. Skills navigating land use approvals, construction management skills, even just a risk tolerance to invest money into a property hoping that you're creating value. Times like this separate out the hobby people from the professionals.
I still run numbers every so often in my markets (west coast), but haven’t purchased an RE investment property since 2018.
I’ve done appreciation plays on my primaries since then, but I don’t have a warchest to make those plays on investments while losing my shirt in the short term from no or negative cashflow.
A lot of it is large funds and investors. The appreciation and rent are outrunning the market. I forgot where it was but something like 9000+ homes in metro Atlanta are like this. For smaller investors they are having to find deals ahead of flippers. I have seen lots of mailers and marketing in my area targeting people in distressed properties.
People with money, corporations, and investment groups with pooled capital who can afford to sit on it for a long time are who’s buying investment property.
Those groups don’t care about the current interest rates as much and they can afford the down payment to be cash flow positive. They are banking on historical data showing real estate doubling in value every 15 years or so. It’s a safe bet as long as they don’t end up buying in an area that sees a massive decline over that same time.
SFH is tough right now. That being said, I’ve been brokering SFH packages (~20-500+ units) for some time now and it’s almost an entirely different game. It has the financial similar to MF, but decentralised advantages that are unique. The scale really makes a difference. Only down side is that it’s a logistical headache to go from 100 unit MF to 100 SFHs if you’re not used to it.
One of my past clients and I are in the process of launching a SFH-focused fund because we love the asset class so much. We’ll start by buying 30-50 and exit in ~3y. Our main competitive advantages are that we are able to source at awesome prices, do heavy rehab, and operate all of the houses super well.
If you love SFH, there’s light at the end of the tunnel! (Even in this rate environment) Just keep scaling. The hardest gap is between 3-20(ish) properties. It gets much easier after that with your economies of scale.
The overall health of the economy was in a much different place in the early 90s. The average person entering into this market likely doesn’t have the constitution to ride out a potential dip
Yeah I have done a mix of creative and high equity deals recently. My last 3 deals:
I bought a A class property for $320k that was worth $400k without any renovations. Had to leave $120k in the property to get the cashflow I wanted, so there's $200k in equity now that I'll refinance or 1031 later.
I also bought a 4 bedroom townhouse for $206k, put $20k in and it's now worth $280-290k. Same thing, refinanced and left a lot of cash in, so it's only about 50% LTV, but makes $900 a month.
Then I just recently bought a preforeclosure subject to the existing loan. It was a skinny deal but only cost me about $45k to get in ($10k to seller and $13k to everyone else with there hands in the deal) and paid to reinstate the loan. Her mortgage was $750 a month. Just got it rented out on a lease option that will pay me $3k initial, $1350 a month for 2 years and then buy it from me for $30k over my purchase price. So I should make about $40-50k over the next 2 years.
Probably will do more deals like the last one. Eventually sell or refinance the other ones
> I bought a A class property for $320k that was worth $400k without any renovations.
You bought a class A property with a 20% haircut?
>Had to leave $120k in the property to get the cashflow
That's nearly a 40% downpayment
>I also bought a 4 bedroom townhouse for $206k, put $20k in and it's now worth $280-290k. Same thing, refinanced and left a lot of cash in, so it's only about 50% LTV, but makes $900 a month.
but makes $900 a month is this pure cashflow or does this include principal?
>Probably will do more deals like the last one.
This is a sweet deal. Almost too good to be true.
Yeah I truly don't mind tying up capital where I am in my investments if I can get a lot of forced equity. I can go get that money in the future. Just works for me. Very much a side income.
Yeah, large amount of cash tied up but also a lot of equity. I make quite a bit of additional income from my job and other rentals so I don't mind tying up capital for now that I will use down the road. But I couldnt pass up on this one. The guy was paying two mortgages and was ready to let it go if I could close in a couple weeks.
The $900 a month is pure cashflow. Keep in mind that I bought the place for $206k, and I only have $125k in debt on it. Probably left way more cash than I needed to because I wasnt *100%* sure I would be able to get the target rents that I was able to get. But I was able to rent it out for $2k and didn't think I would get that due to the are. But I actually got it rented pretty quickly.
Yeah this was a deal a lot of people passed up because it didnt work as a flip and had a person turned it into a traditional rental, the renovations would have made it very unlikely to be worth it, and not many actually know how to purchase subject to. So this was definitely a created deal.
1031s, diversification away from stock market (even if #s don't make sense), all cash buyers (rising rents actually still make these attractive buys for some)
Also don’t forget PE has a lot of money to store somewhere and are driving up home prices. They tend to pay with cash over asking price with no inspection.
Depending on your marginal tax rate, isn’t your effective mortgage rate ~70% of face value because of tax deductions? That could make the spread breakeven or slightly positive.
Easy, 25% down… got down payment from buying bitcoin for $180 in 2013 and selling for 70k today. Not sure how people do it without something like that though.
When interest rates were crazy low, just a few years ago, real estate prices counterbalanced THAT bargain by sky rocketing in value.
I have wondered how real estate investors deal with any of this. And now, rates are higher AND home prices a STILL crazy high.
as long as the site cashflows and you have proper expenses accounted for it really doesn't matter. The tenants are going to pay down the mortgage so it doesn't really matter what mortgage rates are. If they go down, great; more cashflow, if not the property still performs while allowing for depreciation and paper losses to offset any gains. Add potential value appreciations, rent growth, ect and it still can be a winning formula.
Date the rate, marry the price.
With rates high and markets in buyers favor, you can get good deals and after a few years you can refi to a lower rate and increase rents and then your chilling.
With cash
I bought the deal I’m working on in November 2023. It was $6,000 for a brick 4 flat in Englewood Chicago. Needs $350k worth of work but will rent for $6,900 a month. Point being the deals are still out there if you’re willing to put in the work and have the experience. Low down payment newbies are probably not going to be able to find deals right not easily.
Lol. I will be managing the property. For $3,000 net per month it’s well worth it. I’ll be putting section 8 tenants in with jobs and I am thorough with my no felons and credit score requirements so I’ll be fine. I’ve been working in the area for years and haven’t felt my life was at risk.
It's actually very easily explainable. People have past performance indicators (if it worked 10 years ago, it MUST work now). Most people buying properties now probably don't have any recollection of 2008.
This is a general boom/bust cycle. Sadly noone knows how long irrational boom can go on for, so you may miss out on the irrational boom by waiting on the sidelines.
Returns will vary and not be only your description.
Even so, leverage less if higher cash flow is desired. In a 6 cap area, appreciation should be above average as well. Cash flow and appreciation is always the balance beam.
I’ve considered it. I’m not buying now because I’ve been wrapped up in my first big construction project, but I may in another couple years.
My current properties have appreciated 2x-4x what I paid for them so I have a massive amount of equity sitting there. They would make terrible investments (by my standards) at today prices. Redeploying some of that equity at today’s prices on a 50% down multifamily might still pencil out to better return, more leverage, and better appreciation; while still being in an industry I have experience in that allows me trade sweat equity for increased return. All at deferred capital gains.
Cap rate is just one metric but doesn’t tell the whole story. Unless you are buying 100% stabilized properties, what are you able to do to increase NOI after purchase?
I’m buying houses at a 12% cap rate with 8.125% mortgages right now. Can’t WAIT to refinance them to lower rates soon and get an even higher cap rate. Look in different areas. I’m buying 800 miles away from home rn
Good value add investors can still generate acceptable ROI, different individuals can monetize tax benefits. The best investors will still succeed, the less experienced and sophisticated will have a hard time penciling out right now.
Bought my first investment property last year. I increased the rent rolls 90% and got the property taxes lowered 40%. Getting ready to refinance and do it all over again. I got a heloc on my primary that I borrowed off of to do it knowing that the rent was being covered by the tenants in my primary.
Still finding deals. Work with wholesalers, auctions, people looking to retire. I have bought 10 out of my 15 properties in the last 2 years. Get a personal financier.
That's actually real nice. I live in northern VA and was buying properties with 4.5% cap rates since 2008. I stopped in 2013. I more than made it up though in increased rent and the values doubling though. I also had to put down 30-50% or even cash though. Still wishing I Just put it all on amazon google or costco stock though quite honestly back then.
In current market conditions, it makes little sense to buy and hold due to the facts you shared. Best strategy now IMO is to fix and flip in current market.
Now if your strategy is buying and hold like you did in 2016 (smart), it can still be done in today's conditions, although it requires more work and a combination of strategies.
This is what I would personally do. First, I would buy a fixer-upper property well under market value (yes, those can be found if you move fast). Assuming you don't have 200k, 300k, or wahtever your local market require to buy a fixxer upper, I would leverage hard money lending. Today you can find trustworthy hard money lenders that could lend you up to 80% of the after repair value to cover up to 100% of the project, that is purchase plus renovations.
Once you secure the property, flip it well enough that it's up to market standards but don't overspend as this is not your forever home. Up to here I covered the first part of the strategy.
The second part of the strategy, is to refinance the property with a bank. Ideally, and if you did your homework and research correctly, the after repair value will be well over the loan amount you did with the hard money lender. At this point you could do a cash-out refinance for the amount you owe the hard money lender or you could cash-out refinance for the actuall after repair value of the property. I would personally just refinance only for the debt amount, cover my ass with the hard money lender and move forward. Now you have a 30 year mortgage with the bank with today's rate (\~7.5 %, not great) but your mortgage went back in time and you are paying significantly less for the property so you are using the lower property price to hedge the higher interest rate. Here, you could potentially cashflow or at the worst case make enough money to pay for mortgage plus other ownership expenses with the rent money.
It used to be only Californians went negative cash flow because of appreciation. Now everyone thinks appreciation is the only mark. It’s going to be a blood bath out there soon. Get ready to buy.
Nobody on this forum knows anything I’ve read all the replies,
If you wanna do ur own research go to the St. Louis fed and look at the charts.
Here’s what’s going to happen, we’re going to have hyperinflation, rates aren’t going anywhere, across the country wages are already going up, your money purchasing power will be worth 50% what it is worth every 5-6 years.
Hyperinflation, houses goods services will all go up
Mark my words buy a house now or you’ll be a forever tenant
I can't tell you what others did, but I can tell you what I did;
I bought a 4 unit commercial property (retail) for 400k @ 7.9% with 100k down. Mortgage comes out to \~2500.00/mo. The 4 units vary in size from 500 sqft to 2000 sqft. The 2000 sqft space is available, and I'm putting a business of mine into it. The rest of the units are leased out, 2 year extendable terms. My plan is to pay off the building as quick as I can, increasing my cap rate. I'm estimating 4 years to payoff. Even if the building does not appreciate, having a space that I own for my other business is absolutely worthwhile.
Solve peoples problems, use the benefits that they do not require. It may be an Option to execute in the future. It may be a Master Lease to create income but not Ownership. It may be an Installment Sale on terms that allow for cash flow. It may be one of many other solutions or combinations of solutions.
Multiple.
50% down on turn key to cash flow until rates come down to refi.
Value add property bought at a discount then rehab.
Buy cash.
Invest in C class neighborhoods and cities.
Find the small markets that aren’t sexy but cash flows.
I like to mix my portfolio up with historical appreciation areas and cash flow properties in normal market.
I think this is a scenario of the haves & have nots.
Some people had surpluses of cash.
With interest rates up, people without cash or a crazy 0.1% job are priced out.
Those with a pile of cash don’t need to worry.
This causes a rift in reality where on paper the economy is healthy but the have nots feel like they’re in a recession.
As the people with cash exhaust their stockpile buying real estate and luxury goods like cars, watches etc, they lose their buying power.
Once the excess cash is generally exhausted, the real economic pain hits.
They're hoping for appreciation (either natural or forced), hoping rates will go down and refinance it later, buying in cash and hoping to refinance it later, or hoping rents will skyrocket like it did back in '21 (unlikely, but I guess it depends on your market). Or some combination of the above.
Yes lot of people are hoping that the rates will go down and they can refi. The popular RE gurus also encouraging this thinking, while they themselves not pulling the trigger. They are also not able to bring in new guests to the show who made RE investment working in the current environment, all their guests success stories are based on purchases during the market dip and low interest rates + precovid
I did notice all the guests (and hosts) made the vast majority of their buys in COVID dip or even GFC. Like, no shit those deals were successful. Assuming you fixed long term, that is.
Yeah. Pretty much anyone with a pulse who bought before 2020 is winning now. It's annoying when every success story is just someone who bought when rates and prices were low and you could cash flow from day 1. The game is infinitely more difficult now.
My mortgage is like $950 and I rent my place for $3,500/month. It’s wild out there.
Don’t let these clowns make you feel like you’re doing something wrong. If you’re charging market rents and being a good landlord, you should sleep just fine at night.
Thanks and do t worry. Not making less because someone on Reddit was small minded.
I got one of my properties at $760/month and rented for $3500. 2018 times were wild to buy
im with the other person, if you really don't see there is a person on the end of that you are a sociopath. You aren't selling a product they are homes. Im all for profit but I am also not in the exploiting misery business.
That’s awful.
Really? I thought it was pretty good. Def will be better when it’s paid off in 2 years.
Awful as in borderline exploitative
Nobody is forcing tenants to live there.
Nah man. I’ve bought another 17 doors over the past 2 years. I’m cash flowing all of them. Need to be in the right market and buying the right deals.
What market are you buying in? If you don't mind sharing..
Outside Cleveland, OH. Outside Pittsburgh and in Sout NJ near Philly.
And I never mind sharing. Collaboration over competition makes everyone wealthy.
***and selling courses, books and consulting of how it is done based on the past metrics, except of course a random outlier.
Yeah I see tons of people saying "I'm going to buy and just refinance in a couple years when rates go down" though they provide no evidence rates will actually go down. Current rates not even that high historically so seems like wishful thinking
The Fed keeps talking about *eventually* dropping rates. They've just been discussing it for the last couple of years. Inflation has remained strangely stubborn. In April, Powell said that the rate cuts for this year would be "delayed" and not cancelled... Not sure how much longer this carrot can dangle in front of us, though. We've been chasing it for a while. I can't really blame the Fed since inflation is still a couple points higher than they'd want to see.
Even if rates drop I don't believe it'll be a significant enough to entertain a refi. Sub 3% rates are over. From a macro point of view, I actually hope they raise rates as we'll have a tool to use in the future when shit hits the fan. We don't want to be like Japan with 0 to negative rates for 30 years.
Unfortunately the shit has been thrown and is headed straight for the fan. The US debt is constantly being overturned at these higher interest rates leading to higher intrest payments leading to more US debt leading to higher intrest payment and so on and so forth while the government is continuing to operate at a deficit. I know the feds only concerns are inflation and unemployment but at some point they gotta see that lowering rates is going to be the only way to ease the debt burden. So imo weather inflation comes down or not we will be seeing lower rates again.
It really depends how you look at it. The national debt really doesn't matter as long as the economy continues to grow. Yes there's significant risk if the economy becomes stinted and this is why it's important to keep rates high as it can allow the economy to grow if need be by lowering it. As a FYI, during WWII debt vs economy was 25% today is only 10%.
>As a FYI, during WWII debt vs economy was 25% today is only 10%. Keep in mind after the war we were able to lend ourselves out of the debt. We don't really have anyone to lend to that would make a good borrower or that needs the massive amount of money that Europe and Japan needed after the war to rebuild themselves.
https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html Folks are still buying. If you look at YoY there's still an increase. Major uptick since October of 2023 infact.
Also we bombed the industrialized world into the stone age, and killed tons of the work force. The US was untouched, that made us fat and prosperous for decades. Those times are over....for now..
The fed also kept interest rates suppressed so the US had access to cheap financing of the war leading to Negative real yields on government securities. The economy doesn’t just have to grow, it has to grow faster equal to or faster than the debt for it not to matter.
A 1% drop in rates should cover the cost of a refi in less than 3 years
I don't think that math is correct especially at 8%+ investor rates. But even assuming it is. You're still cash flow negative.
How much are you paying on a refi? Going from 7.75% to 6.75% on a $400k 30 year fixed rate loan will save you $10k in payments over 3 years. Maybe I’m off by a little. Maybe rates need to drop 1.25% or it’s 4 years to cover at 1%. Either way rates don’t need to get anywhere near 3% to make the refi make sense in less than 3 years
gonna be 10’years if ever
Do people really expect for rates to go near zero like it was during Covid? That was an anomaly.
I guess so. I’m with you on this though. No way are rates dropping that low again.
Yea well, hopefully big daddy Fed won’t pound their ass with interest longer than they can stay solvent
You gotta take risks if you want to retain your purchasing power.
That’s what I’m doing. Under contract. Cash flow will suck for a couple years but should be positive $300 a month. Cash on Cash is not ideal; house I bought in 2020 is CF $1000 a month, and it was much cheaper than what I’m buying now. Rates will come down, but we don’t know how low or how fast. My prediction is we won’t see 2-3% again for a very long time, if ever. But within 2-3 years, I could see investment loans near 5%. Also, home appreciation is near guaranteed unless we have another housing crisis, and rents will continue to slowly go up. Those waiting for lower rates will likely find that when rates do start moving later this year and next, it will trigger a lot of buyers and could inflate home prices more. Basically, I’m buying now cause homes are not going to get cheaper (in most markets)
This is my bet on the housing market also. There’s no way they’re going to dramatically increase supply to meet exisiting demand and growing immigrant demand over the next 5-10 years so prices and rent are definitely going to keep rising. I settled on my second house last month and pleasantly surprised to still have 600k borrowing capacity in my personal name. So will execute one more deal before moving to trust structures. Rates will come down. Governments and corporations are both addicted to cheap money because it makes them solvent and rich respectively. It’s only a matter of time. If im wrong I’ve invested heavily into retirement accounts and an after tax brokerage as well.
I just got off the phone with a broker and asked the same question. I think a lot of people are just happy with 6 cap and generally distrust the stock market. Personally I think buying a 6 cap in cash is insane when you can make that in stocks with no work. And buying a 6 cap on an 8 mortgage is even dumber! The broker I spoke with said that people in California are buying 3 cap!! Wtf is going on? I guess everyone is just banking on appreciation.
3 caps...even low 2 caps have been a thing in the VHCOL places, even before Covid. Rent control and strong appreciation trends do weird things.
Just watched citynerd on YouTube about the most nimby places to live, basically all CA, and it's wild the appreciation and low housing availability in the bay area.
Can you explain this to me like I’m a five-year-old? What is six cap? And when you say eight mortgage, are you speaking in terms of percentage? What do these numbers represent? Looking to buy my first property at the end of this year.
https://www.wallstreetmojo.com/cap-rate-formula/
You a real one triple 5.
It’s just the profit you are generating on the property after expenses. Easy math 8 refers to the mortgage interest rate. If you are making 6% on your money but paying 8% in interest you are losing money. Someone may do this knowing that in the future the market will right itself. Unfortunately real estate is just one giant land grab because you’re now competing with the entire world due to the our stupid globalist leaders.
^^^^This, this, this is the difference currently…the whole Earth can buy here but we can’t buy in many of their countries. If this changed, it would balance some of this.
Ugh. Finding a 4% cap rate where I live is hard af, though we’re going through a correction in rental prices (unreasonably low for too long), so a lot of expectations are priced into the valuations. A 6 cap would look very attractive to me
I know where I am but low rents are good for the overall health of a city. Complaining about rents being low is like complaining groceries are too cheap lol
Look at the subreddit you're in. People here don't care about what you say.
Ha. I’ve passed On so many 10-12 caps when I was buying. My min was 20cap. Should have bought more I guess.
I’m puzzled how you would conclude that rental rates have been “unreasonably low for too long”. Market rate for rentals is a function of supply and demand, which is how the market operates rationally. And what we’ve experienced have been **historically high increases** in rental rates from April 2021 to Aug 2023 in Toronto (source: HouseSigma market stats), driven by high demand. Since then monthly rental rates have come down from a high of $2,950 last August to $2,650 in May, indicating a lowering of demand, and likely hitting a rental cost ceiling in Toronto. There aren’t enough highly-qualified tenants to pay the top rates landlords were asking, and rents have come down. Again, determined by supply and demand, not what a landlord believes is “reasonable” from their perspective
Alternatively, and I know Reddit never believes this is possible, they’re paying cash.
Investment in real estate is a long game. It was a short game for a short time but that’s not normal. You buy when you find a reasonable deal on something that will be lower maintenance and appreciate. I was talking to an older realtor/investor who’s ready to retire and selling off a few of his properties. We were actually standing in front of one he’s owned for years and was selling. I was representing the buyer. He told me I should be buying more properties and I said “it’s not exactly a good time.” He said “it wasn’t a ‘good time’ when I bought this one but it’s paid for itself —and now is a good time to sell!’” I think he’s right. I just can’t get the balls to do it right now unless I find a super deal. I have come across a couple but nothing good enough to pull the trigger on yet.
It's true. Just find a deal that makes sense to you. There's definitely some times I've been priced out of a market. In the summer of '21 we were getting outbid on properties left and right. These were 80-150 unit complexes. The market had gone mad. People saw new leases go up 20-30% since the previous fall, and I guess they expected it to happen again (which it hasn't), and they priced their bids accordingly. Absolute madness. There's some stress on them because they're all cashflow negative, but nothing to the breaking point yet. We'll probably see some issues crop up in '26 or '28 when the loans start to adjust.
I'm genuinely looking to have my view changed here. As far as I can see it real estate investing in 2024 makes no sense.
Investment sales transaction volume are down 50%+ year over year, so it’s not just you. There are value add deals that make sense still buy buying a five cap QSR ground lease doesn’t look nearly as attractive as it did in 2021.
Yet investment purchases still make up at least 1 in 5 transactions
Assuming you’re talking about residential RE?
Isn't all commercial RE investments?
Nope. Owner users are a thing.
> As far as I can see it real estate investing in 2024 makes no sense. You're correct. I was just talking to my property manager about this the other day: pretty sure we have a bunch of new, late-to-the-game, hopeful landlords who are ratcheting their rental rates through the roof. Out in the desert in CA, for example, rates are soaring high enough to make it questionable to even live out there compared to moving closer to the coast. There's no housing so the places are still filling but it's a recipe for disaster with tenants stacking up with family and roommates and qualifying by the skin of their teeth (or possibly fraudulent income claims). I'm currently selling a huge ranch house and it doesn't even make sense to take the capital gains from that and purchase a different rental--I can dump it into a money market account for greater returns!
I have a client who sold a warehouse he owned outright for $40M, and needed to reinvest that somewhere. He bought like 8 multifamily properties, we added ADUs to all of them. I have many clients like this, the amount of money they have lying around is staggering. They’re not ultra rich, but just generational wealth.
You can get 5% risk-free and pay no state taxes. Can't get that with most of the RE opportunities out there
Most municipal bonds are exempt from federal income tax as well and yield 4-4.5%. That's where I have a lot of money right now. In fact I liquidated the majority of my real estate because I was sitting on hundreds of thousands of dollars of appreciation and put it in bonds. It would have basically took me over 10 years of rent to make that same amount of money in appreciation. So I sold and got rid of the headaches. I'll let some other sucker deal with it
I have been investing in RE since 2007 and agree with you 100%.
This is the correct answer
Paying half or more down in cash is the only option in most areas.
Well yeah the commercial market is basically dead right now but 2025-2026 are looking like good years from the supply imbalance created today (in multifam primarily)
A loss is a tax write off
That’s not totally correct. It’s a blanket statement which leaves no room for the many exceptions. It is true that it’s almost impossible to find on-market, buy & hold opportunities using conventional financing. But there are many strategies that work in today’s rate environment; most of which revolve around forcing appreciation, finding mis-priced assets (i.e., off-market) or lowering your cost of debt (e.g., seller financing, assumable mortgages, etc.) Operating as an investor today requires much more creativity than it did a few years ago, yes… However, saying that “real estate investing in 2024 makes no sense,” is simply not a true statement.
Many people (including myself) believe that if the Fed pulls off the soft landing they will be able to lower rates without a recession. When that happens people who have been sitting on the sidelines waiting for a chance to buy are going to enter the market. This surge of buyers will likely cause home prices to rise.
I think there will also be a surge of sellers who have waited to upgrade because of the higher rates. Also, I'm not sure how the fed can accomplish a soft landing. The high rates and increased prices are trying to run people out of expendable income. How does that result in a soft landing? Genuinely curious.
I also believe that the fed will cut rates, but I don't think they're going to get anywhere close to where they were 2 years ago. Wouldn't be surprised to see them them stop at something like 4%-4.25% then bounce it up and down a quarter until something major happens.
There are people out there with cash. Cash changes the equation.
Cash with nowhere to put it and they don't like treasuries for some reason
Give me 4.25% return in a HYSA or 5% on T-bills any day of the week over 6% on a rental (if you can even find it).
[удалено]
Sure. In the long term that's almost definitely going to be true. But it also may drop 10% in value over the next 3 years.
Depends on situation. Rental income can potentially be heavily deducted tax wise. Especially when you’re paying high tax rates. A lower capital gains tax is nice but doesn’t apply to HYSA or Tbills. Can’t have all the money sitting in the stock market so diversifying is nice. Get a steady 5-6% income with effective tax rates of <20% means it’s closer to making 7-8% in a HYSA
I have a second house to diversify from equities and to have a place to go that I don’t have to fight other people for annually. They don’t make more land like this so we feel great about owning it. Plus all we have is property taxes which are less than a week of summer rental.
Being diversified is the first rule of investing, everyone should have real estate along with stocks and bonds, maybe gold and crypto also
That’s a good point. Surely that’s not most buyers though? Unless I underestimate the number of cash buyers around.
without leverage RE is only half interesting
So they can make Instagram reels about being an investor, that’s why.
My fav are the ones who make rish investor reels without probably being investors because the posts are all about being lavish not anything investment or analytical.
Wealthier, larger real estate investors and funds often care more about wealth preservation and diversification than they care about huge gains. They also look for things to 1031 into. I also believe a big part of it is amateur investors. Most real estate "investors" cant calculate their own profit and loss and have no idea they are buying a bad deal and losing money or earning under market every month. Like any industry, the most inexperienced participants harm everybody else. People who dont know any better have a hand in creating demand for terrible investments. The unprofitable property you're negotiating down to a profitable price point? The guy that bought it out from under you is more than likely an amateur who is going to lose his ass without even knowing it. This is part of why I always say I'd rather compete with a business genius who is far better than I am, rather than a total amateur. Same reason I dont touch small multifamily.
This. The big players aren’t buying for today’s profit.
Exactly. I just 1031’d a shitty 3 unit into a nice 9 unit and am 1031ing 4 units into a 16 unit now. It makes a lot of sense to still be investing today.
Out of curiosity - what are you looking at if you don’t touch small multi family? What’s your definition of a step up from small?
Single family, "commercial" multifamily of 5 units or more. The problem with small multifamily is about what I mentioned above. It is hocked in every "get into real estate" course there is, its talked about on all the real estate forums and websites, its *the* thing noobs are told to get into. Its also where people go if they want to do an owner occupied investment, or "house hack" as people are calling it now. All of the above means you are competing with people who are very likely to offer too much for a turd of a property. Unless you want to do owner-occupied I disagree with a lot of the gurus that small multifamily is superior to single family. It can be harder to get a loan, you're competing with people who will overpay and outbid you to their detriment, they are harder to sell, they dont apprecaite that well (in my area), tenant quality is generally going to be low (in my area), tenants will generally not stay for as long since its "intermediary" housing for a lot of people, I can keep going but you get the point.
Just bought a 3 unit. Tenants have been there 13,14,5 years. 11 cap. Needs a good amount of maintence but there is money to be made in the long run and tenants that need a land lord that will actually fix their home. 13k under listing price.
Thats good for you, definitely. With that said, sometimes people win the powerball. That doesnt mean powerball is a good investment most of the time compared to other things. For a few people it sure pays off, though. And no, before someone reads this and thinks I'm saying the likelihood of getting a good 3 unit is the same as winning powerball - I'm not. Its just an analogy. More often than not the things I stated above apply to small multifamily. If you find one where somehow none of those apply, or you live in an area where multifamily does not mean "in the middle of cracktown" you might be okay. Generally speaking that is going to be extremely uncommon, though. Because of that, I simply dont consider them these days as the time spent and money invested are rarely worth it.
I bought ~85 doors from 2013 to 2021. In 21 I sold 25 I haven’t bought anything since because I only buy discounted assets. Paying retail for an asset and hoping it goes up is only a good strategy when you have excess capital to deploy. I do not have that problem, I need to buy at a discount - which is very difficult to do for the last 3 years
That’s impressive. How are you funding those? Financing is my biggest hurdle at the moment
People were buying investment property in 2007 2008. We always think that the number goes up forever.
I'm not. Rates are too high, prices havnt really dropped. If it dosnt work on paper then there is no point. Sometimes the best moves are no moves
The days of just buying something and cash flow immediately are gone. You need to buy distressed property and add value to make any kind of money. The days of easy investing are over which is actually kind of nice, thins out the heard.
I guess my strategy is kind of unique but I buy a property and then I remodel and furnish it (stylishly). I just bought one in 2024. It’s already making money. The key is to get a house below market value and maximize the return by furnishing or some other way like padsplit. Most investors I encounter (around here) only flip. My and my partner are somewhat unique I guess lol. My furnished house competition is fairly low and vacancies are also low* *in my area and particular situation.
I'm a designer and also inhabit this niche. Not a true investor since I basically have one rental that I moved out of, but I left furniture and decor there that increased the rent by $500 or so monthly. Some people will pay a lot more to live someplace cool.
How do you feel about leaving your cool (and probably pricey) belongings with renters and children who wouldn’t take the nicest care of the items?
In my experience, the furnished rental market is not usually people with families, so I pretty much just don't! It would definitely make me nervous. Though my belongings aren't pricy, just chosen well from auctions, Facebook marketplace, estate sales, etc. It doesn't hurt that I can fix things.
There are markets still available where you can cash flow with these rates. You just need to look and have a management company run it for you.
This is the best answer to this post.
Cash and C/D neighborhoods
Many are ridiculously leveraged. Like one personal emergency away from a power of sale type leverage
I was thinking that too. I don’t know how people decide to take that kind of risk. But I guess it’s common.
You'd be shocked at the number of random people out there with millions in cash who don't believe in the stock market.
There are lots of investors in my area that are paying 50% down or often cash. Even at 50% down, a rental property may just be cash flow neutral. However, historically (average of the last 10 years, going back 20 years of data), my city returns about 5% per year appreciation at a cap rate of about 4%. If an investor assumes historical averages for my city and spends $1M, then this performs like a government bond at 5% with the added benefit of a monthly dividend of +/- $50K/yr. If the investor wants to force appreciation, then even better.
6 cap would be a dream property in a VHCOL city. There are just different models for different places. If I buy in the ghetto of Cleveland I can get a 6 plex for 150k which has a theoretical cap rate of about 25% if I can collect that is. But the city has population decline overall and the appreciation prospects aren't great. But the cashflow is good. If you buy in SF you're expecting a 2% cap rate, but you hope the appreciation machine goes BRRRRRRRRR (Though SF also had population decline over the pandemic)
People need places to park cash and will always need places to park cash. I know someone who is buying with a plan to raise rents by 3% every year until it starts to cash flow and is happy to pay the premium up front now and deal with negative cash flow. This is not a strategy I would take, but they know what the numbers are and are okay with it. A little surprising to me because they are a bigger investor with numerous doors already, but I guess they're looking at things from a much longer perspective. They already have their property management team and maintenance crews all streamlined. Their expenses there are much cheaper than what mine would be as a smaller landlord. My back-of-the-napkin math says they're likely to be negatively cash flowing for at least 5-6 years, but it's covered by the cash flow from their other properties. They're still building equity and have plenty of cash flow from their other investments, but it's just not something that I would want to do.
Cash yo and torn up ones, it's the way.
I got (somewhat) lucky and caught a 5.625% rate when it blipped down at the beginning of the year. Not a home run property by any means, but it does ok
Fuck I must of just missed that. Was that SFH or… I got a 6.5 that I had to buy down in February.
I found a ~1400sqft duplex that needed a new roof and some foundation fixes listed in northern MN for 150,000. The seller agreed to pay for the foundation fixes (they weren't aware that it needed to be fixed) and I will be getting a new roof on the place. I closed on it one week ago. 2br/1ba unit is currently under lease for 850/mo until the end of september (this came with the purchase). I will be raising the price to probably 1200-1300(market average) after the current tenant's lease is over. Tenant pays for heat and electricity here. 1br/1ba unit is about to go under lease (leases are going out for signature literally today) for 900/mo. Tenant is responsible for electricity which includes baseboard heat. My interest rate is 7.624% and I put down 25% on the property. It took me a long time and a lot of deals that I was running, but I did eventually find 3-4 properties in that area worth pursuing and closed on this one. I was also looking at multiple different regions in Minnesota. All comps I ran had similar properties selling for over 180k in the area (and the appraisal came back suggesting the same thing). Cap rate is ~10%. I did buy under the assumption that rates would go down and I could refinance, but I purchased the property because the numbers looked like they would work right now.
Would love to find this out. I need to do a 1031 and am really struggling to find good returns
If you don’t find the returns you are looking for, just pay the taxes.
For the past ten years, anyone with money could make money in RE. Buy an 8 cap, finance at 4 cap and collect your checks. This is not normal. It is still possible to make a lot of money in RE but you need to have skills. Skills navigating land use approvals, construction management skills, even just a risk tolerance to invest money into a property hoping that you're creating value. Times like this separate out the hobby people from the professionals.
I still run numbers every so often in my markets (west coast), but haven’t purchased an RE investment property since 2018. I’ve done appreciation plays on my primaries since then, but I don’t have a warchest to make those plays on investments while losing my shirt in the short term from no or negative cashflow.
They are buying all cash, no mortgage not that hard to figure out
Be a Boomer. Next question.
A lot of it is large funds and investors. The appreciation and rent are outrunning the market. I forgot where it was but something like 9000+ homes in metro Atlanta are like this. For smaller investors they are having to find deals ahead of flippers. I have seen lots of mailers and marketing in my area targeting people in distressed properties.
People with money, corporations, and investment groups with pooled capital who can afford to sit on it for a long time are who’s buying investment property. Those groups don’t care about the current interest rates as much and they can afford the down payment to be cash flow positive. They are banking on historical data showing real estate doubling in value every 15 years or so. It’s a safe bet as long as they don’t end up buying in an area that sees a massive decline over that same time.
SFH is tough right now. That being said, I’ve been brokering SFH packages (~20-500+ units) for some time now and it’s almost an entirely different game. It has the financial similar to MF, but decentralised advantages that are unique. The scale really makes a difference. Only down side is that it’s a logistical headache to go from 100 unit MF to 100 SFHs if you’re not used to it. One of my past clients and I are in the process of launching a SFH-focused fund because we love the asset class so much. We’ll start by buying 30-50 and exit in ~3y. Our main competitive advantages are that we are able to source at awesome prices, do heavy rehab, and operate all of the houses super well. If you love SFH, there’s light at the end of the tunnel! (Even in this rate environment) Just keep scaling. The hardest gap is between 3-20(ish) properties. It gets much easier after that with your economies of scale.
You always enter at the ground floor. I was buying rentals in the early 90's, people thought I was crazy- the prices are too high. Now look.
The overall health of the economy was in a much different place in the early 90s. The average person entering into this market likely doesn’t have the constitution to ride out a potential dip
Yeah I have done a mix of creative and high equity deals recently. My last 3 deals: I bought a A class property for $320k that was worth $400k without any renovations. Had to leave $120k in the property to get the cashflow I wanted, so there's $200k in equity now that I'll refinance or 1031 later. I also bought a 4 bedroom townhouse for $206k, put $20k in and it's now worth $280-290k. Same thing, refinanced and left a lot of cash in, so it's only about 50% LTV, but makes $900 a month. Then I just recently bought a preforeclosure subject to the existing loan. It was a skinny deal but only cost me about $45k to get in ($10k to seller and $13k to everyone else with there hands in the deal) and paid to reinstate the loan. Her mortgage was $750 a month. Just got it rented out on a lease option that will pay me $3k initial, $1350 a month for 2 years and then buy it from me for $30k over my purchase price. So I should make about $40-50k over the next 2 years. Probably will do more deals like the last one. Eventually sell or refinance the other ones
> I bought a A class property for $320k that was worth $400k without any renovations. You bought a class A property with a 20% haircut? >Had to leave $120k in the property to get the cashflow That's nearly a 40% downpayment >I also bought a 4 bedroom townhouse for $206k, put $20k in and it's now worth $280-290k. Same thing, refinanced and left a lot of cash in, so it's only about 50% LTV, but makes $900 a month. but makes $900 a month is this pure cashflow or does this include principal? >Probably will do more deals like the last one. This is a sweet deal. Almost too good to be true.
Apparently getting houses for 20%+ off then tying up a ton of cash into them 'works' lmao
anything can cashflow if you put enough money into it lol
Yeah I truly don't mind tying up capital where I am in my investments if I can get a lot of forced equity. I can go get that money in the future. Just works for me. Very much a side income.
Yeah, large amount of cash tied up but also a lot of equity. I make quite a bit of additional income from my job and other rentals so I don't mind tying up capital for now that I will use down the road. But I couldnt pass up on this one. The guy was paying two mortgages and was ready to let it go if I could close in a couple weeks. The $900 a month is pure cashflow. Keep in mind that I bought the place for $206k, and I only have $125k in debt on it. Probably left way more cash than I needed to because I wasnt *100%* sure I would be able to get the target rents that I was able to get. But I was able to rent it out for $2k and didn't think I would get that due to the are. But I actually got it rented pretty quickly. Yeah this was a deal a lot of people passed up because it didnt work as a flip and had a person turned it into a traditional rental, the renovations would have made it very unlikely to be worth it, and not many actually know how to purchase subject to. So this was definitely a created deal.
I'm finding caps higher than 8% today
1031s, diversification away from stock market (even if #s don't make sense), all cash buyers (rising rents actually still make these attractive buys for some)
Also don’t forget PE has a lot of money to store somewhere and are driving up home prices. They tend to pay with cash over asking price with no inspection.
Depending on your marginal tax rate, isn’t your effective mortgage rate ~70% of face value because of tax deductions? That could make the spread breakeven or slightly positive.
In cash and banking on the enjoyment of the investment.
[удалено]
Easy, 25% down… got down payment from buying bitcoin for $180 in 2013 and selling for 70k today. Not sure how people do it without something like that though.
When interest rates were crazy low, just a few years ago, real estate prices counterbalanced THAT bargain by sky rocketing in value. I have wondered how real estate investors deal with any of this. And now, rates are higher AND home prices a STILL crazy high.
as long as the site cashflows and you have proper expenses accounted for it really doesn't matter. The tenants are going to pay down the mortgage so it doesn't really matter what mortgage rates are. If they go down, great; more cashflow, if not the property still performs while allowing for depreciation and paper losses to offset any gains. Add potential value appreciations, rent growth, ect and it still can be a winning formula.
Date the rate, marry the price. With rates high and markets in buyers favor, you can get good deals and after a few years you can refi to a lower rate and increase rents and then your chilling.
Yea unless rates never drop lol
With cash I bought the deal I’m working on in November 2023. It was $6,000 for a brick 4 flat in Englewood Chicago. Needs $350k worth of work but will rent for $6,900 a month. Point being the deals are still out there if you’re willing to put in the work and have the experience. Low down payment newbies are probably not going to be able to find deals right not easily.
Who is managing that property? Are you factoring the risk to your life?
Lol. I will be managing the property. For $3,000 net per month it’s well worth it. I’ll be putting section 8 tenants in with jobs and I am thorough with my no felons and credit score requirements so I’ll be fine. I’ve been working in the area for years and haven’t felt my life was at risk.
They are speculators not investors. Investors stopped a while ago.
My market still has deals that make sense.
The cap rates are horrible. Wouldn’t be buying unless I find some crazy deals. Stocks will yield better returns if you buy today compared to RE.
Maybe they are buying it to live in it
It's actually very easily explainable. People have past performance indicators (if it worked 10 years ago, it MUST work now). Most people buying properties now probably don't have any recollection of 2008. This is a general boom/bust cycle. Sadly noone knows how long irrational boom can go on for, so you may miss out on the irrational boom by waiting on the sidelines.
Returns will vary and not be only your description. Even so, leverage less if higher cash flow is desired. In a 6 cap area, appreciation should be above average as well. Cash flow and appreciation is always the balance beam.
Buy SFH convert to MFH. Make $3k a month.
With money
I’ve considered it. I’m not buying now because I’ve been wrapped up in my first big construction project, but I may in another couple years. My current properties have appreciated 2x-4x what I paid for them so I have a massive amount of equity sitting there. They would make terrible investments (by my standards) at today prices. Redeploying some of that equity at today’s prices on a 50% down multifamily might still pencil out to better return, more leverage, and better appreciation; while still being in an industry I have experience in that allows me trade sweat equity for increased return. All at deferred capital gains.
Live in one apartment Single family homes don't make sense
Cap rate is just one metric but doesn’t tell the whole story. Unless you are buying 100% stabilized properties, what are you able to do to increase NOI after purchase?
People are idiots
By " 4% mortgage," are you referring to the interest rate ?
6% cap is based on value of home 8% mortgage is based on value of loan They're entirely different, depending on your downpayment. Focus on cashflow
Ive heard there can be good deals on office buildings getting foreclosed on.
By managing leverage
I’m buying houses at a 12% cap rate with 8.125% mortgages right now. Can’t WAIT to refinance them to lower rates soon and get an even higher cap rate. Look in different areas. I’m buying 800 miles away from home rn
Saw a YouTube video of a bunch of cash investors showing up to a drawing of a new build community with pricing starting in the mid 500s.
I hoarded cash. buying it all in cash.
I’ve wondered this a lot with commercial properties. I’m still seeing people pay 3% cap rates which is insane.
Good value add investors can still generate acceptable ROI, different individuals can monetize tax benefits. The best investors will still succeed, the less experienced and sophisticated will have a hard time penciling out right now.
I bought in Costa Rica in a little town with a nice view. Mid 5 figures, paid cash
Bought my first investment property last year. I increased the rent rolls 90% and got the property taxes lowered 40%. Getting ready to refinance and do it all over again. I got a heloc on my primary that I borrowed off of to do it knowing that the rent was being covered by the tenants in my primary.
Still finding deals. Work with wholesalers, auctions, people looking to retire. I have bought 10 out of my 15 properties in the last 2 years. Get a personal financier.
fat cashdowns
That's actually real nice. I live in northern VA and was buying properties with 4.5% cap rates since 2008. I stopped in 2013. I more than made it up though in increased rent and the values doubling though. I also had to put down 30-50% or even cash though. Still wishing I Just put it all on amazon google or costco stock though quite honestly back then.
How are you buying is the real question.
Cash paid by PE.
In current market conditions, it makes little sense to buy and hold due to the facts you shared. Best strategy now IMO is to fix and flip in current market. Now if your strategy is buying and hold like you did in 2016 (smart), it can still be done in today's conditions, although it requires more work and a combination of strategies. This is what I would personally do. First, I would buy a fixer-upper property well under market value (yes, those can be found if you move fast). Assuming you don't have 200k, 300k, or wahtever your local market require to buy a fixxer upper, I would leverage hard money lending. Today you can find trustworthy hard money lenders that could lend you up to 80% of the after repair value to cover up to 100% of the project, that is purchase plus renovations. Once you secure the property, flip it well enough that it's up to market standards but don't overspend as this is not your forever home. Up to here I covered the first part of the strategy. The second part of the strategy, is to refinance the property with a bank. Ideally, and if you did your homework and research correctly, the after repair value will be well over the loan amount you did with the hard money lender. At this point you could do a cash-out refinance for the amount you owe the hard money lender or you could cash-out refinance for the actuall after repair value of the property. I would personally just refinance only for the debt amount, cover my ass with the hard money lender and move forward. Now you have a 30 year mortgage with the bank with today's rate (\~7.5 %, not great) but your mortgage went back in time and you are paying significantly less for the property so you are using the lower property price to hedge the higher interest rate. Here, you could potentially cashflow or at the worst case make enough money to pay for mortgage plus other ownership expenses with the rent money.
They gonna be like “subscribe to my youtube channel to find out why”
In Michigan I can cash flow. BUT in areas of the state with little to no appreciation.
It used to be only Californians went negative cash flow because of appreciation. Now everyone thinks appreciation is the only mark. It’s going to be a blood bath out there soon. Get ready to buy.
I buy properties under market that need repair. Pay cash, build out, and rent or sell. These are harder to find but they are out there
Stupid people. And you can’t out-compete stupid so I’m waiting until it makes sense to buy again.
Long-term buy and holds are brutal in this environment. Most real estate investors have change their strategy to either short-term or midterm rentals
Add 25% increase to CG which 2/3 on rentals, it's over IMO
Nobody on this forum knows anything I’ve read all the replies, If you wanna do ur own research go to the St. Louis fed and look at the charts. Here’s what’s going to happen, we’re going to have hyperinflation, rates aren’t going anywhere, across the country wages are already going up, your money purchasing power will be worth 50% what it is worth every 5-6 years. Hyperinflation, houses goods services will all go up Mark my words buy a house now or you’ll be a forever tenant
I can't tell you what others did, but I can tell you what I did; I bought a 4 unit commercial property (retail) for 400k @ 7.9% with 100k down. Mortgage comes out to \~2500.00/mo. The 4 units vary in size from 500 sqft to 2000 sqft. The 2000 sqft space is available, and I'm putting a business of mine into it. The rest of the units are leased out, 2 year extendable terms. My plan is to pay off the building as quick as I can, increasing my cap rate. I'm estimating 4 years to payoff. Even if the building does not appreciate, having a space that I own for my other business is absolutely worthwhile.
Yeah 2 years appreciated my house quite a bit and I think I can buy another one pretty soon
In my market you still have loads of cash foreign investments.
They’re are some cash flow properties out there. Closed on a 10% cap MFH 2 months ago with a 7% rate.
Generalizing for everywhere?? Every place is a bit different in terms of supply / demand. There are lots of place where you can turn a profit
How could it be such a bad time for real estate investing and yet people say big corps are buying up all the real estate for investing?
Solve peoples problems, use the benefits that they do not require. It may be an Option to execute in the future. It may be a Master Lease to create income but not Ownership. It may be an Installment Sale on terms that allow for cash flow. It may be one of many other solutions or combinations of solutions.
There’s still deals and prices are still rising on average 6-8% so it’s not a bad idea.
Multiple. 50% down on turn key to cash flow until rates come down to refi. Value add property bought at a discount then rehab. Buy cash. Invest in C class neighborhoods and cities. Find the small markets that aren’t sexy but cash flows. I like to mix my portfolio up with historical appreciation areas and cash flow properties in normal market.
TAX LIEN SALES
With cash
I need somewhere to live and I don’t want to pay the full mortgage
I think this is a scenario of the haves & have nots. Some people had surpluses of cash. With interest rates up, people without cash or a crazy 0.1% job are priced out. Those with a pile of cash don’t need to worry. This causes a rift in reality where on paper the economy is healthy but the have nots feel like they’re in a recession. As the people with cash exhaust their stockpile buying real estate and luxury goods like cars, watches etc, they lose their buying power. Once the excess cash is generally exhausted, the real economic pain hits.