Categories Real estate

You should still be investing. Here are the reasons why you should enter the market

What’s the deal with the real estate market in 2023? This market is full of uncertainty, from high interest rates to high purchase prices and elusive cash flows. It’s enough to scare new investors and beginners into thinking that the best thing to do might be to wait it out.

Pro tip: Don’t sit out.

Do you know the old saying:

What’s the best season to plant trees?

“20 Years Ago”

What’s the second best time to plant trees?

“Today.”

Expert investors will say this in 2023 regarding real estate. This year, we have been forced to be more strategic and conservative than in previous years, but many say that you are still better off investing “in” rather than “out”.

To understand the current market, we spoke with two experienced investing teams: Ali and Josh Lupo, aka theFIcouple, who invest in Albany, New York, and Megan Ahern, aka the Tatty Investor, who invests with her husband Jeff in Lincoln, Nebraska, to get their advice and to better navigate the decisions of 2023. These are the two constants they have seen so far in 2018.

  • Home prices and interest rates remain high: People believe that there is a magical relationship between interest rate and price, and that prices will naturally fall when rates are high. But this is not the case.
  • Inventory is low. “About 50% of houses are either paid off, or have mortgage rates below 4% at the moment.” “People don’t want a mortgage of 6% and they won’t sell their home,” Lupo adds. This means that no one is moving. The cost of building is also very high, which is why few people do it.

Five Tips for Getting Through the Rapids

1. Don’t be scared, just work it out

Guess what if you are waiting for perfect market conditions? Megan Ahern says, “They don’t exist.” If you look at any time in history, that market has been challenging. You can’t find good deals in 2020 because everything is 40k above asking price. It’s up to you to decide how to invest in the face of this issue .”

2. Playing the long game

Ahern and Lupos both agree that you shouldn’t focus on generating a lot of cash in the first year in 2023. Ahern says to think of a five-year horizon. “If I could make it work at 7.5%, 7%, or whatever the rate is at this moment, I would still buy it. Because I see it being worth more in five or ten years, if inflation continues to go the way it is. Rents will rise. “If it can pay itself off at 7.5% I will still buy it.” Ahern targets $200 per month for cash flow minimum this year.

The Lupos also agree that “we’re not as concerned about 2023.” Josh Lupo says, “We are looking to 2043.” We’re still looking at the fundamentals, and we haven’t changed much in our criteria. A bad deal can be very damaging. We only buy within a 5-mile range of our location. We know our buy box and our cash flow goals .”

3. But keep your project horizon short

Ahern says, “I wouldn’t get involved in anything that would be a long-term project this year.” “I would not start developing now, because it will take you a year to develop. I’m looking to invest and then get out of the market in a couple months. I can see a market crash or correction a few months in advance, but not a year. .”

4. Consider seller financing as a way to avoid high interest rates

The Lupos only work with off-market properties they find via organic networking, through services such as Propstream and DealMachine and by speaking directly to owners. Lupo says they are working with an unusually high number of baby-boomers this year, because “these are properties owned by people that have little or no debt.” This allows us to find creative ways of structuring the deals so that we and the seller are both able to benefit. Instead of paying 7-8% on a property we can arrange seller finance paying 6% and putting down five %.”

5. Do not underwrite your with excessive amounts of money.

It’s not the time to fiddle with your numbers. Josh Lupo says, “You hear these horror stories, but if you dig deeper, you’ll find out all the false assumptions that people make in their underwriting. There are many variables and the numbers don’t lie. The deal is all I can control.

Ahern, in this market, has become more conservative with her underwriting. She keeps three months’ expenses plus 30% of capex/vacancy/repair funds at all times. Ahern says that she keeps enough cash in hand to weather any storm. As long as we accept less rent and have cash to cover vacancy, or whatever, can we keep the property?

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