Should You Invest In An Expensive Real Estate Market?

This is a very 2021 kind of question. We’ve seen countless markets across the United States (and the world) Widely appreciated For the past year and a half now, real estate investors have been wondering if this is even the case It is valuable to follow the agreement in the market. Although the prices may be higher than before, you still have There are countless options when trying to buy a profitable rental property.

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This is Real Estate Rookie, Episode 112. My name is Ashley Kehr, and I’m here with my co-host Tony Robinson, and we’re back with another rookie. [inaudible 00:00:14] Today we’re not picking a topic, we’re not shutting down Facebook, we actually have someone who has gone to Tony’s DMS. And Tony, what does that DM say?

So this message came from Scott Morris and his Instagram handle is Hotdads1. So hotdads, number one. And he said, “Hey Tony, me and you my wife Sarah, I’m a huge fan of what you’re doing in the short term rental space. I’m having trouble keeping my head pping around the price of the Smoke Mountains, and how can those features be profitable at the current market price? Am I looking the wrong way? And doesn’t the price make such a big difference in a strong market like Tennessee? Am I just trying to figure out if this is just a change of mindset that should happen, or if I should look at different markets?
So Scott, great question and I think it’s really part of a bigger question where you continue to buy in a market where things are appreciating fast, where prices are rising relatively fast. Things are heating up in the smoky mountains. We bought our first cabin there a year ago for Rs 590. That same cabin today will probably sell for eight, even 900,000. So insane, crazy praise last year. But for us, we are not as concerned about the purchase price as we are about the overall cash flow being produced, such as what our actual earnings and cash returns on those assets are.
And for us, as long as we’re still in those cabins, in terms of revenue, we’ll be able to hit the numbers we want in terms of cash returns, even if they get up to a million dollars, it’s probably still understandable for us to buy. And people always say, hey, maybe you don’t want to buy at the top of the market, because what if the price goes down again or the quality of the house goes down? And my thought process even if the price of my house goes down a bit, say today it’s ,000 800,000. I bought it and it’s worth $ 800,000. If the price drops to $ 700,000 in 12 months, unless that drop is associated with some major financial crisis and the economy where people no longer travel, if people still travel and I’m still earning my money in the short term The monthly basis is not very important to me. Because I can say with confidence that if I keep this property for 30 years, I am probably going to make money on it from an equity perspective.
But for me, as long as there are people traveling in this market, as long as people are still booking it on Airbnb, as long as we are still earning revenue, for me, even the market to buy at the top, it’s not the whole thing. So I don’t know, it’s my thoughts, Ash. What are your thoughts on buying and appreciating the expensive market?

Well, Tony, do you see any connection between the Smoky Mountains when you buy? As the price goes up do you see that your daily rate also goes up?

We are, but we are in a kind of strange situation, because we first started this cabin in 2020, at the time of Covid, so generally very few people travel. Summer 2021 has been reported as one of the busiest summer vacations ever. So I think it’s playing a lot, but probably, if it’s like a regular market, I’ll assume that even if prices go above the purchase price, you’re probably not going to see a direct relationship with your average daily rate, so you have to balance them a little bit.

All right, yes. I was just reading an article the other day about how much rent is going up in the US and housing prices are going up, so rent is going up and then the eviction moratorium. So landlords are trying to be extra careful by charging in advance if they don’t have to evict. So I was just wondering if you also look at the short-term rental market? But as far as investing in a hot market, I don’t really see a ton of appreciation, investing in small rural towns, but I think one way to enter a hot market is to find creative ways to purchase property. And as Tony said, make sure the numbers are still understandable and you can make the deal work.
Last week we had Nick Cooley, who was shopping at the Super Hot Market in Denver, Colorado, but he was working on it and making a profit from it. So there are definitely ways you can do it. So I will give you an example. In South Buffalo, I bought a property in 2017, just as the area began to heat up. I had a really good time. I bought it with a 20% down, conventional 30 year old. Well, two years later go ahead fast, I still see property in the area and just the price has risen so much and has become detrimental that come to me and bring cash offer, or 20% down offer as investor, it just didn’t make sense so I did That is, I partnered with my sister who did not have a home and was eligible for FHA. So he had to put down only 5% on the property and we were able to go to me and buy a property with only 5% down instead of 20% down.
And how we did it he went and got the mortgage, I’m not the mortgage at all, I’m just at work. And I wrote him a gift letter that I was giving him a down payment fund gift. So the advantage for me is that I own 50% of this property and only 5% of what it was worth at the time of purchase. And then my sister, she can hack it, she pays, I think, $ 45 per month to pay her mortgage and then the tenants pay the rest of the mortgage, insurance and property taxes. I don’t see any cash flow at the moment, but it’s a long-term game for me. This property is creating tons of equity. When my sister leaves, I get some cash flow. If we decide to sell it, I will get 50% equity in it.
So you have to be creative, I think if you want to enter this hot market, enter in a creative way so that you can purchase these features so that the numbers can work instead of dumping a ton of cash in them, or just relying on equity too . You don’t want to do that.

I like the idea of ​​being creative. This is the best way to find success as a real estate investor. I think the only other thing I want to add is, Ashley, say like this that you’re looking at an expensive market and you look at this property, you run your numbers and you like, well, I’m happy with this. But then you see, man, this same property sold for less than $ 300,000 two years ago. The fact that it was sold for 300 300,000 two years ago does not change the fact that it is still a good deal today, meaning that three years ago it was a really, really good deal. But it can still be a good deal today, so I think it’s like the other thing that people see, man, this family is less than 12 months, 24 months ago, it can’t be a good deal. But it’s like, if you run numbers based on purchase price today and it still meets your criteria, it’s a good deal, not considering how much the price was in the past.

This is such a great point. I think a lot of people will see houses that have been turned upside down and will be, oh my God, six months ago they bought it for Rs 100,000 and now they are trying to sell it for Rs 250,000. Wow, we should have got it back then. Okay, we’ll try and do a reconsideration. But you are right. Just because it was sold cheaply before, doesn’t mean it’s a bad deal now. This is probably a bad deal if it is sold at a lower price than what it was sold two years ago, there is really something wrong with it. People are trying to unload it and not even get their money back, they want too bad from it.

Well, Hotdads 1, hope we answered your question. I hope this will give you some value. Real Estate Rookie, I hope you get it too. I know it’s pretty crazy here in 2021, and it can feel like it’s impossible to find a good deal sometimes, but as Ashley said, some creativity, a little patience, that will go a long way for you.

Yes, you didn’t tell me he had an Instagram handle before it started. I mean, it’s being blown up now, I’m already checking out who the hot dad is.
Thank you so much for listening. I’m Ashley e Wealthfromentals and she’s Tony Instagram Tony J. Robinson on Instagram, and we’ll be back with another episode with an investor to hear their story on Wednesday. Thank you so much for joining. And if you like the podcast, please give us a five star review of iTunes, or the platform you’re listening to, we’ll really appreciate it. Have a good holiday.

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