In this video, we’ll take a look at the current situation in real estate investing.
We’ll discuss how the market has changed, what you should be looking for when choosing a property, and how to get started investing in real estate.
Transcript:
Chris Bounds 00:00
Over the last 100 years, it’s been like the best time to ever be in real estate.
Darel Daik 00:03
Yeah, absolutely.
Chris Bounds 00:04
It comes off the cuff of the worst time to be in real estate, which is 2008. But so we got 10 years of really, really good times. So over the next few years, I mean, with inflation, because I’ve read different reports, even from Fed managers, they’re different regional managers or something like this is crazy The Feds not doing enough like they need to be doing like three times what they’re doing, which is insane to think about. Do we have maybe 10 years of it?
Even if it doesn’t, we don’t actually have a recessionary pricing. Which I don’t really see. I see some people talking about that. Do we have 10 years of flatline, like to catch up, or maybe five years of flatline, very slow growth by flatline? I just mean, 0% to 5% growth versus 20 plus.
Darel Daik 00:54
Yeah. I mean, I think it’s certainly going to affect the appreciate. Look at especially the last three years, the appreciation has been insane. Especially, from an investing standpoint. It’s dangerous. It’s good. It’s good for the market but it’s dangerous for investors because it makes it turns investors into lazy investors. And what it does is it allows you to make a mistake on a flip or whatever it is you’re doing and still make money..
The market will help you out. Yeah. And so it also makes investors more aggressive, because now they’re betting on the come, they’re betting on that appreciation. So I think it’s going to slow down a lot of that money going into the market. As far as appreciation, I think it will slow it down. You know, inventory has been one of the big factors that has caused appreciation to elevate so rapidly. So I could certainly see a flatline. You can even see some markets moving down.
Maybe, some outlying markets that have been affected by the low inventory of a lot investors that have moved into, you know, maybe not in the major metropolitan areas, some of the smaller counties outside these major metropolitans. And even maybe some of the suburbs of major metropolitan cities like Houston, Austin and Dallas, and so forth. I think those typically get affected first, inner loop areas, inner city areas. You typically don’t see a lot of depreciation, maybe we’ll see a slower appreciation, but I will see anything as far as a rapid depreciation.
Chris Bounds 02:20
Yeah. Ultimately, I think cash flow, cash flow becomes even more important. Because if you’re not going to be making it on appreciation, which, I mean, you got cash flow, then you got appreciation, that’s ultimately, I mean, excluding equity gain and tax benefits. Those are really the two main ways you’re making money as an investor or as a homeowner. It’s more like a savings versus rent and then appreciation. So that makes cashflow. Like we if you’re not buying for cash flow, you’re putting yourself at real risk in the event of appreciation, flatlining, or even receding a little bit.
Darel Daik 03:00
Yeah. I mean, typically if you’re betting on one or the other. You very rarely do you get both appreciation At least, rapid appreciation and cash flow. But I think a lot of investors have seen that the last three or four years.
Chris Bounds 03:15
It’s been really glorious times for landlords.
Darel Daik 03:18
But it has been absolutely tough for a lot of folks. Yeah. The value of their properties have gone up a lot, and they’re getting good cash flow. I think the cash flow is really what’s going to pinch the most in the coming months. Because as the rates moving up, you know, the rents haven’t been able to move up quite as rapidly. I think we’re gonna see a lot of rent increases in the future. But certain markets are not gonna able to keep up with that, because you have affordability issues. So I think if your appreciation and investor, you’re always going to be fine because the markets always going to eventually appreciate over time,. Cash flow, you have to be a little more selective about which market you’re in.
Chris Bounds 03:50
Yet, some of the advice that man let me know your thoughts here. For investors, I’ve been telling folks like, Look, if you’re buying to flip, you need to be a bit more cautious. You need to be very stingy on your numbers, and maybe even add for some, you know, X factor that you don’t know because the market has been forgiving for bad projects. But if you’re buying long-term, the worst thing that can happen is you got to put a little bit more money down.
And that will cover your cash flow problem. Because typically rents don’t. You don’t necessarily see a receding rents. You definitely can. It’s not impossible, but at least in you know, maybe not the New York City area and those kind of areas, but usually as long like, over time, it fixes itself. It will appreciate. Rents will go up. So it’s mainly just your initial debt service that maybe you just have to put a little bit more money down to make sure cash flows.
Darel Daik 04:55
Yeah. And that’s one way to do it. And you also were looking at a rising interest rate environment or when you’re possibly looking at a recession. If you’re flipping houses, you need to be thinking about multiple exit strategies, you know, multiple exit strategies can help out a lot. You have to have that mindset. Maybe, you’re not able to flip that house for what you thought you were and maybe it ends up on the market a little bit longer. So you need to figure out what else you can do with it. Do you just keep it and rent it? Do owner finance it? I mean, there’s all kinds of different ways to create cash flow. And that’s what you’re gonna have to do. If we do hit a recession in the real estate market takes a hit.
Chris Bounds 05:28
Which is precisely why I tell folks like that are buying Airbnb short term rentals. And they look, you’re buying this and that’s your only exit strategy because you’re paying retail, and it does well in Airbnb. Great. But your problem is it doesn’t cashflow long-term, because maybe a COVID situation happens where you can’t short-term rented or you get saturated and the short-term rates plummet. You’re in a bad spot. Now your only exit is to sell it and can you sell it for a profit?
Darel Daik 06:07
Yeah. If Airbnb is your only exit and you’re banking on that type of cash flow because you make a lot more money on Airbnb. If you need that type of cash flow, that’s certainly a dangerous spot to be in. You know, multiple exit strategies are everything.