Thoughts On Buying Another Property In This Environment

We recently put a contract on a property to serve as an expansion to our rental properties. We weren't looking to expand, but an opportunity popped up that was compelling enough for us to make an offer.

As we have moved through the buying process and with the recent market turmoil, my wife and I have paused a couple times over the uncertainty of whether we were making a sound investment decision.

After all, the housing market seems to be in a bit of a free fall and will still likely take some time to stabilize. The stock market is wildly bouncing around due to the current uncertainty of the economic outlook. Is now the right time to be making another real estate investment?

Truth is we have no idea. All we know is that this opportunity is allowing us to purchase this property at a ~2002 price for the neighborhood. I had always said, after I bought my 1st home, if prices ever got to that level again we should buy another property. At this price I'm confident we will be able to rent it out with a positive cash flow in the long term.

Also I know we are not in a position to sit idly and wait to be financially free. We have made a great deal of progress over the last 5 years (see our net worth growth), but that progress is because we have taken advantage of opportunities that came up. This property is an opportunity for us to add another stream of income which should help us over time get to a point where we could consider us financially free.

Related in Rental Property:

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Why Invest in Rental Property (Mar 13, 2012) The real estate investing infomercials of the housing boom suggest that real estate could make you rich - the benefit of real estate being exponential returns of your investment. While I only have a few small real estate investments there...

Rental Property Investment Breakdown (Sep 27, 2011) Here is some overdue financial record keeping from our latest rental investment in August 2011. This breaks down all our out of pocket costs to purchase the property and get the 1st tenant in place. Out of Pocket Investment in...

Comments (4)

Being cash flow positive is the most important thing especially if you plan on holding for the long term. Whether the "paper" value goes up or down is less important than the monthly profit.

I'm inclined to agree with the previous commenter if you are able to be cash flow positive then that should allay some of your fears. With that said do you think the prices in that neighborhood are likely going to go above what you are offering? Even on the mid term? If not then your risk exposure is definitely higher.

Guys I agree with your comments about positive cash flow above. HOWEVER please don’t forget that cash flows can (and do) change. When you buy a property the market rent might be $1500 a month. But a year from now IT COULD BE $1000 a month. People often times forget about that risk. Here in Charlotte, NC the residential rental market is super strong. However back in my home town in SC – many residential rental properties are leasing for several hundred dollars a month less than they did the previous year.

That being said now is the time to buy for sure. Pull the trigger if the numbers make sense (currently) – pop. However if your wife is very uncomfortable with the situation – don’t do it.

“Be fearful when others are greedy (pre-housing bubble); be greedy when others are fearful (post-housing bubble)”

Now is not a good time to buy a house because there are better investment opportunities elsewhere. House prices are STILL declining and will be several years before they hit bottom. And the stock market continues to fall, down 5% just this week and falling. Stock market will be a huge opportunity to invest in another few years with much better long-term returns than housing. I have over 300K in cash sitting on the sidelines that I'm waiting to put into the stock market when it surpasses the 2009 lows. Housing is not even on my radar. Plus, the Fed has promised to keep interest rates low for another 2 years so why buy a house now when you could buy 2 years from now after housing declines more.

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A personal finance weblog of my journey to reach my goal of $2 million + the value of my primary residence.
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