I always get cold feet before committing to a purchase. So i am lining up a four-plex in Santa Clara county. Go/No Go. What does the hive mind think? Price is fair (for the current market and lack of inventory). Rents (fully rented) will cover mortgage + tax + maintenance and leave pretty much nothing to spare. I don’t need the income (work a W2 job) so the lack of cashflow is not a drawback and this is a long term investment (and part of a FIRE strategy, so future rent increases and appreciation is more important).
Concern is really wether i am buying at the top of the market and is there an upcoming downturn that will leave me bleeding cash till the economy recovers. My take is that a downturn is far enough away that i will be able to build some rent and appreciation cushion.
My 2 cents - long term appreciation is almost guaranteed in Santa Clara county but I feel current rents are at an all time high and within next couple of years, rents should see a decrease. So factor that into your FIRE strategy, esp the fact that you may have negative cash flow for a few years.
IMO, for four-plex you should not worry too much, esp to holding long term. I think you are trying 1031 - IIRC, go for it.
In case of correction, expect 20% price drop and see whether you can manage it. If so, you are in safe bet.
Best is to grab as much loan as possible (IIRC, you are planning full cash) with lowest fixed rate program. Reason, even today’s rate 4.5% or 4.75% (investment property) will be lowest in future years as I guesstimate FED will not reduce the rate in future years. FEDs entire exercise now is to bring back to higher rate and keep it steady for long years.
This way, you have cash to buy future years.
Also, make sure you have slight 10% positive cash flow over the mortgage (if any).
I guess I did not make my point clear. Nobody said anything about raising rents after a calamity.
I tried to point out that theoretically, if a significant portion of inventory is destroyed or seriously damaged, the remaining inventory should increase in value.
In reality, people suddenly felt that RE was not as secure an investment as they thought and ownership became unpopular. (For a year or two.) Purchase prices fell super sharply. This behavior alone probably brought up rental rates? I don’t know.
Their behavior is rational. Houses amongst damaged properties and a swarm of homeless… what do you think? After the calamity settled, what would be the repairs and remodeling required to bring it back to normal livable conditions?
No, I think it’s irrational. And psychologists even have a term for it: Frequency Illusion
The illusion in which a word, a name, or other thing that has recently come to one’s attention suddenly seems to appear with improbable frequency shortly afterwards (not to be confused with the recency illusion or selection bias). This illusion may explain some examples of the Baader-Meinhof Phenomenon, when someone repeatedly notices a newly learned word or phrase shortly after learning it.
In other words, people like to fight the last war.