Are the days of "1%" and "2%" properties gone? Is this the new normal?

[bearman]

Like many of you who've been hanging around here for a while, I've loved the REI game when 1% and 2% properties could be found or quickly repositioned and achieved. But, man, these last 2 years have turned up nothing. I've also basically stopped looking and starting to sell the lowest ROE's to rebalance. With interest rates staying low, more and more new money spillover from other asset classes, there are so many folks out there with money and happy with a 3% CoC, because if you factor in equity, appreciation, etc, etc. Is this the new normal? I used to pride myself on being a cashflow savvy buyer, but I'm starting to think the market has fundamentally changed, especially with sites like BP creating so much investment energy and fuzzy math, or maybe that the post-crash days were a total anomaly and we're back to a normal I never knew. How are the folks here thinking about future REI?

[norajean]

Like stocks, RE may have run too high. Wait for a nice recession to wipe out prices (and possibly rents) then get in there.

[Bloop Bloop]

1% per month? Sounds ridiculous to me. Here in Australia you're lucky to get 4% a year.

I see real estate as basically a defensive investment - in a country like mine where there's only a minority of land close to major cities that's liveable and desirable, buying property is wholly so that you own the land and you can prevent others from owning it.

I'm not sure how it works in the U.S. - all I know is that if I could even get 8% gross per year (let alone 12%) from a property I'd be leveraging myself up to the eyeballs. Every parcel of land you own is a parcel that others can't.

[savedandsaving]

Yeah, I hear you, OP. I'm not experienced, but we live in a fairly hot market right now and I don't see places that meet the rule even in the hottest in-town areas. Maybe waiting truly is the name of the game at this point. From my little bit of research, it seems as though nothing is ever truly the new normal in real estate. Something'll always get shaken up.

Everyone on here has said this is a bad move, but to pursue a more Mustachian lifestyle, my husband and I are going to go crazy and try our hand at a first rental that doesn't quite meet the 1% rule. We're going to rent out our current home at about 0.9% return per month. I'll let you know how it goes...

[Paper Chaser]

Odds are, the housing crisis was a once in a lifetime scenario. The only comparable economic condition was the Great Depression 80 years before. Waiting for the next downturn is fine, but I wouldn't expect the bottom to fall out again for a very long time.

I have no idea what competition for RE investment was like before 2008, but I'd have to imagine that it's stronger now. Since the housing crisis, the scope of the internet has only grown, giving more prospective investors knowledge and tools to invest in RE. Theoretically, this should increase demand for investment property, insulating prices to a degree regardless of the overall market conditions. And it seems like housing prices tend to keep right on ticking through most recessions and economic downturns anyway:

https://fred.stlouisfed.org/series/USSTHPI

[Kcinegnet]

I've been looking to househack in a duplex and cannot find greater than 1% in Minneapolis/Saint Paul areas. But yes, RE market is hot and humming right now here.

[waltworks]

My personal feeling is that we'll see a long stagnation in housing prices, not continued double-digit price growth, and not another collapse like 2007-10.

The RE market is becoming a lot more like the stock market - you can still occasionally find deals, but there are now a LOT of other people (many of them professionals working for private equity/investment firms) to compete with in most markets and the information on listings is available to anyone with an internet connection.

So a lot of the local insider advantage is gone. Not all of it, but a lot. RE investing in various forms is responsible for probably 50% of our NW, but I no longer own any rental properties, and I don't see myself getting back into it unless an opportunity falls into my lap. All the low hanging fruit is long gone. I think a lot of RE newbies buying 0.4% properties for appreciation are going to be disappointed over the next decade or so.

But my crystal ball is no better than anyone else's, so maybe the US goes all Australia and house prices double again in the next 5-10 years.

-W

[Photograph 51]

In my neighborhood, houses sell for $40,000 to $50,000, or even cheaper if they are total wrecks.  About 20% of the houses (like mine) are owner occupied and the rest are owned by several small business landlords.  The current rents are about $1000 per month and the owners seem to be able to find tenants.  I know that many of the houses need a lot of work when the owners first buy them, so there is that cost.  Also, some of the tenants aren't great about paying the rent, from what I hear and see (eviction notices on front doors.)  So the 1 to 2% rule is possible if you know where to look and you're willing to deal with interesting neighborhoods.

[rab-bit]

It really is local. I am in the Pittsburgh metro area and can still pretty easily find 0.75% properties in A/B neighborhoods and 1% properties in B/C neighborhoods.  Better than 1% would take more work but they are out there, though anything approaching 2% would be next to impossible.

[Papa bear]

https://forum.mrmoneymustache.com/real-estate-and-landlording/is-the-1-rule-ever-coming-back/?PHPSESSID=p379ofrkgvdrdngubmhsl28pjd




Sent from my iPhone using Tapatalk

[ChpBstrd]

I’m thinking about a 4-plex at 1.3%, but it’s been on the market a while so it probably needs a remod or something.

The trick is to get far away from the “hot” markets where everyone is speculating on growth.

[srad]

My personal feeling is that we'll see a long stagnation in housing prices, not continued double-digit price growth,

Funny, i said that in 2006, those darn crystal balls.

If you live on the coasts, the 2% are gone , but the almost 1% can be there, but you have to look really really hard to find them and be wiling to put in some work to make them rentable. 

I'm on some turnkey providers email distro lists (i don't own any turnkey at this time).  KC, Indy, Memphis, Jacksonville FL, they are showing me 1% there.

[Megma]

I have a house a bought in 2016 which has been rented slightly above 1.2% since I bought it - people were saying then that then 1% rule was a bust. I cannot find anything in my area that I project to perform above .7% right now (I do estimate conservatively; the previously mentioned house I ran numbers from .9%-1.1%).

I think (my crystal ball isn't any better than anyone else's!) we will see a leveling or even a dip in prices shortly around here, the market has been hot for years but I am starting to see more foreclosures and auctions popping up. A year or two ago I would check and there were zero in the whole area, then there was 1-2 and now it's like 3-5.