Interest rates killing the rental property math

[emilee.hans]

Been analyzing deals in my market around and with rates still around 7%, the numbers are just brutal compared to what people were getting 2 to 3 years ago. Most properties I'm finding barely break even on cash flow, and that's being optimistic on expenses. I keep going back and forth between waiting for rates to drop but prices might go up more, buying now with the plan to refinance in 2/3 years, or just looking at different markets with better rent to price ratios altogether
For those who bought in high rate environments, did you just accept lower cash flow initially banking on appreciation and future refinance? or did you hold off? I'm 42, want to retire by 52, so feel like I can't just sit on the sidelines forever but also don't want to make a dumb decision just because I'm impatient
What would you do?

 

[zen mother]

I'd probably look at different markets before accepting terrible cash flow. 42 with a 10 year timeline, you have time but not unlimited time
My take is, split the difference and find something that at least breaks even in a market with real rental demand, even if it's not your ideal location

 

[b0rscht]

For those who bought in high rate environments, did you just accept lower cash flow initially banking on appreciation and future refinance?

I can accept the low initial cash flow, but we should check first how much the property value will increase over time
also interest rates can drop in 2-3 years, which will significantly increase the cash flow. This is a bet on the interest rate market. If rates stay high or increase, this strategy can be challenging

 

[Gene75]

Been analyzing deals in my market around and with rates still around 7%, the numbers are just brutal compared to what people were getting 2 to 3 years ago. Most properties I'm finding barely break even on cash flow, and that's being optimistic on expenses. I keep going back and forth between waiting for rates to drop but prices might go up more, buying now with the plan to refinance in 2/3 years, or just looking at different markets with better rent to price ratios altogether
For those who bought in high rate environments, did you just accept lower cash flow initially banking on appreciation and future refinance? or did you hold off? I'm 42, want to retire by 52, so feel like I can't just sit on the sidelines forever but also don't want to make a dumb decision just because I'm impatient
What would you do?

I think you have to buy, but you must minimize the cash bleed now. only buy value add: Focus100% on properties with below market rents that you can increase through minor improvements. This is the only way to beat the 7% rate.
and have you checked the rate on a 15year mortgage? It's often 0.5%-1% lower than a 30year. While payments are higher, you kill the debt faster, and you hit 52 with significantly more equity

 

[Alan]

@emilee.hans 7% is brutal right now. Focus on value-add deals with below-market rents you can raise. Also check 15-year rates. I think they have lower interest and faster equity. How’s your cash flow looking on the ones you’ve run numbers for?