- Abraham Anderson says now is a great time to lock down some real estate.
- As inflation increases, so does the value of your property but the mortgage decreases, he says.
- He advises investors to focus on states that have good landlord protection laws.
Real-estate investing is not as easy as buying stocks or even crypto. Buying property and renting it out has many more steps in between, for one. And a slight miscalculation, especially on rehab costs, can put you in the negative.
That’s why many real-estate investors always keep an eye on the overall market, which includes indicators like interest rates and buyer demand. Snagging property at the right time is also an important part of making a well-calculated purchase.
But home values are soaring right now. In 20 major US metropolitan areas, prices rose by 19.7% year over year in August, just shy of the previous month’s record, according to the latest S&P CoreLogic Case-Shiller index. With prices on the rise and buyers in competition, real-estate investing gurus such as Brandon Turner, the co-host of the “BiggerPockets Podcast,” say investors will lose money right now.
Many active real-estate investors disagree, including Abraham Anderson. At the age of 26, he has already accumulated more than 1,300 rental units, according to public property records reviewed by Insider. And he said he makes offers on a daily basis.
Most of the offers he puts in are well below asking, meaning that it’s rare he gets a response. But frequently making offers increases the likelihood of hitting a target that he considers a deal, regardless of what the overall market is doing.
For Anderson, if you know how to run your numbers and you’re sure you’ll be cash flow positive after expenses, it doesn’t matter when you decide to buy property.
Why buy now
“I would say it’s a great time for a multitude of reasons. One of the reasons is we have so much money being put in the economy by the Federal Reserve that you’re going to see prices continue to escalate, including rent,” Anderson said.
Anderson notes that this means inflation has kicked into gear. While this may be a bad thing for the US dollar, and for renters, it could also mean that for homeowners, the debt burden from loans and mortgages is reduced. On the other hand, holding property also means the property’s value will increase relative to inflation.
His bullishness is reflected in the stock market. In a recent note, Bank of America analysts said the real estate sector, which also covers non-residential properties, offered “inflation-protected yield.” That helps explain why the sector has gone from the second-worst performer on the S&P 500 last year to the second-best this year, said the team led by Savita Subramanian, the chief US equity and quantitative strategist.
Anderson also points out that interest rates are currently quite low, meaning it’s easier to get approved for a mortgage right now.
Eventually, the bubble may burst and the economy may take a turn for the worse, which he believes is likely to happen. But that would only lead to a reversal, where competition dies down but interest rates increase. As it gets harder to get approved on a mortgage, more buyers get pushed out of the market.
“So then when it flips, it’s easy to find the deals, it’s hard to get lending. Well, you already have a track record with a bank, so you can buy those deals and they’ll give you loans because you’ve already bought properties with them in the past,” Anderson said.
He points out that even amid increased competition from people moving out of cities and large firms like Zillow buying up homes, there’s still enough opportunity to find good deals.
“For example, a lot of people that were fed up because of the eviction moratorium are selling their properties because they don’t want to deal with it any longer,” Anderson said.
Firms like Zillow have also overbid on many properties, leading them to sell 2,000 homes, effectively freeing up more inventory.
“So I believe you’re going to see more and more rentals coming out for sale. So there’s opportunity there if you’re willing to take the risk and do the work to be a landlord,” Anderson said.
He notes that the federal moratorium on evictions has also ended. So as long as a buyer isn’t looking in areas that may be subject to restrictive state-level policies, it shouldn’t be an issue. He advises investors who are considering out-of-state investments to seek out states that have better landlord protection laws.