On today's podcast episode I talk about how to buy houses in 2025 and what to look out for as an investor when buying in today's market.
The past 3 years have been an interesting time for real estate investors - especially in Florida. We have seen interest rates move up from a low of 2.65% in 2022 to above 7% by October 2023. This rapid increase in interest rates which was orchestrated by the Fed to reduce inflation had a very sobering effect on the real estate market.
Prices peaked around July 2022 and have been on a gradual decline ever since. Over the past year, the market has shifted from a seller's market where it was easy to sell, to a buyer's market where buyers can be very selective. Sellers have been slashing prices on properties listed on the MLS and inventory has been rapidly increasing in many areas. In some areas like Southwest Florida, in some cities the number of listings on the MLS has quadrupled over the past few years.
Some of the notable changes that have occured over the past few years are:
- Hedge Funds, Private Equity Funds and iBuyers stopped buying houses.
- These same hedge funds and private equity funds are now selling houses.
- Builders have had to slash prices and provide incentives to lure buyers in.
- Higher interest rates and prices means less buyers can qualify for a mortgage.
- Banks and mortgage lenders are becoming much more cautious on lending.
So how have these changes affected real estate investors who are wholesaling and flipping houses, fixing and flipping houses, and buying rentals and Airbnb's?
The first major change is you have to be very weary of sold comps (comparable sales). A house that sold 3 months ago may have gone under contract 5 months ago, and prices may have been ten percent higher. If you are planning on fixing and flipping and it usually takes you four to six months from purchase to sale, it may now take you longer to sell, and you may have to decrease the asking price. During that longer holding period, you will have additional interest payments. You may also be looking at an additional ten percent decline in pricing by the time the house sells.
For investors that are fixing and flipping, they have a situation where prices are coming down and they may continue to come down. I recommend that you build in a profit margin of 10% from sold comps, and then add an additional 10% for potential price declines. This is a very conservative assumption, but it will help you stay profitable and out of trouble. It will also make you reject almost all deals that are presented to you. In this market you will need to buy at deep discounts.
Keep an eye on home builders and the pricing of new homes because that is also putting downward pressure on comparable sales. If a brand new 1,800 square foot home that was built in 2025 is selling for $380,000 then why would someone pay $350,000 for your 1989 house that you fixed up which is only 1,200 square feet? Don't only look at sold comps because if you do you will over estimate the ARV and what the house could be sold for. Always pay attention to the home builders because their pricing puts a ceiling on comparable sales. If you are watching the builders, then you will know when they are slashing prices and you will be able to adjust your comparable sales and ARV accordingly.
In today's market it is more important to look instead at current listings on the MLS than comparble sales. Pay attention to how long homes have been listed (days on market) and how much sellers are slashing their asking prices. Sold comps may tell you a house is worth $350,000, but if there are 3 houses listed for sale at $320,000 then ask yourself if you called the realtor and made an offer would the seller accept $310,000 or $300,000?. If the answer is yes, then the ARV today is $300,000 (not $350,000). And yes that is a shocking price decline. But it's also reality. If you are fixing and flipping, if today's ARV is $300,000 what will it be in six months?
I recommend that you consider reducing your ARV estimate by an additional 10% to account for potential additional price declines and you run your offer price off of those numbers. If you are fixing and flipping be very conservative and buy at deep discounts! This means you probably will need to reject most deals that are presented to you. You won't find a great deal from a wholesaler who is marking up their price by $50,000 or $100,000. Also watch out for ARV estimates from wholesalers (they are probably too high).
If you are wholesaling, consider that your cash buyer investors are the fixers and flippers described above. If they are buying deep, you will need to get houses under contract at deeper discounts in order to be able to flip them to those buyers for a profit. If you are buying at 60 cents on the dollar, you will not have a problem flipping houses. The days of paying 80% of ARV and flipping a house for 90% of ARV are over. Wholesalers will have less cash buyers to flip houses to because their cash buyers are more conservative now. If you are wholesaling, learn how to buy at deeper discounts and get better at estimating rehab costs and ARV.
For investors that are landlords buying rental properties, the game is a little easier. Since your time horizon is long term, you don't have to worry about short term price declines over the next year or two. If your goal is to buy rental properties and get 15 year fixed rate mortgages then what happens over the next year or two is irrelevant. Think longer term and focus on properties that cash flow where you can employ the Buy, Repair, Rent, and Refinance method.
Your goal should be to buy as many rentals as possible with no money down using the BRRR Method. Any price declines over the next year or two will be your opportunity to buy more houses at better prices and deeper discounts. Make sure you only buy properties that cash flow by at least $500 per month and you will do well in this market. At some point, prices will bottom and start going back up. When that day comes, the investor that purchased the most rental properties wins. The more rental properties that you can buy before the market bottoms and turns back up the better. Your net worth and your financial future depend on it. If you want to become a millionaire focus on buying ten rental properties and holding them long term. If you want to learn how to build wealth with rental properties, I strongly recommend that you join my real estate training program and attend the Buying Rentals and Building Wealth Boot Camp. At this boot camp, I teach my students how to buy houses with no money down, using the Buy, Repair, Rent, Refinance Strategy. This strategy has made myself and many of my students millionaires. It can do the same for you.
I also recommend that you learn how to to employ this BRRR method with Airbnb short term rentals as an exit strategy instead of only focusing on long term rentals. Instead of Buy, Repair, Rent, Refinance you can Buy, Repair, Airbnb and Refinance. I teach my students how to do this at the Airbnb and Short Term Rentals Boot Camp and is part of my real estate training program . Many of my students have transitioned from being landlords with long term rentals to Airbnb. The cash flow is 3 to 5 times higher and I have students that are making $130,000 a year from just one Airbnb. One of my students made $ $100,000 last month on Airbnb. If you want financial freedom, learning how to buy rentals and how to build wealth long term with the buy, repair, rent refinance strategy is a game change. If you employ buy, repair rent, refinance together with Airbnb you will create your financial freedom much faster. One last note. You may think that based on what you just read (and heard) that you should "hold off" on buying real estate and wait for prices to come down. That is not the case. Many of my students are finding great deals right now that cash flow like crazy. I purchased 4 houses last week. We are in buying mode and any price dips will result in us buying even more aggresively. Buy anything that makes sense and that cash flows. Just remember to buy at a deep discount!