A common question on the BiggerPockets forums goes something like this, “I have $50,000 and looking to invest in real estate. How should I start?”

In normal times, my advice would nine times out of 10 be house hacking for a first-time investor, especially given the markedly better rates and terms homeowners can get as compared to investors. However, in the past year, that delta in loan terms has compressed substantially, and so while house hacking is still an option, it’s not head and shoulders above everything else as it once was. Although, house hacking has certainly held up better than many other strategies. 

Indeed, if there ever was a challenging real estate market—particularly for new investors or those with $50,000 or so burning a hole in their pocket—this would be the one. This 2022 meme succinctly explains that challenge as much as any essay could (updated for 2023 audiences):

But sitting on the sidelines has its costs too. Suzanne Woolley at Bloomberg sums up the dilemma facing investors of all stripes, but most notably real estate investors in this current market,

“In the short term, it may make more sense to focus on preserving capital than finding growth. But in the long run, inflation eats away at cash and leaves savers with less purchasing power.”

So, given this predicament, what are the best options to pursue? 

The BRRRR Strategy: Mostly No

Don’t get me wrong, if you find a great deal that you can buy for 75% of its market value and it cash flows with current rates, then go for it. Unfortunately, for the most part, the BRRRR strategy is dead (or hibernating, to be precise). This is tough for me to say as the BRRRR strategy—specifically, in our case, buying with a private loan, rehabbing, renting, and then refinancing with a bank—was our absolute favorite strategy.

The main problem is that virtually every lender is going to expect a property to have a 1.2 debt service coverage ratio (DSCR) or better. Namely, your net operating income (gross income minus expenses) will need to be 1.2 times the mortgage payments. Even in high cash flow markets, it’s very hard to get even a 75% loan with interest rates in the 6s and 7s and prices where they’re at.

Furthermore, real estate prices have started to fall. Sure, they haven’t fallen much (see meme above), but after skyrocketing, they are beginning to cool off. A crash is very unlikely, but so is substantial appreciation in the near future. As Bill McBride has shown, the time between one peak for CPI-adjusted real estate prices to again equal that same price after a decline has been between 6.5 and 15 years for the last three cycles.