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Michael Kubitza

Houston, Texas

Feb 12 '13, 06:35 PM


I have been considering getting into real estate investments for some time now as I live in Houston and the population has exploded in recent years.

I will have a bit of extra cash later this year which I would like put to good use (10-20k roughly). Most likely more, but starting off small would work best for getting my feet wet.

I am leaning towards rental properties which would be basically move in ready. Basically move in ready meaning maybe it needs $5000 or less for any cosmetic fixes, new appliance(s), or the like.

Flipping doesn't seem like the route for me as I have no construction experience, therefore labor costs would offset most of the gains...or am I wrong?

Can anyone offer some insight on how much effort/time it takes to oversee a rental property vs. overseeing the flip of a house? I would think dealing with a rental would be less time consuming unless you have a bad tenant or a problem with the property itself. On the other hand, how much
money/time/effort does it take to deal with any legal matters associated with having lease contract drawn up, screening tenants, etc? I've read about people having a PM for all that, but haven't looked into the costs. Time is an important factor as I work anywhere from 45-60 hours a week.

I have heard/read somewhere that ideally someone investing in property would want to see returns no more than 2 years later. Any thoughts on this would be appreciated, 2 years seems rather short to me.

Specifically anyone in the Houston area who may be interested in mentoring, but all input will be greatly appreciated!



David Gellner

Seattle, Washington

Feb 12 '13, 07:36 PM


Hey @Michael Kubitza, First of all, welcome to BiggerPockets!

After reading your post I'm a big confused of what your goals are. Generally when you flip a house you are doing it to generate a sum of money, whereas with Rentals/Buy & Hold you are trying to create long term wealth.

The first piece of advice I'd offer is reading a few books on the topic and visiting this area of the site and reading EVERYTHING you can: http://www.biggerpockets.com/forums/12-starting-out

Hopefully a more experience investor will come along and answer the things I've miss. I wish you the best of luck, and feel free to ask any other questions! This site is amazing!



Ned Carey Moderator

Wholesaler from Baltimore, Maryland

Feb 12 '13, 07:57 PM


Can anyone offer some insight on how much effort/time it takes to oversee a rental property vs. overseeing the flip of a house?

They can both be done using a LOT of your own time or very little of your own time. The questions are how good are you, how much do you know, and how good at managing are you? In general if you are new both are going to take a lot of tie as you figure out the details of doing the business.

I have heard/read somewhere that ideally someone investing in property would want to see returns no more than 2 years later

This is NOT a common rule of thumb. I couldn't even tell you what it means. Does this mean that investors who buy and hold plan to be selling two years (probably too soon)? Is it referring to rehabbers want a job done in 2 years (way to long)? Perhaps it is supposed to mean that a property should generate positive cash flow within 2 years (I wouldn't tolerate that long)?

good luck - Ned

PS: I see it's your first post - welcome to BP



Medium_crab1_copyNed Carey, Crab Properties LLC
Website: http://baltimorerealestateinvestingblog.com/
http://baltimorerealestateinvestingblog.com/


Ali Boone

Real Estate Investor from Venice Beach, California

Feb 13 '13, 10:50 AM
1 vote


Hey Michael! Good for you for wanting to do some smart things with your money! Houston is a killer market right now, so it's awesome you live there and can start out in investing by doing it locally.

I write articles on the BP blogs and a lot of them focus on hands-off investing with rental properties. Like you, I have no desire to flip or deal with contractors or any of that (at least for now), and I buy mostly turnkey rental properties meaning all of those contracts, tenant screenings, rehabs, everything are already done for you by professionals. That's my preferred method of investing!


Edited Feb 13 2013, 12:25 by Moderator: No advertising in this forum, please


Medium_hipsterinvestment_logo_black300dpiAli Boone, Hipster Investments
E-Mail: [email protected]
Website: http://www.hipsterinvestments.com
Real Estate Investor, Pilot, Wannabe Go-Go Dancer.


John Chapman

Real Estate Investor from Dallas, Texas

Feb 13 '13, 12:06 PM


Michael, in answer to your original question, it's my opinion that that managing rentals yourself is not very time consuming once you've got everything set up. I work full time and manage my own rentals (sfrs) and have been doing so for the last 5 years and I find that the vast majority of my time is spent on (1) looking for new deals; and (2) fixing up the properties when I initially purchase them. Once the properties are fixed up, I find that they require very little of my time. (I'm up to 12 properties, and easily could do more). In terms of the amount of time I spend managing my rentals, I probably spend a few hours a month on them. (Again, though, it took me a while to set up my systems). Managing a rehab while working full time can be very time consuming so if you're just starting out, I would go for something not requiring a ton of work.



Chris Clothier Donor

Real Estate Investor from memphis, Tennessee

Feb 13 '13, 01:15 PM


Originally posted by Ali Boone:
Hey Michael! Good for you for wanting to do some smart things with your money! Houston is a killer market right now, so it's awesome you live there and can start out in investing by doing it locally.

I write articles on the BP blogs and a lot of them focus on hands-off investing with rental properties. Like you, I have no desire to flip or deal with contractors or any of that (at least for now), and I buy mostly turnkey rental properties meaning all of those contracts, tenant screenings, rehabs, everything are already done for you by professionals. That's my preferred method of investing!

Ali Boone making the jump to the BP forums! Very cool - glad to se eyou over here and leaving great comments. @Michael Kubitza, I met Ali and have been following her articles on the BP blog. She is a wealth of advice and a passive real estate investor herself so if nothing else make sure you connect with her on here. I can't speak for her piloting skills or go-go dancer abilities, but she's a great writer and an experienced investor.

I'll stay on the look out for mentors or experienced investors in the Houston area. Good luck to you - Chris



Medium_new_mi_logoChris Clothier, Memphis Invest, GP
Telephone: 901-212-9647
Website: http://www.memphisinvest.com
www.MemphisInvest.com 1(877)-773-9998 Chris D Clothier


Ali Boone

Real Estate Investor from Venice Beach, California

Feb 13 '13, 01:22 PM


Haha @Chris Clothier. Thanks for the welcome and the compliments! Cheers to biz!



Medium_hipsterinvestment_logo_black300dpiAli Boone, Hipster Investments
E-Mail: [email protected]
Website: http://www.hipsterinvestments.com
Real Estate Investor, Pilot, Wannabe Go-Go Dancer.


Michael Kubitza

Houston, Texas

Feb 13 '13, 04:49 PM


@John ChapmanThanks all for the welcome and helpful information.

Not much time right now so I'll get to it.

David Gellner:
I could potentially go either way, however I think buying rental property would be the way to go for me as I am looking for long term monthly income rather than lump sums from flipping. I like a to have a routine such as knowing rent checks will arrive monthly etc. So early in the game though, I have to do much more reading.

Ned Carey:
I am new to both, so yes I know it would require some time to get familiar. I would just assume with rental properties, after things are set it would be the easier to the two to manage overall. Regarding the "seeing returns in under 2 years" I cannot recall what the circumstances were, although the statement seemed very unusual even to me knowing nothing about real estate so I more or less ignored it.

Ali Boone:
Your method of investing sounds perfect for me. Question for you, is there much difference in what you bring in by having professionals handle most of the deal vs. handling it yourself? It would depend on how much of a headache it would be to handle things myself vs. having professionals involved. I would definitely be interested in learning about the particulars of your method!

John Chapman:
It seems like getting everything set up could be a major hassle. I don't even know how long the list of things needing to be set up is at this point, I have some reading to do!

Chris Clothier:
Thanks for the good word about Ali Boone. I just went through with a different type of short term investment I was iffy about at first until I got some confirmation from other sources, it helps!
I will definitely be in contact with her and keep my ears open. If you do come across any investors etc. in Houston please do let me know, thanks!

To all:
I am open to partners etc. as well.

Also, can anyone provide some info as to how to do the "@Name" etc. in your posts, and other general forum features?

Thanks again!



Ali Boone

Real Estate Investor from Venice Beach, California

Feb 13 '13, 09:07 PM


Hi Michael, great question! You know, I don't think it's a big difference. I've never done the math, although now I think I'm going to for the sake of now I'm curious what the actual numbers look like. In thinking about the market I'm most familiar with, Atlanta, I can give you a basic numbers guess (numbers from about a year ago, things there have changed a lot). \

You could buy a foreclosure for say $20k-30k, with about 18-22% cap rate after initial rehab costs. So the investor probably put in an additional $5k-30k in rehab costs, then rents it out which gives him an 18-22% return. Also in that purchase, the buyer had to find tenants and had to find property managers if he wanted one.

If you had bought a turnkey property, which is fully rehabbed with tenants and managers in place, the average purchase price was $55k-100k with 9-14% cap rates.

Also remember too- you can finance full purchase price of the turnkeys. With a foreclosure, you can only finance the purchase price (maybe) but not the construction costs. Construction loans usually only help with flipping, not holding, so that doesn't help much either for a hold. The important factor in how much you can finance, aside from if you only have a certain amount of cash to play with, is leveraging gives you a higher cash-on-cash return. So potentially that financed turnkey with lower cap rates could give you a higher cash-on-cash return than that foreclosure with higher cap rates!

My final answer? About a year ago in Atlanta, you're looking at an average of about a 8% difference on ROI between doing all the work yourself and having someone else doing everything for you.

My last final answer? I hate stress. Doing any of that work I mentioned really stresses me out, so I tell anyone who wants those extra 8% points to have fun with them because I don't want them!

I am going to put more thought into this so I can answer it more specifically. Keep an eye on the blogs as I foresee me being able to write one that answers just this.



Medium_hipsterinvestment_logo_black300dpiAli Boone, Hipster Investments
E-Mail: [email protected]
Website: http://www.hipsterinvestments.com
Real Estate Investor, Pilot, Wannabe Go-Go Dancer.


Michael Kubitza

Houston, Texas

Feb 14 '13, 04:09 AM


Ali, well I'm with you on the stress part! I have enough of that in my day job. Unless you're talking extra tens of thousands in my pocket annually, I'll pass on juggling all the details. Maybe at first it would be "worth it" to maximize income and get things going, but after a certain point once you've got a good amount coming in I would ditch the stressful stuff.



Ken Hipp

Real Estate Investor from Greenville, Wisconsin

Feb 14 '13, 04:39 AM


Welcome Michael, have you looked into any Real Estate Investment Clubs in your area? Great way to get local contacts with like minded investors. Check out under Resources header at top of page. Also read, read, read there are a lot of paths, find the right one for you. best of luck, you made a great start by finding BP



Raymond B.

Real Estate Investor from Wallingford, Connecticut

Feb 14 '13, 04:55 AM


@Michael Kubitza
You asked: can anyone provide some info as to how to do the "@Name"

To do that, hold down the shift bar, and type the first 2 letters of either the first or last name, and look below your post and you will see the name highlighted, click on it.

Raymond



Michael Kubitza

Houston, Texas

Feb 14 '13, 05:38 AM


Originally posted by Ken Hipp:
Welcome Michael, have you looked into any Real Estate Investment Clubs in your area? Great way to get local contacts with like minded investors.

Hi Ken. I looked at a few local investor club websites to see what they're about, but nothing more yet. I will follow up with that.



John Chapman

Real Estate Investor from Dallas, Texas

Feb 14 '13, 07:52 AM


@Ali Boone can you elaborate on what you mean when you say you can finance the full purchase price of a turnkey rental? I haven't heard of 100% financing in recent years.



Ali Boone

Real Estate Investor from Venice Beach, California

Feb 15 '13, 05:13 PM


Oh, sorry @John Chapman. I didn't say that right. I don't mean you can finance the whole purchase price, but you can finance based off the full purchase price. If property is $100k, you can get a loan based on that whole amount (which would trigger a $20-25k down payment and then a $75-80k loan amount). If you spend the same $100k on a house that costs $50k to buy and $50k to rehab, you can only get the loan on the $50k purchase price (then your 20-25% down payment) and the $50k for rehab costs has to be covered usually in cash if for a buy-and-hold.



Medium_hipsterinvestment_logo_black300dpiAli Boone, Hipster Investments
E-Mail: [email protected]
Website: http://www.hipsterinvestments.com
Real Estate Investor, Pilot, Wannabe Go-Go Dancer.


Robert Adams Donor

Real Estate Investor from Las Vegas, Nevada

Feb 16 '13, 05:29 PM


Welcome to BP! If you ever have any questions in regrds to the Las Vegas market please don't hesistate to ask. I would be glad to help!

Welcome again!!



Michael Kubitza

Houston, Texas

Feb 16 '13, 06:26 PM


Originally posted by Robert Adams:
Welcome to BP! If you ever have any questions in regrds to the Las Vegas market please don't hesistate to ask.

Robert,
What does a modest rental go for in vegas, ballpark? I would assume anything there is fairly expensive. Turnkey would be of most interest to me.



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