Residential Real Estate Agent · Somerville, MA · Member since 2009 · 195 posts · 32 votes
The 50% and 2% are good rules of thumb, but what are your specific criteria in your area(s)? How stringent are your requirements and how often do you reevaluate them?
I'm trying to figure out how specific most investors get. Do some of you decide, I want only 2 bed, 2 bath, with amenities x, y, z, in good condition, in one neighborhood? Or do you take the opposite approach and say, throw me everything and I'll sort out this mess after the fact.
Sage. I've owned over 1000 sfrs in my life. I have owned ONE 2 bedroom and wish I hadn't bought that one. In sfrs, that is functional obsolescence in this day and age, imo. Also, 1 bath is the same thing.
In apts, you don't have to be so picky. i also will not buy condos. Because of HOAs, you'll never own them free and clear. I'm normally a buy and hold kinda guy, so eventually, a condo will eat me up with special assessment unplanned for. Driveways, roofs, carports, fencing etc. These items are never accounted for. Rich
Sage. I've owned over 1000 sfrs in my life. I have owned ONE 2 bedroom and wish I hadn't bought that one. In sfrs, that is functional obsolescence in this day and age, imo. Also, 1 bath is the same thing.
In apts, you don't have to be so picky. i also will not buy condos. Because of HOAs, you'll never own them free and clear. I'm normally a buy and hold kinda guy, so eventually, a condo will eat me up with special assessment unplanned for. Driveways, roofs, carports, fencing etc. These items are never accounted for. Rich
When you're looking to buy a sfr what are your requirements right now. Do you say, I won't buy a property unless:
1. My cashflow is $XXX or higher a month
2. I can buy at least XX% below market value
3. It's in a neighborhood that's safe? has good schools? needs no major repairs?
What are must haves in a deal for you to consider?
Sage- check my post above. i don't have any "magic #'s. No 50% 2% stuff. No x amount under market peramaters.
I want bread and butter, great location, newer homes, and a good deal. Good deal could be determined by price, or financing or external factors.
In certain areas, I wouldn't buy properties 30% under market. In other markets, I might buy 10% under market. Taking only one factor into consideration is like a small snapshot. I want to see the entire VIDEO before I decide. Rich
Sage, I cannot argue with experience and Rich seems to have it in abundance. However, another thing Rich has in abundance is MONEY, so he can be selective in his purchases. Yes, the ideal SFR is 3/2 1,500-2,000 sq./ft home. Not too big not too small. Your typical average family home which runs on the average, west to the Mississippi at $80K-$150K in most areas. However, cash flow is questionable especially if you go by the 2% / 50% rule.
If you are short on money, However, or not so loan-worthy, there are other areas where those averages don't play. In the "Old America" (East of the Mississippi) in many cities in old neighborhoods the norms run in extremes. They used to build three type of houses 2/1 or 3/1 for the common workers 5/1 & 5/2 for the upper management or bigger mansions for the owners. Over times when factories closed down the lower middle class moved to the bigger houses and the low class move to the workers' houses. (Now they are all mixed. There are beautiful Victorian and Arts and Crafts mansions smacked right in the middle of war zones)
There are areas like Hueytown, AL where most of the houses are 2/1, you cannot find a rental. They are snatched before the tenant is ready to leave.
Three of my SFR in Birmingham are 2/1. However, in one case I converted an enclosed balcony into a bed room (Slapped a closet and vuala ...) In the other one I created a bad room in a partial basement and the third one is actually a room, but again I need to put a closet in.
All of those properties were bought and rehabbed for less then $30,000 each. Those also, extremely good cash flow.
You can get good investment as Rich mentioned with probably better prospective of appreciation, but for three times as much money.
As Eddie has said, there are niche areas like he mentioned. However, on the average, a 2br is a dinosaur, as is a one bath. You're going to rent those to entry level renters, singles , young couples etc. That leads to high turnover, unless you're in a niche area.
Interesting that even Eddie in his post found it neccessary/beneficial to add a 3rd room/bedroom. I'm not buying homes where I convert a balcony into a BR. Sorry, that is not for me for so MANY reasons. Rich
Once you start looking at a lot of building in an area you will know what a good deal is just by looking.
I can walk into a house and give the seller a number without any more information. If you work in a small town or area of a city, you will get this good.
Area is for me secondary (except war zones).
I take a look on all properties what I found in the inet.
Essentials for me:
- not vacant, min 8 units (full is the best)
- min 10% CAP rate on the paper (better 15%, my Cleveland propertie has 18%)
- it must be worth one´s while
and now owner financing.
I liked Uwe's list. Can't argue with any of those. I have found the higher the cap rate(cleveland at 18%) NORMALLY, the weaker the area. Uwe did say, for him, area is secondary. For me, it is primary. Rich.
I need to deserve the money, you have it ;). Higher CAP Rate = faster time to have money back in pocket.
And in Cleveland the propertie located on the West "the better" Side.
In 10 - 20 years area is for me primary too then.
Rich, in principal, I agree with you a 100%. (like the old saying - three most important things in buying real estate - Location, Location and Location)
That the ideal way... if you can afford it...
And this is the important statement, I think the most on BP have not enough money or credit to choose a good area myself included. So we must a side step to not so good areas. I don´t know your begin in Real Estate, but I believe you started small too.
When you as investor provide people with good liveable circumstances (indifferent of the area), then you can make money.