Real Estate Broker · Gibsonia, PA · Member since 2013 · 828 posts · 260 votes
Hi BP
I'm curious what your buy hold strategy is?
How do you evaluate your deals?
What is your exit plan?
Cash or finance. How does that change you strategy?
Cash flow, break even, wait for appreciation?
I'm looking at my next project.
Even though I have been a landlord 5 times, only 2 were intentionally.
3 was out of necessity: executing my EXIT STRATEGY.
1. Flip gone wrong ( help break even on flip)
2 & 3 Market crash 2007-8...rental 8 years... 2 tenants (good cash flow)
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
13y
My plan is to buy whatever I can however I can that will have solid positive cash flow. I am not worried at all about equity or appreciation. Once my rentals provide enough income to support my basic needs and lifestyle I will switch to building my net worth and upgrading my portfolio.
Landlord · Flat Rock, MI · Member since 2011 · 179 posts · 26 votes
13y
I have two properties so far, plan on accumulating more. My plan right now is to hold them and pass them on to my children with a stepped up basis on my death. That's assuming the tax laws stay the same, which of course can always change.
Investor · Milford, CT · Member since 2012 · 592 posts · 285 votes
13y
Originally posted by Jennifer Lee:
Hi BP
I'm curious what your buy hold strategy is?
How do you evaluate your deals?
What is your exit plan?
Cash or finance. How does that change you strategy?
Cash flow, break even, wait for appreciation?
Simple right just buy and hold but the key is how do you know its a good deal. Typically a buy and hold is a very conservative investment. Meaning there is a little appreciation play and a steady stream of cash flow every month. The key is to make sure there is a positive cash flow as it is now. Any improvements or restructuring will be a bonus.
Evaluating deals? Well you can use the 2% rule, or Lindahls Yearly Gross Income divide by 2 then multiply by 10, if you know the area really well you can use GRM * Yearly Gross Income or a Cap Rate Valuation. Some folks use comparables of per unit cost then evaluate from there. I don't like that one because it does not factor cash flow and you can get caught up in an expensive property that will not meet its obligations.
Exit? What exit, buy and hold till I die. The strategy here is keep taking cash flow to supplement your living/retirement. When you can't manage the property anymore then sell. Who says you have to leave it all to the kids. I am going to get one of those bumper stickers that says I am spending all my kids inheritance. :)
Finance all the way. You can't beat the rates right now. Put your 20%-30% in and watch your bank account. If you really want to buy and hold for the long haul try to limit partners. If anything don't have partners for your long terms ones. I am talking about properties you will hold for 20-30yrs+. Just too many headaches and variables. You could have a buy out clause say in year 5,10 if needed but have that ironed out upfront.
Cash flow all the way. Let someone else buy it waiting on that appreciation. Remember you want to cover obligations day 1. Of course I look for value plays where a little paint and carpet goes a long way. Even Kitchen and Bath renovations are ok. As long as the structure is sound. I don't want to get into places that require a whole new roof, or new exterior or all new mechanicals.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
13y
Originally posted by John Knappmann:
I have two properties so far, plan on accumulating more. My plan right now is to hold them and pass them on to my children with a stepped up basis on my death. That's assuming the tax laws stay the same, which of course can always change.
you should not have a problem in FR....
i think the hardest thing is to evaluate the deal. that's why i have a limit purchase price and from experience know what the rent would be.
Mark, you work as a realtor and it's easier (i think) to find below market houses. I just look on the MLS and i am forced to buy whatever homeowners dont like or houses with issues..
Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes
13y
George P.
Your right it is much easier as a Realtor. I am also branching out into direct marketing as well because many of the MLS deals are not there anymore with our improving market.
Real Estate Investor · New York, NY · Member since 2012 · 210 posts · 15 votes
13y
My primary source of income is my 9-5. I view buy-and-hold housing as the fixed income portion of my savings portfolio (a better version of TIPs).
I go for positive cash flow in areas that will appreciate. This is generally not what folks in BiggerPockets go for, as buying in these identified areas offer much less cash flow. I haven't had time to explore markets where you buy a house for $50K and rent out for $1K/month.
I am trying to buy houses which are positive cash flow on Day 1, with 30YR financing, in areas that should appreciate in terms of housing prices and rents over time. Thus, I expect cash flow and equity to grow faster than inflation. E.G., I have two units which are $900/month rent today -- but I hope in 3 years will be $1200/month rent as the area is rapidly gentrifying.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
13y
My plan is to buy whatever I can however I can that will have solid positive cash flow. I am not worried at all about equity or appreciation. Once my rentals provide enough income to support my basic needs and lifestyle I will switch to building my net worth and upgrading my portfolio.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
13y
Arjun K. I need income to support myself. I do real estate full time so building income is my primary concern right now. Once I reach a point where rental income covers the bills, the focus will be on net worth but the income will continue to grow also.
When you get to a point that your monthly expenses are covered, any deals you do on top of that go to increase your wealth geometrically.
You have heard about the value of compound interest. Well when you invest in real estate 15-25 even 50%+ returns can be had. However those great deals don't compound when all the income goes to pay bills. However if your bills are paid by your rentals, those kinds or returns can rocket you wealth.
Real Estate Investor · New York, NY · Member since 2012 · 210 posts · 15 votes
13y
Ned Carey So are you changing your investment style after your bills are paid? From cash flow properties to what? Or are you merely saying that your own net worth creation will cross an inflection point once your bills are taken care of?
Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes
13y
Jennifer Lee I look to buy slightly distressed properties in working class neighborhoods well below current market because I pay cash. Short sales and distressed owners. My primary goal is maximum cash flow in an area that will rebound once the economy comes back if ever. No exit strategy per say but of course will take a profit where presented but I am content to collect rents as a significant part of my income.
Seattle, WA · Member since 2013 · 39 posts · 2 votes
13y
Originally posted by Ned Carey:
My plan is to buy whatever I can however I can that will have solid positive cash flow. I am not worried at all about equity or appreciation. Once my rentals provide enough income to support my basic needs and lifestyle I will switch to building my net worth and upgrading my portfolio.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
13y
Originally posted by Arjun K.:
Ned Carey So are you changing your investment style after your bills are paid?
Yes, I will buy different types of properties and structure my deal differently. Right now I am willing to maximize leverage in order to get the best returns. Once my cash flow needs are met I will de-leverage to reduce risk.
I don't care about equity right now. I will buy a property for more than market value if the cash on cash return on investment is good enough. Once my cash flow needs are met I wouldn't consider doing such a thing.
Investor · Chicago, IL · Member since 2012 · 80 posts · 31 votes
13y
I buy distressed properties at major discounts. The cashflow provides a nice lifestyle for my family therefore i will continue to stockpile. My exit plan is to hold and pass them on to my kids.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
13y
Originally posted by David Barlow:
I buy distressed properties at major discounts. The cashflow provides a nice lifestyle for my family therefore i will continue to stockpile. My exit plan is to hold and pass them on to my kids.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
13y
Originally posted by George P.:
Originally posted by David Barlow:
I buy distressed properties at major discounts. The cashflow provides a nice lifestyle for my family therefore i will continue to stockpile. My exit plan is to hold and pass them on to my kids.
How do you find them?
They are easy to find. When they are not in school they are usually up in their bedroom. he he he.
Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
13y
Apartment buildings - the bigger, the better. I did more work managing my single family homes than my 100+ unit apartment complex.
The bigger property can afford a full time property manager and full time repair guy. Over-all the percentage I pay for PM & repairs &maintenance are lower than what I paid for single family homes.
In my opinion and based on experience, multi-unit apartments are better buy-and-hold assets vs. SFHs.
Of course you have to buy right. Only look at acquiring apartments (B,C properties) if the cash-on-cash return is at least 12% (in B & C areas). They are hard to find but they exist.
Of course use leverage..specially with today's low interest rates. Then 1031 exchange your way to bigger properties with more cashflow.
Jennifer Gibson,
This is pertaining to Single Family Homes.
Mechanics and Roofs vary according to where you live.
In my area of Ct., a Roof is good for 25-30+ years.
In the house I live in, the Gas Furnace is more than 25 years old.
My Gas Water Heater is 17 years old.
Real Estate Agent · Phoenix, AZ · Member since 2012 · 640 posts · 457 votes
13y
Jennifer Lee Evaluating items that require repair is easy to do prior to acquiring the property. Anything that clearly requires immediate repair/replacement should be factored into the price you're willing to pay (or budgeted into your rental expenses after purchase). Sometimes, however, there are major repair expenses that you can't see or don't know about until after purchase. Case in point I recently got a single family home at foreclosure that ended up needing to be completely re-piped due to the galvanized being corroded shut. It was a $3k expenses I wasn't planning on.
Investor · Decatur Atlanta, GA · Member since 2011 · 611 posts · 232 votes
13y
@arjun k Those are my same principals. Im in Atlanta and i wont go to properties where you buy for $50k and rent for $800. You can make cashflow, but we all have a different path. I do by near some of these areas that have begun to change. Young professionals come to these areas and in 5 years you have a different picture. I live in one of these areas and bought 3 houses on my very block, made made 20% on my first two flips and hold third with 10% cashflow. I work full-time so this is great for me.