SUB30kClub - exit strategies and financing - what do you use?

Question

One of the major objections I have heard from seasoned investors in my area (Baltimore, in particular) is that these 30K low-end properties leave you with limited exit options.

I'd like to hear from the seasoned investors out there what they use for exit strategies when they buy one of these properties. For example, in many parts of Baltimore you can force appreciation by rehabbing the property and then renting it, yet there is not . . . what's the word . . . natural? perhaps MARKET appreciation of these properties in many areas and many of these areas are not OO areas so to whom could you liquidate if you needed to?

Which then leads me to ask the question, what is the preferred method of financing these types of properties. For example, an HML is often tough to obtain on these because of the % of ARV.

Would like to hear from those in the trenches. Thanks in advance!

Rick Baggenstoss · Answer

@Christina R. So in the area where you're interested, rents are 2%+ of total purchase and rehab price, but the ARV is still $30k?

Another option is: Portfolio flipping

In Atlanta, I recently met an investor who buys them at $20k, renovates in 2 days (clean and paint), sells them in 10-packs for $40k to a foreign investor.

That exit isn't available to me yet. :-)

Rick Baggenstoss · Answer

I would tier exit options for $30k investments like this:

Higher probability:

- Sell as a 'turn key', seasoned, stabilized rental years later

- Sell as a lease option

- Sell retail*

- Portfolio refi cash-out

Lower probability:

- Refi cash-out (on a single home)

* The key is to buy a sub$30k house where houses are also selling for >$60k - $90k fixed up. Then you have more options. If you're buying a $30k house where a lot of others are also $30k, you're choices are limited ... just as limited as when you pay $100k for a house where other houses are selling for a $100k.

Engelo Rumora · Answer

Thanks Rick,

I appreciate your honesty.

As long as good property management is in place and the group has the buyers interest at heart I am sure the premium is justified.

Thanks

Rick Baggenstoss · Answer

@Engelo Rumora Sorry, I didn't add a critical detail. They also get it rented. The 10-pack is sold at a premium and justified somewhat, by the full-service, local expertise, and investing expertise of the seller (in deal selection, tenant screening, etc.). This is done by one of Atlanta's premier, reputable, and local investors.

Engelo Rumora · Answer

WOW - nice profit.

Hopefully they are sold to the foreign investor at least at market value.

Thanks

Christina R. · Answer

@Rick Baggenstoss

Your * asterisk is the key - in some of the areas in Baltimore that I'm very interested in because of phenomenal rent, that's the core problem.

--> on a side note, what keywords should I type in the search engines here on BP to learn about lease options. I really don't understand them but there is SO much (great!) information here on BP that I don't know where to start. Want to have this strategy in my back pocket.

SUB30kClub - exit strategies and financing - what do you use?

SUB30kClub - exit strategies and financing - what do you use?

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