Getting started in a overpriced market.

9 Replies

Good Evening all. I am a beginner, but yet I've been a landlord for about 11 years. This is via my mothers home that my sister and I inherited. I am a physical therapist and was doing quite well until covid hit as I was on a new venture, ultimately cutting my income back about 20%. I remarried 2 years ago, going from 13 years single to wife and teenage son. So, my cash flow on the single house is about $299/mo, now that it's paid off and just my sister and I involved in it. (that helps). I am in Jonesboro, Arkansas. My goal is to 1. regain that 20% income, and 2. Be ready for retirement in about 8 years (I'm about to be 59.) and if possible 3. Gain a bit of freedom from the job in the meantime. Well I've been hitting the books starting with Brandons "rental property investing". I've been looking at duplexes and Single family homes but they all seem overpriced (I realize I can make a lower offer). Most don't come close to meeting the 2% test and few have COC return of greater than 10%. However I think the norm around here is they pay their own utilities and I plan on being the Property manager, at least for awhile. Is it reasonable to give a bit of lee to the 2% test if most expenses are covered by the renter (utilities, lawn care, etc)? I'm hearing some say prices will drop in 2022, but I'm seeing houses get snapped up fairly quickly despite the prices. Are most of yall waiting it out or buying in this market?

thanks for any info..

Richard

Hey Richard! I would love to chat over the phone if you have any questions! I live here in Jonesboro Arkansas! I am also Hosting an investor meetup December 17th here in town if you want to join! Shoot me a message if you have any questions! 

1% rule. 2% rule. That's not analyzing a property. As you said, tenant is paying utilities, doing the lawn care. Across the country real estate taxes vary wildly. There's no "rule" that tells you what to do. Get a spread sheet, fill in all the numbers, crank out a rate of return. 

My crystal ball tells me, with lumber prices so high, labor shortages in the home building trades, we are not in a bubble. Higher and appreciating housing prices are here for a while.

If people are willing to pay the price for a property, it's not overpriced, that's retail, and it's not always a bad thing. I've never bought a 1% or even come close to a 2% deal because I don't want to pay the unknown prices for those- poor tenant quality, high vacancy, turnover and maintenance costs and low or no appreciation. True wealth comes from that equity, not cash flow, so the % rules really don't mean much to me. 

Not saying using those guidelines is bad, but that's only one way out of thousands of ways to make money in real estate. Get out and meet with some local investors and pick their brains to see what opportunities are out there that you are missing. 

Best of luck!

@Richard Dekok I’m kind of surprised you are only cash flowing $299 from a paid off house. Are rents extremely low in your area? Or taxes and insurance really high?

I would definitely go to that local meet up and hear what other investors are seeing in your area.

Thanks for the responses. I am interested in attending the meetup. Tim Delaney, my cash flow of $299 is after splitting the cash flow with my sister/partner. But the rent is very low for this house! We have not raised it in 11 years and it is due but I didn't want to raise it in the middle of COVID on a renter that was that loyal. But it has to be done, probably for 2022.  

Are we in a bubble? know one knows for sure, BUT follow the big boys. That will give you one indication. Be very careful of what others say who may be selling you something. THEY are making money off of you!!! IF they really think we are not in a bubble then have them sign a contract stating that they will refund you the difference on the price you paid when it spins down!! LOL!! Talk to plumbers, handyman, electrician, hang out at lowes, home depot, not sure if ridout is up there, Ace, etc. talk to any one old and buying parts and tell them what you are looking for and you will find someone. DO YOUR NUMBERS!!! DO them on a worst case scenario!! by that I mean what if housing drops 20% and your rents drop 20% can you still cash flow?? The bank in Searcy I use wants 20% down on investment property, that tells you something!! They think it will spin down as well and banks do not want your rental!! There are deals but you have to look and talk. I do not pay for my renters utilities. If they dont pay rent then i am out on 4 bills not just one and you cant turn them off so you are screwed!!!! I live in searcy and i am always willing to answer questions or at least help point you in the right direction. I have made mistakes in this business and realized you will get an education in it, and educations are not free money wise!! You said you already are renting a house so you know the market and have a pulse on it so just go with your knowledge and instinct and you will do great.            

Are we in a bubble? know one knows for sure, BUT follow the big boys. That will give you one indication. Be very careful of what others say who may be selling you something. THEY are making money off of you!!! IF they really think we are not in a bubble then have them sign a contract stating that they will refund you the difference on the price you paid when it spins down!! LOL!! Talk to plumbers, handyman, electrician, hang out at lowes, home depot, not sure if ridout is up there, Ace, etc. talk to any one old and buying parts and tell them what you are looking for and you will find someone. DO YOUR NUMBERS!!! DO them on a worst case scenario!! by that I mean what if housing drops 20% and your rents drop 20% can you still cash flow?? The bank in Searcy I use wants 20% down on investment property, that tells you something!! They think it will spin down as well and banks do not want your rental!! There are deals but you have to look and talk. I do not pay for my renters utilities. If they dont pay rent then i am out on 4 bills not just one and you cant turn them off so you are screwed!!!! I live in searcy and i am always willing to answer questions or at least help point you in the right direction. I have made mistakes in this business and realized you will get an education in it, and educations are not free money wise!! You said you already are renting a house so you know the market and have a pulse on it so just go with your knowledge and instinct and you will do great.