Skip to content
Starting Out

User Stats

3
Posts
0
Votes

Picking the best path--First REI

Posted Jan 22 2022, 13:44

I live rent free (trade work hours for rent/utilities on an animal sanctuary) in a very low cost of living town in southwest New Mexico. Also generally low wage/poor/fixed income population. Mobile homes and SFH fixer uppers are for sale at higher prices but I can still find 1% deals. My husband and I have time/motivation/repair skills and are making connections for a talented handyman and getting a team in place for repair that is out of our wheelhouse. Local landlords have shifted their LTR into STR and now LT renters struggle to find a place. Airbnb is oversaturated, LTR are in high demand. Town has class b/c/d. FMR for 3 bd is $981. Comps I find for 3/2 in class b rent at $1200. The following two scenarios are what I mainly have to choose from and I would like to invest here in town. Huz works full time/my work is flexible, but updating/renovating work will mostly be weekends.

A. 3/2 newer MFH in a class c neighborhood asking 89k. I think we could get it rented right away at $1000. I'm new to all this with just a book read and watching a landlording facebook group-- but based on book knowledge I calculated the cash flow at $100. I could add value by updating appliances/fixtures.

B. 3/2 SFH fixer upper in a class b asking 89k. Needs roof, drywall repair, more but foundation is OK. Has a 16x16 shedthat I could add value by converting into a casita for additional/separate tenant income. Some space can be made into a 4th bedroom and covered patio. Fixed up, will be a good flip option or excellent hold as a LTR.

C. Duplex or 4-5 unit complexes are rarer but can be found if we're patient. I need to better understand how to fund a deal like that but it seems doable. My dream would be to buy a mobile home park that I rent each MFH. In the future. Right now I am still working to make my first deal!

I haven't yet delved into the lending side yet but our credit is excellent, no debt, no mortgage, have saved for down payment and have funds to get started on some deal. But what? This is where I'm stuck. What path to take? 

User Stats

10,515
Posts
11,821
Votes
Bruce Woodruff
Pro Member
#4 All Forums Contributor
  • Contractor/Investor/Consultant
  • West Valley Phoenix
11,821
Votes |
10,515
Posts
Bruce Woodruff
Pro Member
#4 All Forums Contributor
  • Contractor/Investor/Consultant
  • West Valley Phoenix
Replied Jan 22 2022, 14:08

A good start would be to ask yourself: what do you want to do? What gets you excited? It's about more than just money sometimes. It's also about more than just monthly cash flow....what do you feel the appreciation might be on a certain house in a certain area?

You don't give enough details to really give great advice on, but....

A. $100 cash flow is way too tight. One little ooops and you're negative. Book reads and knowledge are almost worse than just guessing because you actually think you know something when you don't...And will adding value actually add more cash flow?

B. Sounds like you've got $30k in repairs....? Does that still pencil out? And before you think you can just convert a shed into 'living space', you'd better check with the city. Usually not ok because the slab, framing, electrical, etc will not be up to current codes.

C. Start with something smaller and learn the business, you don't have enough knowledge to do much outside the box yet.

Get with a lender first and see what you really qualify for. No use getting all these scenarios going when you don't know if you can afford them.

Just my .02

User Stats

1,652
Posts
1,495
Votes
Bonnie Low
Pro Member
#1 Medium-Term Rentals Contributor
  • Investor
  • Cottonwood, CA
1,495
Votes |
1,652
Posts
Bonnie Low
Pro Member
#1 Medium-Term Rentals Contributor
  • Investor
  • Cottonwood, CA
Replied Jan 22 2022, 14:26

If you've got a lot of low income residents in your area, you might look into renting to Section 8 (gov't subsidized) tenants. You'll find a lively debate here on BP with the pros and cons of this tenant group, but I believe if done right (you offer a nice space that people want to be in) the pros outnumber the cons. Start by researching section 8 rates for your area here https://www.huduser.gov/portal... Usually, they're going to be a bit above market rates. Your property will have to pass inspection, but it's not too onerous, especially if you have a property that you'd want to live in. To me, there are 3 big upsides: 1) guaranteed payment from the govt every month. This really saved a lot of landlords during the pandemic when people were losing their income and the eviction moratorium was in place. 2) above market rents which can be a game changer when you're working on relatively thin margins and 3) if it's a quality property, tenants have huge motivation to stay. This means low to no vacancy and low to no turnovers, which are always costly. Downsides are having to get registered with section 8, annual inspections and of course some tenants who won't treat your property well - but we all know that possibility exists with any tenant - just see the endless threads here about the crazy stuff people do. This last risk is largely mitigated because if they screw up, they're off the program for good. Section 8 tenants get a bad rep because they're often misunderstood or stereotyped. I'd recommend you listen to Dr. Joe Asamoah's podcasts or find some of the BP podcasts he's been on to learn more about his experiences with Section 8.

NREIG  logo
NREIG
|
Sponsored
Customizable insurance coverage with a program that’s easy to use Add, edit, and remove properties from your account any time with no minimum-earned premiums.

User Stats

926
Posts
946
Votes
Jon Kelly
  • Investor
  • Bethlehem, PA
946
Votes |
926
Posts
Jon Kelly
  • Investor
  • Bethlehem, PA
Replied Jan 22 2022, 14:26

@Greta Hansen Begg This is great initial research into potential opportunities, but you're missing the #1 and most important thing to making a decision... the numbers! What is the ROI or COC return (either is fine) for each of these opportunities? That will give you your answer.

If both A and B provide 12%+ COC then make aggressive offers on both. It's highly unlikely both will accept your offers if they are aggressive enough.

Last piece of advice - keep it simple for your first property. I wouldn't bank on converting the shed into a casita. If you can, then great. But, by adding too many options it slows down your decision making. If you have too many options you will struggle to choose anything. Keep it simple. Prove to yourself the concept works and then start to get creative. 

User Stats

56
Posts
88
Votes
Robert Carmody
  • Real Estate Broker
  • Albuquerque, NM
88
Votes |
56
Posts
Robert Carmody
  • Real Estate Broker
  • Albuquerque, NM
Replied Jan 22 2022, 16:39

Figure out financing options first, since financing options or availability might be your greatest guide when staring out. Keep in mind that if you are in a rural part on NM, you may need to find alternative sources for borrowing,  as a conventional and conforming 30yr loan, backed by Freddie Mac or Fannie Mae, might not be an option that is available. In rural areas, homebuyers can obtain mortgages through the USDA, but only for a primary residence. You can also check with the NM Mortgage Finance Authority for any special programs they offer. https://housingnm.org/, and might look into opportunities for purchasing with a Real Estate Contract/Seller Financing, especially if buying manufactured homes.

User Stats

3
Posts
0
Votes
Replied Jan 25 2022, 12:37

Appreciate every response and the direction given to me. Thanks all! 
My next steps: Keep it simple. I’m putting the cart before the horse. Figure out the funding. Investigate the link given for Section 8 (thank you!). Many in my app pool will be with section 8 vouchers. Review the NM link (thank you!) for financing options. Yes I’m in rural NM (Truth or Consequences).