Just starting out and the numbers don't make since to invest.

Starting Out
12yFollow

Just starting out and the numbers don't make since to invest.

Mark Gruetzmacher
Investor · Box Elder, SD · Member since 2014 · 228 posts · 43 votes

Hey everyone, I am just getting started and I have been trying to run some numbers and nothing thus far even comes close enough to even think about it. Houses in this area of the midwest are either too high priced or the rents are too low. I see all of these deals everywhere else and think, I sure wish those deals were around here.

For example I was looking for lower priced houses and there is really nothing under about the 50-60K mark and those are is the junkier side of town and rents are maybe 450-600. I came across a pair of duplexes that were decent but the neighborhood is so so as well, those are priced at 87K and 81K, but the current tenents in 3 of the 4 units are paying $300, 400, 475. The 1 vacant unit they said gets $575. Then the landlord pays the water,sewer,garbage ($50/mo each). So at those rent prices and with loans in the 15-20yrs range the numbers just don't work. Saw some side by side duplexes built in like the early 2000's but those are running $200-250K with rents maybe around $1200 each. I would like to stay in the lower $$$ range to keep costs lower initially.

We have tons of mobile homes in our area as well and I have thought about those because at an investment vs rent is looks better. I am in no rush but keep thinking that if those numbers stay like that then how could one invest?

My previous house I sold and made some good money on after living there for 10 yrs and subdividing the land up it was on. Just sold one parcel and closed today on it on a CFD for $363/mo for 5 yrs. Have the other piece to sell yet but looking for the 1st rental. I have almost 50% equity in our current home as well so I am not doing to bad to start but going further looks kind of dim. If the numbers looked like the above what would you do. Would you invest in Mobile homes if the numbers were better?

Appreciate the feedback.

0Reply
54 views

17 Replies

Jump to latestLatest
  • Eddie Werner
    Property Manager · Pittsburgh, PA · Member since 2012 · 267 posts · 136 votes
    12y

    Hi Mark,

    The numbers you mention don't seem very cash flow friendly. Are any areas within 2 hours drive any better? Are you looking to buy and hold? Might be worth looking at close towns where the numbers work out better. Maybe even out of state investing with the right PM company. If the numbers don't work where you are at go where they do work.

    0Reply
  • Mark Gruetzmacher
    OP
    Investor · Box Elder, SD · Member since 2014 · 228 posts · 43 votes
    12y

    Hello @Eddie Werner , I live 10 minutes outside of were I am looking and that is the 2nd largest city in the state and the other city is 6 hrs away. I am actually looking in about 10 city's in the surrounding area as well. There are some in a real small town about an hour away and they have some in the 30-40K but the rents there I think are in the $300-400 range so that's not any better. Yes I am looking to Buy and Hold as well. I can pretty much redo most things on a house and flip might be an option but I would rather buy and hold for the passive income. Buying out of state isn't ideal and I am not sure how the lender loan if at all on out of state stuff. I will keep my options open. I have been learning all I can and have listened to the first 55 pod casts in the last week and a half. Love the food for thought.

    0Reply
  • Account Closed
    Real Estate Investor · Myrtle Beach, SC · Member since 2012 · 299 posts · 104 votes
    12y

    Mark,

    I have never considered a trailer to be a investment. I would have you consider flipping trailers in and out make the money and move on. Trailers are like cars and boats not going to appreciate very well if at all. South Dakota is a tough area to invest in. I spent some time in Hettinger ND and over the boarder in to SD investing years ago.

    Investing outside you area would be ok as long as you have a good team on the ground. Maybe a place were you would like to vacation or a area you go to often. Your team would consist of a lead person, management, lawyer, insurance, banker, realtor and you may not need a realtor if your lead person is real good.

    0Reply
  • Adrian DeGraff
    Cary, NC · Member since 2014 · 21 posts · 3 votes
    12y

    @Mark Gruetzmacher Why not? If you've identified the market that you want to operate in, and mobile homes are the only thing around at your price range, and you have no phobia against them (far as I can tell) then I'd say "make the best with what you got".

    I agree with Sydney, it doesn't have to be a permanent thing. Just enough to get you out of the 50-60K investment range.

    0Reply
  • Ivy Takenaka
    Involved In Real Estate · Kapaa, HI · Member since 2014 · 19 posts · 4 votes
    12y

    I am having the same problem over in Hawaii. Hawaii is not a good place for cash flow. Most people buy properties as primary residence or 2nd homes. They buy and hold for appreciate. I was thinking maybe I should invest somewhere else? Glad to see that other investor are thinking along the same lines...Thank you for your feedback!

    0Reply
  • Mark Gruetzmacher
    OP
    Investor · Box Elder, SD · Member since 2014 · 228 posts · 43 votes
    12y

    @Account Closed I have thought about flipping as well. I know a guy that buys alot of the old junk early 70's stuff for $500-$4000 but some of these I wouldn't let my dog sleep in. But they sell usually for close to $10K after about $3-4K in work and all his own labor. I am not opposed to that at all but I would stick to at least 1980 or newer. Newer mobile homes here are pricey as well. I have seen some newer double wides in Texas go for what an older single wide 10-20yrs older here go for. I have equity in my home that I could pull out $50K or so on a HELOC or Home Equity and use toward down payments or purchases if it was mobile homes but haven't decided if that is the right way to go quite yet. Appreciate all the feedback everyone is giving as well.

    0Reply
  • Account Closed
    Real Estate Investor · Myrtle Beach, SC · Member since 2012 · 299 posts · 104 votes
    12y
    Originally posted by @Mark Gruetzmacher:
    @Account Closed I have thought about flipping as well. I know a guy that buys alot of the old junk early 70's stuff for $500-$4000 but some of these I wouldn't let my dog sleep in. But they sell usually for close to $10K after about $3-4K in work and all his own labor. I am not opposed to that at all but I would stick to at least 1980 or newer. Newer mobile homes here are pricey as well. I have seen some newer double wides in Texas go for what an older single wide 10-20yrs older here go for. I have equity in my home that I could pull out $50K or so on a HELOC or Home Equity and use toward down payments or purchases if it was mobile homes but haven't decided if that is the right way to go quite yet. Appreciate all the feedback everyone is giving as well.
    0Reply
  • Account Closed
    Real Estate Investor · Myrtle Beach, SC · Member since 2012 · 299 posts · 104 votes
    12y
    Originally posted by @Account Closed:
    Originally posted by @Mark Gruetzmacher:
    @Account Closed I have thought about flipping as well. I know a guy that buys alot of the old junk early 70's stuff for $500-$4000 but some of these I wouldn't let my dog sleep in. But they sell usually for close to $10K after about $3-4K in work and all his own labor. I am not opposed to that at all but I would stick to at least 1980 or newer. Newer mobile homes here are pricey as well. I have seen some newer double wides in Texas go for what an older single wide 10-20yrs older here go for. I have equity in my home that I could pull out $50K or so on a HELOC or Home Equity and use toward down payments or purchases if it was mobile homes but haven't decided if that is the right way to go quite yet. Appreciate all the feedback everyone is giving as well.

    Don't be in any rush to pull the money out. You will know what is and when is right. Any questions let me know.

    0Reply
  • Mark Gruetzmacher
    OP
    Investor · Box Elder, SD · Member since 2014 · 228 posts · 43 votes
    12y

    @Account Closed Yeah I am in no rush. You always get that feeling like you need to jump on the first thing you find but the numbers don't lie. If the numbers are right for a deal then you go, if not then we just wait. Which might be awhile here but that's ok. Might have to expand my search some. Or may look for some flip potential. I know of one possible flip close to me but not sure I want jump up to that amount of money and get a full blown investment house loan. Appreciate the comments and concerns. Sincerely thank you.

    0Reply
  • Mike Romanowski
    Rental Property Investor · Sioux Falls, SD · Member since 2009 · 9 posts · 5 votes
    12y

    @Mark Gruetzmacher have you thought about trying a direct mail campaign to absentee owners? I wouldn't be surprised if there are a lot of them with property in the Rapid City area since, for South Dakota, its the big vacation spot. We are in Sioux Falls and just getting started as well. We have one rental that is in a great area but still only makes it to 0.08 on the rental income to purchase price ratio. We have decent cash flow but only because we have about 40% equity right now. We're running into the same thing over here as far as the low rents for the house value. Most will not meet the 1% rule let alone 2%. My plan at the moment is to fix and flip my way to enough cash to be able to get into multi-family. But so far I'm not finding much to even offer on from the MLS so I'm considering a direct mail campaign to find some decent fix and flip deals if they're out there. What do you think? Have you looked at the Sioux Falls market?

    0Reply
  • Lee Linda
    Investors, Counselor · Buckeye, AZ · Member since 2014 · 7 posts · 0 votes
    12y

    I'm having some of the same troubles. I'm new also, and in an area where houses are foreclosing left and right, however due to the upward swing in the market, banks are getting greedy and not willing to sell at the investor's prices (I read that 65% of market value minus repairs, is about where an investor needs to buy - is this correct folks?). The rents in this area are fairly low as well, so the "buy and hold" numbers just don't work for me, either - but again, I'm new to RI. I purchased a "prefab" home on auction for a fair price, but wasn't able to really see what I was buying until after closing. It was a DISASTER inside and out. I'm rehabbing and should clear a moderate profit, but I'm not finding the same deals on *houses*, only prefabs and trailers, which as was mentioned, won't appreciate but in fact depreciate. So the buy and hold is tough. I don't blame the market, but at this point blame my lack of knowledge and experience, though I too am studying everything I can get my hands on. ANY experienced suggestions/help would be GREATLY appreciated! Thanks in advance!

    Lee

    0Reply
  • Account Closed
    Real Estate Investor · Myrtle Beach, SC · Member since 2012 · 299 posts · 104 votes
    12y

    Hey All,

    I work with about 40 plus banks that we buy direct from the asset managers here in the south east. About 4-5 years ago we were able to buy REO's around 10-30cents on the dollar and now our avg is 35-55 cents. With many banks having hundreds or thousands to choose from, depending on the size of the bank. In the last two years we have seen the list drop down to less the 25% of the old inventory numbers. One bank list went down to less the 50 reo's. This is happening everywhere pretty much and you are right in saying some of the banks are wising up. They are raising their prices and some are even rehabbing and putting in renters and then asking full market price. Not only are we doing rehabs for our investors we are now (last two years or so) have been doing them for the banks. Over the next couple of years you will see a lot of investors dropping off because they can not find investments at their level or have enough money to play the game actively. Things will finally be back to normal.

    0Reply
  • Mark Gruetzmacher
    OP
    Investor · Box Elder, SD · Member since 2014 · 228 posts · 43 votes
    12y

    @Mike Romanowski I have not really thought about direct mail too much yet at this point. Just running some numbers first to get an idea what is out there. I have talked with a local lender and found the business side of the lender does borrow on the properties if the numbers work. They base alot of the lending off the property's cash flow, so they sound more like a portfolio lender. The same place on the personal side is way different. I have not looked over in your area as I am trying to stay somewhat local but I might start looking around more at least to get a better idea what different areas look like in terms of numbers.

    0Reply
  • Rachel H.
    San Antonio, TX · Member since 2009 · 3k+ posts · 1k+ votes
    12y

    Sounds like a comfortability issue with the types of neighborhoods you're looking to work in. It's best to determine what types of neighborhoods you prefer first and determine the market demand in the area.

    For me personally, I've had success farming areas of neighborhoods I want to work in. It's a good way to get to know the types of folks you'll be dealing with when buying and holding.

    Hope that helps, good luck!

    0Reply
  • Jason Hull
    Investor · Fort Worth, TX · Member since 2014 · 23 posts · 10 votes
    12y

    Mark - Don't try to make a deal happen where the numbers don't work. It's easy to get psychologically caught up in the deal-making process (which is a particular psychological bias that males have) and think that you have to make a deal soon!!! You don't need to. Even if you only do one deal every couple of years, it's better to be in deals where you know the numbers work even with contingencies (e.g. the 2%/50% rules of thumb) than to be in ones where you're depending on appreciation or nearly full-time vacancy with tenants who keep the place spotless to make the deal work. Those will give you sleepless nights and cause bile to burble up in your mouth when you write checks.

    You can take some gambles when you have a deep enough portfolio to support the misses, but when you're starting out, you really need that first one to be right, even if it means biding your time and continuing to build your war chest.

    The worst deal I've done recently was one where I convinced myself that I could make the numbers work rather than waiting for a better deal to come along. It's much easier to say don't get trigger happy than to not get trigger happy, but that said...

    Don't get trigger happy!

    0Reply
  • C.J. Lauria
    Investor · El Dorado Hills, CA · Member since 2010 · 22 posts · 12 votes
    12y

    Hi Mark,

    If you have 50% equity in your personal home, I advise looking into a bank HELOC. this is a simple line of credit that you can use when (and only when) you need it for a REI purchase. The rates are low and qualification is generally lenient.

    Now, about your prospecting: As a mentor, I get queried a lot about "good enough" deals. remember this: prospecting involves a lot more "No" than "Yes." Don't be tempted to buy if the numbers don't work. This is a mistake that a lot of newbies make and that's why they lose money.

    You will find that Realtors are often bad advisors in this area. If they are not active investors with ample experience themselves they are often unqualified to give advice on what numbers will work for you. Proceed with caution on anything that comes from the MLS. You will learn that a high margin deal from the open market is a rare find indeed.

    Cheers,


    CJ Lauria

    0Reply
  • Mark Gruetzmacher
    OP
    Investor · Box Elder, SD · Member since 2014 · 228 posts · 43 votes
    12y

    Yeah being trigger happy so to speak I assume happens a lot to a lot of new investors. I am not in a hurry to buy. I think the market here is a little tough for the buy and hold but that doesn't mean that there is never a deal to be had. I appreciate all comments everyone has given. I will just keep my eye open for the right deal.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free