Buy low, rent high?

3 Replies

I guess I've already sort of started out, but perhaps it's not a very good start. I have a single family home that makes $1000 in rent but costs $1500 in mortgage. I guess it's not so bad, though, because it also increased $150,000 in value since I bought it in summer 2004.

So, that place makes a good long term investment, but I think I want to get some places that acutally give me income every month. I guess I'm just fishing for where to start with this. My plan is to perhaps 1031 the place I own and try to get an apartment building. I figure something with a lot of units would make a decent income. Here's something that I came up with, just as an example:

http://realtor.com/Prop/1056864059

Is this too good to be true? I assume this is 26 rather similar units, so that would (I think) be $375/month * 26 units = $9,750/month rent. Then there would be perhaps a $2,500/mortgage, and some maintenance and management fees. So Maybe it would make $6,000/month profit? Really!? Can this be!!??

Is it common to find a place that makes so much more in rent than it costs to buy? I'm used to the California market where buildings are so expensive that mortgages are just as much, if not more than rent.

What is a common rent to mortgage ratio on an investment property?

Well I have no idea what the Wichita KS market is like, but in most markets FIFTY FIVE YEAR OLD apartments don't bring in top tenants and top rents. Which means collections may be a bit of a problem. It doesn't say if the units are one or two BR which seems odd.

I think the mortgage would probably be closer to $3400/month, this isn't an owner occupied deal. Owner also pays water, trash etc, and insurance and taxes are probably not low.

In general I've found that MLS listed properties are not listed for below market prices, but further checking might prove this to be a good opportunity for you.

BTW, from what I've seen in the Bay Area, some of that $150K gain you've seen in two years is probably "borrowed" appreciation from the next 3 years. I wouldn't count on that rate maintaining.

all cash

Originally posted by "all cash":
Well I have no idea what the Wichita KS market is like, but in most markets FIFTY FIVE YEAR OLD apartments don't bring in top tenants and top rents.

Good point.

BTW, from what I've seen in the Bay Area, some of that $150K gain you've seen in two years is probably "borrowed" appreciation from the next 3 years. I wouldn't count on that rate maintaining.

Which is exactly why I'm thinking about a 1031. Price increases have levelled off in most of California, and in Merced (central California valley) where I bought the house, prices are starting to decline. Perhaps I'd have been better off thinking about selling late last year before things tapered off...

But I think I should just keep the place and find myself a cheaper investment. Something I can afford without selling the house I already have. Merced has a brand new university, so a newly created college town, or rather a long-existing town which has recently become a college town, is probably a good place to own property. I think it is a long-term investment.

I really keep going back and forth on this. I know there are some places that would give me much more immediate gain if I were to do a 1031 exchange, but I like the idea of owning property at least somewhere in California, even if I can't afford it where I live. San Francisco is just ridiculous right now.

Sometimes charging lower rents and looking for long-term tenants to ensure steady cash flow is just as important and in a lot of ways more important. Charging less can help keep more steady rents coming in through long-term tenants.

I'm not saying you should rip yourself off by not making anything on the rents, but why not make $100 less a month to save two or three months of vacancy because the tenants can't afford the place or are going to be more focused on owning their own place later and have no intentions of staying.

I would also highly suggest looking for a good property manager, especially if you're going to look out of town.

There are tons of variables to discuss, but...