Analyzing homes on the market, numbers never work.

121 Replies

I get that BP is selling the sizzle a bit. I have been studying and studying. But no matter what, I simply cannot make the numbers work.

I am in a still-affordable-yet-booming metropolitan market in the southeast. The humidity is crippling. Within 50 miles, there are no homes for 100k (there are vacant lots for 99k). Homes at 150k are tear downs, or would require I would imagine, at least 30k in rehab.

There are no homes that simply require a lick of paint for under 200k. Probably 250k.

Banks I am talking to require 25% down. Let's say I get a house for 140k. 25% down is 35k. 30k rehab, that's 65k in.

A 105k loan @3.6% for 30 yr is 477/mo. I am roughly doubling that to account for all other expenditures. Estimating rents around 1200, this leaves about 250 left over. 2400/yr / 65k in = 4.5% ROI. Pathetic.

When I look in smaller markets, there are some potential homes at the right price, but the rents are around 750/mo, so that disqualifies those deals again.

What am I not getting here? This is what it's like with no mentor, just fishing around in the dark.

Signed, 

Totally Confused.

There is no confusion and you hit the numbers spot on. The issue you and everyone else has is finding better deals, and rehabing correctly. I'm solving the rehab aspect by doing at least half the work myself. It's not ideal for most investors but I'm handy and want to learn what it takes (time/money) to do good work. 

In my opinion you can't find GOOD deals on the MLS. If the property hits the market it's going to be more expensive. For my first "deal" I offered $25k less than asking. It was on the MLS but needed work and looked ugly! Direct mail, driving for dollars, cold call, networking, wholesalers, these are a few ways to find deals. I'm not wasting time with agents right now but that's just my 2 cents. I would be careful looking in smaller markets. If the housing market swings you could be upside down with no rental demand.

I find lots of good deals on MLS and most of the wholesaler deals I see are junk made to profit off a sucker here and there with unrealistic ARV and repair budgets. You just need to know what to look for. Single family homes don't work as investments in a lot of markets take a look at 3 and 4 unit properties. 4 units tend to be best.

Ok noted. Thank you. Lack of deals is the irony. As a beginner, I have no concept or even appetite for driving for dollars and knocking on doors. I don't even know how to do that or where I would start. But I do believe you that anything on the MLS is garbage.

I did talk to one wholesaler who proposed to me a BRRRR method with a hard money loan. I just read the BRRRR book so in theory I get it, but in practice, terrifying. The numbers were huge, 80k rehabs, and seemed to work only for flips. Terrifying for a beginner.

This is baffling. I know BP hypes it up but man they leave out a lot.

Originally posted by @Henry Lazerow :

I find lots of good deals on MLS and most of the wholesaler deals I see are junk made to profit off a sucker here and there with unrealistic ARV and repair budgets. You just need to know what to look for. Single family homes don't work as investments in a lot of markets take a look at 3 and 4 unit properties. 4 units tend to be best.

How do you find lots of good deals on the MLS? I am also more interested in multi-family for sure, possibly house hacking for a while. Numbers are bigger but if it works it works.

It's baffling for sure but when you think about the bigger picture it makes sense. Non of my friends are investors. Like not a single one. A few of them dream about renting there primary but it won't cash-flow. It's numbers and deals. I'd wager 99% of my friends (25-45 yrs old) who purchased homes are banking on appreciation.

I wish I could sit down with another investor and analyze listings and crunch numbers and talk it over. Of course, they would also be a competitor.

@Christopher Davis I live in Chicago where there is a large supply hundreds of 2-4 unit listings go up each month. I just check the new listing every morning and pick out the outliers which may only be 1-3% of listings but due to so much supply it works. Just be patient+consistent checking market and when you find one that work quickly jump on it. 

The most interesting thing I have seen is that what sells quickly in MLS often isn't what cashflows the best. The average even 2-4 unit buyer is looking for a pretty brick building with an owners unit that has large bedrooms. They are NOT running numbers for high cashflow cheap buildings. A deal my client recently made $200k in equity after rehab and is cashflowing over $1500 on was sitting for 2 months. All he did was rehab the 3 kitchen/bathrooms and rent up with a pro photographer at 2019 level rents.

@Henry Lazerow You are in Chicago, and you most likely aren't talking about North Lake Shore Dr when you are telling him about those multifamilies. Probably more like Austin, West Garfied park, yes?

If that's the case, don't forget to tell him about the nature of the areas- C/D class, some would call ghettos. 

@david Albany Park. People don't realize how high you can get rents here I was even surprised. Bought $554k gutted kitchen and baths around $50k made really nice. Already had Central AC so left that and left hardwood floors. Re painted. Got all 3 units rented $1850 each and got $100 for 2 of parking spots. It's crazy they were only rented $800-900 each before. I should of bought it myself lol. Appreciation did play a part Albany Park area is seeing new highs for the 30 foot wide brick buildings now this year.

@Henry Lazerow I am not quite sure how you make those number work. Sounds like purchase plus repairs ended up around $600k for you. Probably a bit higher if you add fees, transfer taxes etc. Now I don't know how much you ended up getting a loan for or what the Chicago tax situation is, but $5,650 is definitely below the 1% mark and should have very slim cash-flow if any. I would be interested in how you make that work.

Average properties here are selling .6-.8% ratio so $5650 @ 600k all in is great. 

Taxes aren't too bad around $10k. Mortgage on the original at 75 LTV is only $2100. If refi it still cashflows with $3000 mortgage at $600k full cash out.

I like deals like this where create the equity+cashflow in areas that should continue to gentrify. They make for great mid term holds where can sell at some point and see large profit from the value add vs higher crime high cashflow areas where it's a lot more iffy whether your value add will increase value as much. 


Hey @Christopher Davis , to specifically answer this last bit of your post:

What am I not getting here? This is what it's like with no mentor, just fishing around in the dark.

Many investors get started and quickly getting pigeon-holed into a particular strategy of how they want to get to their eventual goal, which, for most, is financial freedom

If you are looking to get better returns, they are other ways to do just that. 

Perhaps, you can find a local partner in your market who is actively doing the types of deals (Buy and Hold Rentals) you are struggling to find (believe me if you look harder, you'll find a few people). 

Also, you can work with other investors who might be able to get you the returns you are looking for and you can learn along side them too. 

The danger is that many people jump into REI and struggle to find good deals and then they give up prematurely and move on to this next thing. However, if they weren't looking in the wrong places, they will be doing those deals now and getting closer or hitting their goals.

No need to be fishing in the dark, as there are 1.5 million members on BP! There is a way you can partner up with others and start getting things to work for you.  

Hope this gives you a different perspective 🤗

what about Memphis? from google maps its a manageable 3 hour drive away from Nashville. If i was in driving distance to Memphis that would definitely would have be my first option. Ive calculated some pretty impressive ROI %s on some properties there but they were in D/F neighborhoods.

Originally posted by @Jaron Walling :

@Christopher Davis Send me PM. I'm in Indianapolis and not a competitor. I'll go over numbers all day long.

Cheers thank you so much. 

 

Originally posted by @Henry Lazerow :

The most interesting thing I have seen is that what sells quickly in MLS often isn't what cashflows the best. The average even 2-4 unit buyer is looking for a pretty brick building with an owners unit that has large bedrooms. They are NOT running numbers for high cashflow cheap buildings. A deal my client recently made $200k in equity after rehab and is cashflowing over $1500 on was sitting for 2 months. All he did was rehab the 3 kitchen/bathrooms and rent up with a pro photographer at 2019 level rents.

Great comments thank you Henry. I was originally looking for duplexes. That would preferably be my goal. I think there is very little on the MLS for investment opportunities here. Everyone is telling me that a lot of deals take place off the MLS, between investors and those in the know. What you are describing sounds like a dream come true.

Originally posted by @Nathan Williams :

what about Memphis? from google maps its a manageable 3 hour drive away from Nashville. If i was in driving distance to Memphis that would definitely would have be my first option. Ive calculated some pretty impressive ROI %s on some properties there but they were in D/F neighborhoods.

Really? You think 3 hours is manageable in terms of tenant needs, spontaneous service calls, etc. I am looking about an hour around Nashville. I was thinking it's best to be closer, 3 hours seem like "long distance" investing. I was expecting to have a first deal relatively close so I can monitor the property if things need maintenance. Who the heck knows. There are more opportunities in a wider area of course. 

 

Originally posted by @Michael Noto :

@Christopher Davis Try tagging your post with the local markets you are looking to invest in where the numbers aren't working for you. This may be a good way to connect with local folks who can help you out. 

 Didn't know you could do that! Thanks. (How do you do that?)