Rental Property Investor · Boulder, CO · Member since 2019 · 144 posts · 72 votes
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.
It's entirely a sellers market right now. The deals are out there but the only way you are going to find them is dealing directly with the seller.
The only reason to use the MLS is for pulling comps. There's nothing on there for an investor. Wholesalers are even worse. They are more expensive than the MLS.
It's just a really difficult time to be a buyer. I have been doing nothing buy paying down debt for a while now as I simply can't find anywhere to put my $ that I would feel comfortable. I don't want to be doing deals for the sake of doing them.
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 shocking to me people still think MLS deals are bad and that "off market" deals are somehow better. If you think for a second an "off market" deal isn't essentially on market, you are dreaming. Every wholesaler, agent; etc, is BLASTING it out to thousands of people.
Unless you source the property straight from an owner yourself, there is no difference between MLS & "Off market".
You can find deals from both MLS & Off market. & some deals are only good for certain buyers. There are still plenty of deals to be found. I'm still transacting every month.
However, it is hard for a new person to start. You have to realize your competing against people that are probably better capitalized, have lower costs in rehab, and simply put know what they are doing.
You are missing equity pay down (principal) and property appreciation say 3% per year (your example is roughly 2x leverage makes it 6%). In a steady appreciating market your total return should be >10% per year in your example. Not really that meaningful if your total cost is "roughly doubled".
I completely understand the frustration. I think that it is VERY beneficial for you to be looking at deals and analyzing in real time though as it should keep you plugged into the market and you will be able to better spot deals and act swiftly as they come along.
Also, are you also asking yourself the question, “At what purchase price would this be a deal?” ? That could be helpful as well. To take that a step further maybe find some properties that have been on the market for a much-longer period of time than their local market’s average days on market (DOM) and consider submitting offers based on the prices at which they would be deals for you based on your analysis, regardless of their current asking price. You may be able to catch a seller at an opportune time and get yourself a sweet deal that way. Best of luck!
While deals can be found and/or made on the MLS that isn't going to be your best source. You have a few options....
find off market deals via mailers, cold calling, driving for dollars, etc....
Use a wholesaler. Be cautious. Run your own numbers. Don’t believe a word they tell you when it comes to numbers.
Find a different market where the numbers work better.
Find a different way to invest in RE.
Find a property on MLS and offer what makes sense for you. Probably won't work often and your agent will probably become quickly annoyed by you doing this..... but it's an option. Maybe use it on homes that have been sitting a while...
Thank you all so much for the very helpful replies. I can't keep up! It would take me all day to reply to every one. Many are very helpful, thank you so much. I'm reading through everything now. Yes ok, I'm in Nashville!
@Christopher Davis it's easier than you might think! I will give you some advise I wish I could give my younger self. I am in Milwaukee, which is a relativley similar environment: midwest prices, good and bad areas, the market is hyper competitive, but we find good deals all the time. Yes it takes work and you have to know where and how to look. I personally buy off MLS, but you have to be quick.
I can't be of much help from the distance, but before you go spend your time looking for deals, look for a great agent, who is an investor and is investing in the same asset class you want to invest. There are not many - in my office we have 160 agents, and there are 3 I would trust with helping someone else with an investment property. But it time well, spent, because that person will hook you up with the right lender, PM, contractors, attoryney if need be etc..
The market is cyclical and right now things are selling for a premium. Try to find a deal via foreclosure, bankruptcy, tax sale, less conventional means than looking at all the overpriced listings on the MLS. Sometimes it's just being in the right place at the right time.
Try an see if you can invest a bit on marketing to get your own off-market deals or partner with a local top wholesaler in your area. ( go to local meetups, ) you will be able to shop around different wholesalers, Tell them what you are looking for and I guarantee they will hustle to get it for you.
@Christopher Davis It is absolutely true that the early BP podcasts and a lot of the hype came from ~2013, when prices were a lot lower and there was a lot more that was ripe for the picking on the MLS. Since then, real estate has heated up dramatically and tons of people have gotten into the investing game (BP deserves some blame for that). Now it's a lot tougher to find wins. That doesn't mean old BP content lied to you. It was telling the truth - at the time!
Of course, everyone's worried about investing in stock and other alternatives to real estate as well. Pick any investment class and the prevailing sentiment is that it's overpriced today and due for a correction.
That doesn't mean real estate will never be a good investment ever again. It does, however, mean that you should be judicious in getting in right now. The MLS is highly unlikely to be a source of good deals unless you offer less than list price. If you're not ready to ferret out off-market deals on your own yet, find someone who can and find a way to partner with him. House-hacking is another avenue, as is the live-in flip, but that will depend on your personal flexibility.
Above all, don't get discouraged. Keep monitoring the market. You only need one good deal, not a hundred, to get started. And there will be another buy-low opportunity in our lifetimes.
I'll be in town 11/15-11/17 if you want to have lunch and talk real estate in general. Start networking!
Off market opportunities come from everyone you ever meet knowing that you buy real estate. We are trying to buy a property in Clarksville off an investor because he's getting too many leads in Nashville and doesn't want to finish his project there. So they are out there, just not on the MLS. Make connections and keep in touch.
I bought it for $560K with $60K down.....2 weeks after close, it appraised at $680K and I refinanced it down to 4% 30 yr fixed....
Current PITI is $2990, so I am losing $190/month.... but I gained an overnight of $120K in equity...that is if I want to be conservative and NOT use Zillow estimate....
Often the deals to be found where I live are not in the major cities but in the more areas close by (ie. hour or so drive from popular city centres). I would expand your search to other areas and you should find deals that are cash flow positive
@Christopher Davis I am in the same area. About 45 miles south of Nashville and I have started to find through vigorous research deals that CAN be bought off the MLS that won't break the bank and should be able to get you a decent ROI. I'm a newbie as well and am putting my first offer in This evening! The Nashville market is so tough. I do have a mentor though in the Nashville area that is capitalizing on the cities growing population. Check out some properties in the Columbia TN market. It is dangerously close to Nashville, there is a college and a hospital, and you can find rent ready homes for under 130k before any negotiations. Again I am no professional but I did live in Nashville when my real estate big started to bite. I moved to Columbia on a whim and believe there is untapped potential in this town. Good luck!!!
I bought it for $560K with $60K down.....2 weeks after close, it appraised at $680K and I refinanced it down to 4% 30 yr fixed....
Current PITI is $2990, so I am losing $190/month.... but I gained an overnight of $120K in equity...that is if I want to be conservative and NOT use Zillow estimate....
It's going to be tough to get through to the cash flow only / Appreciation does not exist / Midwest crowd
But to me, this is a slam dunk deal. $120k in equity is significant, and it sounds like you may actually have more than that. Not to mention I'm sure you'll raise the rents by $200 next year if you don't sell right away
Good to hear that you are sticking to you metrics and not fudging the numbers. Every market is experiencing this currently. The people that start "faking" the numbers to rationalize paying a high price for a deal are going to get crushed in this next downturn. There are still deals out there but on average expect to look at 100 deals to MAYBE get 1.
I think markets are fluid up and down may be hard to find a deal. Keep looking stick to net cap rate formula. There’s other ways to analyze. Don’t look at down payment as a negative. It can raise your net income. Other investors use that net cap when buying so remember that because someday you decide to sell.
I’m trying to understand how this can be considered a good investment, and not a speculation on continued price appreciation.
That “120K instant equity” is a bird on the fence, yet to materialize. And is only 60K, because you paid 60K to get it.
Usually, condominiums have HOA, but maybe yours doesn't. You don't have anything factored for PM and vacancy (usually 8% property management and 8% for vacancy), nor anything for capital expenses and maintenance repairs, nor make ready. Depending on what number you would use here, you'd end up with a $500-$800 monthly negative cash flow.
So, your 60K investment brings you a negative (!) $2,400 - $9,600 annual return. That is pretty much guaranteed. Any longer vacancy, tax increases, rental cap will only make numbers worse. So, what is the play here? A bet on SF market continuous rise?