Baltimore Cash Flow Rentals

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Baltimore Cash Flow Rentals

Nick Bowes
Contractor · Barnstable, MA · Member since 2020 · 2 posts · 0 votes

I have a property manager and contractor in place I trust who is able to video properties for me and recommend areas to avoid.  I've seen his cash flow numbers with Section 8 tenants in place on properties he own directly and it appears to be a home-run from that perspective.  I'm starting to understand the “pocket” neighborhood thing in Baltimore but lets assume I make smart buys in in the 21215 and 21216 zips. My biggest fear is eventually pulling my equity out. Lets say on average I buy row homes at 15K, put 25K into each and install my tenants who have vouchers anywhere from $1,200 - $1,325.  On top of the cash flow I’m being told each unit can appraise at 70K after renovation is complete.

1. Does anyone have an opinion on the 70K valuation?
2. If I buy 5-10 row homes is there a decent market for portfolio buys whether straight up or at auction?
3. Anyone know what the owner occupied home rate in that area is? or how to find it?

4. Why aren't more people doing this?  This goes back to the "if it sounds too good to be true it usually is" theory

Thanks for any and all input

Nick

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Sebastian E.
Flipper/Rehabber · Berkeley Springs, WV · Member since 2017 · 164 posts · 103 votes
6y

@Nick Bowes These are just my thoughts based on my experience. 

The Zillow numbers are basically useless in Baltimore City. You would either need to establish a relationship with a local lender and sell them your vision of what you are doing or a lender who has no clue and hope it slips the cracks IF you get a favorable appraisal. There is just a lot of variability on the appraisal side. Of course if you could find a portfolio lender who would lend using an income approach that could work. You would most likely need to season them though and as @Jarred Sleeth mentioned those are not so easy to come by. 

As for section 8 they also won't be all that helpful. There are areas where rentals won't get approved because of too much blight but your bigger concern is finding section 8 tenants who are going to want to live in a 50-70k house when they have the option to live in a 100 - 130k house. Section 8 tenants have certain demands since the market rate tenant pool is not very reliable. You generally will need updated heating, central air, granite kitchen, updated bathrooms, and be on a decent block. 

So lots to take into consideration. Generally speaking I think out of state investing is a bad idea but I think out of state investing that you are talking about is a terrible idea. If you are ok with 5-7% cap rates then I think you will be safe but you are talking about which are 20% + cap rates you will get your lunch eaten. 

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  • Ozzy SirimsiBusiness Member
    Real Estate Agent · Baltimore, MD · Member since 2016 · 1k+ posts · 782 votes
    6y

    @Nick Bowes

    You basically answered your own questions

    " 40k in, 70k ARV, rent is $1200, so in 4 years you make all your money back and you will have no issue at all :))

    Why don't they buy it all if it is that easy and sound :))

    Most of these houses are in rough neighborhoods,and the houses usually need more than 15k in them.

    Also prices are up, It would have been okay 4-5 years ago, now you will be in the middle of war zone.

    2Reply
  • Sebastian E.
    Flipper/Rehabber · Berkeley Springs, WV · Member since 2017 · 164 posts · 103 votes
    6y

    @Nick Bowes 

    I agree with @Ozzy Sirimsi 

    I have properties with those numbers in my portfolio but they required quite a bit of work and specialized skill to acquire, rehab, and now manage. If you have a good PM and contractor in place, I don't think it is impossible to find those kinds of numbers on the buy and reno side but you will be looking more at the $800-950 range for rentals in those areas and might have trouble getting section 8 tenants. At that point your bottleneck will be your refi. Without any direct knowledge of your credit and cash position, it might be difficult to refi out of these properties. I have had that problem with a few of mine.
     

    0Reply
  • Nick Bowes
    OP
    Contractor · Barnstable, MA · Member since 2020 · 2 posts · 0 votes
    6y

    Thanks for you input Sebastian E. ~ I'll be speak with local Section 8 authority and review finances with banks or hard money lenders before I dive in.

    @Ozzy Sirimsi - thank you as well. 

    As real estate agents do either of you have an opinion on the general appraisal value of $70,000? Zillow puts the zips in that price range based on recent sales but there's so much supply on the low end it makes me second guess.  Based on activity in the area do you expect values to stagnate due to crime or is there any chance of appreciation?

    0Reply
  • Jarred Sleeth
    Investor · Austin, TX · Member since 2014 · 144 posts · 86 votes
    6y

    @Sebastian E. brings up a great point. The refinance can often be the trickier part of the equation with lower valued properties. They tend to throw off a lot of cash flow, but getting your money out is tough. Some lenders, if you have a good relationship, may allow you to bundle up multiple properties together to increase the loan amount. This isn't something I have seen much lately, though. 

    Then you start to get into the complexities of managing units in these troubled areas... 

    1Reply
  • Sebastian E.
    Flipper/Rehabber · Berkeley Springs, WV · Member since 2017 · 164 posts · 103 votes
    6y

    @Nick Bowes These are just my thoughts based on my experience. 

    The Zillow numbers are basically useless in Baltimore City. You would either need to establish a relationship with a local lender and sell them your vision of what you are doing or a lender who has no clue and hope it slips the cracks IF you get a favorable appraisal. There is just a lot of variability on the appraisal side. Of course if you could find a portfolio lender who would lend using an income approach that could work. You would most likely need to season them though and as @Jarred Sleeth mentioned those are not so easy to come by. 

    As for section 8 they also won't be all that helpful. There are areas where rentals won't get approved because of too much blight but your bigger concern is finding section 8 tenants who are going to want to live in a 50-70k house when they have the option to live in a 100 - 130k house. Section 8 tenants have certain demands since the market rate tenant pool is not very reliable. You generally will need updated heating, central air, granite kitchen, updated bathrooms, and be on a decent block. 

    So lots to take into consideration. Generally speaking I think out of state investing is a bad idea but I think out of state investing that you are talking about is a terrible idea. If you are ok with 5-7% cap rates then I think you will be safe but you are talking about which are 20% + cap rates you will get your lunch eaten. 

    3Reply
  • Ozzy SirimsiBusiness Member
    Real Estate Agent · Baltimore, MD · Member since 2016 · 1k+ posts · 782 votes
    6y
    0Reply
  • Tonya Gray
    Flipper/Rehabber · Baltimore, MD · Member since 2019 · 3 posts · 1 vote
    6y

    @Nick Bowes 21215 is not a good area, it's called park heights not a lot of investors invest in that area. It's driven by serious crime.! If you're considering investing out of state, please visit the areas at night. Which I wouldn't recommend either in that area with the crime being so high there.i live in Baltimore and do not go to that area. Good luck with investing.

    0Reply
  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    6y

    @Nick Bowes All I can tell you about Baltimore is , hop in your car and drive thru those cheap neighborhoods . 

    0Reply
  • Yannik Cudjoe-Virgil
    Rental Property Investor · Baltimore, MD · Member since 2016 · 253 posts · 178 votes
    6y

    Just be careful investing in those neighborhoods. Our understanding and experience is that when the market shifts, delinquency rises. The AMI for those neighborhoods are likely under 35k.

    0Reply
  • Tim JacobPro Member
    Real Estate Agent · Baltimore, MD · Member since 2016 · 520 posts · 379 votes
    6y

    I've been a full time pm in Baltimore.  I really don't recommend you get those properties.  They are most likely shells.  I would estimate more than 25k to renovate.  Keep in mind many of the good affordable contractors dont want to go to that part of town.  They dont like getting there truck window bricked bc someone stole something out of it like a power tool to sell on the street. Thus you could actually pay less for reno than in a better area.  Large contractors like roto rooter will be fine.  It would be better to pay 35-45k for something in decent shape confirmed by a quality home inspection.  Could you hit a higher arv?  Maybe but more importantly what is the tenant quality.  The expenses will crush you if you dont self manage.  The business is not scalable.  It isnt worth it for a quality pm to manage.  Vacancy will be sky high.  Lead inspections have gotten more difficult.  Maintenance will be high.  Especially if you do a few of these.  I wrote a post last week on rental expenses to further explain things.  There are plenty of other articles as well.  I saw one called the 2% rule should die a slow and horrible death.  Thats very helpful.  

    Most banks don't lend on properties with less than 100k arv.  What does that tell you.  You can buy 1 for low to mid 100s and do ok with the right pm.  

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