Baltimore City Investors a few questions from a new investiors.

20 Replies

I posted a few thoughts I had on another post.  However, I think I have more solid thoughts and questions now.

I really want to do buy and hold real estate investing.

I have about 20K in a PLOC, a credit rating about to hit the 800's, and a monthly cash flow of about 2500+ I can throw into rehabbing.

I have been looking at Baltimore City cheap housing and wanting to buy between the 5 and 10k range in which I know will be most likely complete rehabs.  I am not scared.

I am willing to take my time and rehab; you know possibly doing the one house a year thing.  I am in no rush.  I am hoping to do 10 house in the next 10 years.  This is my no stress plan.

As I said before, I am not scared of total (gut) rehabs if necessary.  What I am scared of is investing in a property in Baltimore City and can't get a renter because of so many vacant houses exist on the block.

I know there are people that will rent anywhere but I am afraid being the state of Baltimore City those renters have rented elsewhere.  Even with section 8 theses low income renters can also rent in better neighbors.  My concerns is the renting pool is small in the areas I want to invest. 

 I want to know from your experience:

  • What are some solid areas in Baltimore City you still can invest, even if I have to go a few thousand higher to get in?
  • Is there a vacant to occupant ration (how many boards vs properties being occupied) on a block I should consider?  
  • Should I consider sale by owners properties as possible good deals?

I know there are still great opportunities in Baltimore City but I know there are bad ones as well.

Solid areas will be more than a "few" thousand .  Its great you arent scared , but there a few things to consider . You get a house for 10K , 3 doors down there is a boarded up house , the roof leaks , water can and will migrate to your basement .  Now you have a finished house you dropped $ 40 K into you are all in for around $55K . you have the best house on the block , but nobody wants it because of the rest of the neighborhood. 

A rehab will always cost more than you planned for . Things go wrong . Once you are into the job there is no turning back . 

Starting out for buy and hold , you may want to look at spending more on the initial purchase , and less on rehabbing .  I always ask myself " would I live here if I ever had to? "  If not , I move on .  Why ?  If things go south you may have to at one point . 

Consider looking in Northern Anne arundel county , Brooklyn , Brooklyn Park , Glen Burnie  Linthicum .  Higher initial prices , LOWER property taxes , better schools ,lower insurance rates ,  less crime and better chance of appreciation . Less boarded up houses . I have properties more south , in Pasadena , its working great , but it took a while to find deals . i have friends that do well in those areas . 

There is an old saying  "penny wise and dollar foolish " 

I invest heavily in the types of houses you are interested in. U wont get out for 5-10k. A rehab to make any of these houses rentable is going to take you to 30k quick, and only if you're being efficient. Probably closer to 40k. @Matthew Paul is definitely correct in explaining what pitfalls these houses can bring. at the same time, if these houses are purchased, rehabbed, and managed appropriately, and in the right locations, one can do very well. To do so requires an intimate knowledge of the areas, streets, tenants, city, rental laws, and everything having to do woth construction

Agreed with the above; at the $5-10k range, I wouldn't worry about the rehabs, I'd worry about getting shot. In theory, you can buy entire blocks for less than $50k, but just because you can doesn't mean you should. My $0.02 from someone that once considered the same thing.

Why not buy a better property with bank financing?  Or, better yet, rent your current home, move into one (Maybe buy a fixer with a 203k loan) fix that up rinse and repeat.

@Seth 

I don't mind putting in the extra 30-40K to be efficient.  Since I plan on holding the property for a very very long time.

I just want to be sure it's in an area were I can get a half decent rent.

Thank you both for our input and anything else you can suggest is always appreciated.

Thanks guys,

My thoughts is I want to stay away from mortgaging a property.  I here all the pros but I see a lot of cons and the stress of trying to qualify, making sure you do have steady rent  coming in, and then trying to get another property mortgage on top of that.  I have to cover that mortgage somehow, property taxes and insurance all in the same swap.  I just see that paying for cash may tie up my cash for a year, year and half but then it's mine free and clear and I can move onto the next property.  This is just how I feel right now, things may change.

Originally posted by @Shannon Fong :

@Seth 

I don't mind putting in the extra 30-40K to be efficient.  Since I plan on holding the property for a very very long time.

I just want to be sure it's in an area were I can get a half decent rent.

Thank you both for our input and anything else you can suggest is always appreciated.

 Again, I was once in your shoes. When I started looking into it, drilled down and spoke with people who have been there and done that, it became clear that while it's possible to make some money doing it, there are definitely some issues that will likely arise: tenants in those areas will cause more wear and tear, are much more likely to default, and you'll spend more time either managing the property or managing the manager.

Yes, you can buy houses sub-$50k that rent for $800-1,200/month and at a first glance, that sounds awesome. But given the issues above, even a couple instances of turnovers or legal proceedings can wipe out a good chunk of your profits. Not to mention that it goes from passive income to active income. 

Lastly, do you think you'll be able to sell it easily down the road should you need to? I know you plan on keeping it for a long time but plans change in life. If a property isn't worth selling, it's not worth buying, whether it's due to the price or external factors. Good luck with however you choose to proceed.

Well if you have 10K to buy and another 50K to do the rehab , you have about 60K liquid . If you found a 80 K property that needs cosmetic work , not a complete rehab , put 20K down , you have a 60K mortage . Approximate payment would be $ 500, taxes and escrow included .  10K in repairs and you are renting in 60 days . At estimated $1300 a month for a 3 bedroom in Glen Burnie .  ( just cause I know the area)  That leaves you with another 30K to play with .   

If you are new to the game , dont jump in with both feet , its sink or swim . if you havent dealt with contractors before , they will smell it , and you will pay for it . Leave yourself an out , worst case , can you at least break even if you have to sell . 

I bought this , in Pasadena for 130K  the inside was worse , 

This is a year later , 

Wasnt easy , its a duplex , each side  $ 1300. mo      Its in a Blue ribbon school district and a B neighborhood .   I am a contractor and did the work , over the course of a year when we had down time . I am all in for less than 90K a side , in a neighborhood of 300K single family homes .

My out was that the lot 8 doors down , just the lot , sold for $ 150K  . And my lot was 1/3 larger .  House was appraised 4 months ago for $ 310,000.   

Its a lot more work than you think , even if you aren't swinging the hammer . It takes time to learn an area ,  Baltimore city can be a very risky investment if you dont know where you are buying , short term may look good , long term is harder to predict . To me ,the row homes are even riskier , since they have common walls , how your neighbors maintain their structures can have a direct impact on you . 

I don't know it just doesn't work for me taking out mortgages no matter how good the deal is even if it is so called 'good' debt.  At the end of the day it's debt.  You owe somebody and they want their money.  Yes, you can sell it if all goes south.  However, I think if I owed the house right out than if all go so south I could whether the storm more because I would not have to pay back a bank or investors.   I would just have to pay property taxes and insurance.  Which in most cases is a drop in the bucket?  If push comes to shove, I could rent the property our for at the least the property insurance or taxes.  Or if I have multiple properties with positive cash flow that are not mortgaged.  The cash flow would be more than enough to cover property tax and insurance one or two tenantless properties.

I am not talking lightly of anything anyone is advising me, so I hope you not thinking that.  It's just my the wheels are turning in my head how to protect myself no matter which way I go. Because either way things could go south.

I really appreciate.  I will make sure I do diligent homework and comeback with questions.

It seems like you already have your mind made up with how you are going to proceed but I'll just chime in anyway. Like @Matthew Paul said if you're new you're jumping in the deep end with learning rehab and rental all at once. If you're going to be $60k all in then I would suggest going with something that's closer to $40-$50k purchase that might need $10k in work as opposed to something that's $10k purchase and needs $40-$50k in work. 

Also I see you don't like the idea of taking on a mortgage, which was exactly how I was. I felt like if I had the houses paid off it would be much less stress for me cause worst case I'd just be paying taxes and insurance. The negative to that is you won't be able to grow. I paid cash for a house and paid for all the rehab and once it was complete yes I was getting a small monthly check but not enough to start on another house with. I wound up getting a HELOC on it so I could move on to the next project. So unless you have a huge amount of capital saved up you're going to have to take out some sort of debt to grow.Trust me my end goal is to have my properties paid off but for me to grow I had to make debt a part of my strategy.

Thanks Chris,

Well, I haven't made up my mind except for the no mortgage thing.  The one thing I gather from getting a mortgage is so that you can obtain properties fairly quickly.  Since it is not my goal to have 5 properties in a year, etc.  Obtaining mortgages to purchase house for cash flow doesn't seem an option for me.  I can purchase slow as long as I can create consistent monthly cash flow.

Yes, I have thought a about purchasing higher with less (hopefully) rehab work.  All options are on the table.  Some are just push a little more to the left and some are more to right.

It certainly seems you're looking for validation more so than advice. Have you done any math to see how long of a payback period it would take for you to accrue enough cash to grow your portfolio, given the type of properties you're looking at buying (or any properties for that matter)? Your goal is to purchase 10 houses in 10 years. Unless you're investing in a gold mine, I don't see you coming anywhere near that without leverage. I certainly don't mean to rain on your parade but I think you need to do a little more homework before committing to your current plan. Regardless of what you choose, I wish you the best and hope you accomplish your goal.

Originally posted by @Shannon Fong :.

The one thing I gather from getting a mortgage is so that you can obtain properties fairly quickly.  Since it is not my goal to have 5 properties in a year, etc.  Obtaining mortgages to purchase house for cash flow doesn't seem an option for me.  I can purchase slow as long as I can create consistent monthly cash flow.

In your first post you said that you wanted to do 10 houses in 10 years. I can't speak for everyone but in my opinion thats moving pretty fast and, unless you have a ton of cash, would be nearly impossible without you taking on debt. If you follow your plan of never borrowing you're looking at about 1 house every 9-10 years if everything goes perfect. 

If you have $20k capital and $2500 a month that you can put towards an investment then you can easily and safely reach your goal if you would be willing to adopt borrowing into your plan. You'd be paying back around $360 PITI if you borrowed $40k. Like I said earlier you and me have similar strategies so I'm not knocking you wanting to do the debt free thing.

Hey Shannon. I puchased my first rentals late last year's after looking for several months. BALTIMORE REIA has an excellent class this month on rentals that you should attend. The two women that teach it own over 150 units. What I suggest is buying in the $30-40,000 range with cosmetic rehabs to start getting use to working with contractors. Full guts are NOT for newbies unless you team up with someone experienced.

I would also use Hard Money Lenders, Private Money or a short term bank loan for most of the purchase cost. Your money would be the down payment, closing and the first rehab draw. After you rehab and rent it,  then refinance in 6 months  pay off the lender and buy the next rental. At that rate you would hit 10 houses in 5-6 years. Make sure you tour the areas and blocks that fall into your price range and look up the zip codes on gosection8.com or rentometer.com to assess rental rates. I won't accept ANY boarded up houses on the block. I bought in 21216 and 21229. For appraisal value I avoid zip codes with too many properties under $20,000. Good luck with your first rental. Feel free to email me any additional questions.  

Greetings Shannon, 

I am having pretty good luck so far in the 21215 area code. Specifically around the keyworth ave area. I just bought a property for 29,000 and had to put about 4000 into in fixes. It is being rented out for 1208 a month (section 8), and the house has two very abandoned houses right across the street. My goal is to bring up that street entirely so at some point I may try to snag them unless someone beats me to it (good for them). Point being is if you make the inside of your place nice people will turn an eye in the most part to abandoned properties. The first person I showed it to handed me her voucher right away. If you are interested in getting some cheap places look into tax liens but that may be something to consider down the road. I agree with others. Get a place that doesn't require a total gut job for your first one. There are many to be had.  

@Marc

Marc,  I do not look for validation on any decision I make. I always hold myself accountable for my mistake if they are to happen.  If you look for validation, then you look for someone to help take the blame.  If I have made up my mind,  than I would not have posted.  In reading up on advise on what to purchase it seems almost a 50/50 to go low and do a lot of rehab or go a little higher with less rehab.  

I have done math. My math I included the the cash flow return as snow ball to pay my debt back.  So yes, based on my numbers 10 houses in 10 years could be quite doable.  With rents between 950 and 1000 (if I can get higher, I read with section 8, that would be gravy) , and I can find 'good' deals in Baltimore City where I am primary looking.

Thanks everyone for your advice.  I will take my time and do what I feel is the best the decision.  I will add you as colleagues if you don't mind that way I can keep you posted.

@Shannon Fong You can certainly ask question here but you need to get out into the market and see various neighborhoods and talk to other landlords. There is a group of landlords that meets Mondays 12:00 for lunch at Spirits West 2601 WIlkens Ave 21223. 

Sometimes they will walk over to their rentals just a few blocks away and you can see how they renovate them and what they are getting for rent. This is a really valuable experience. 

@Shannon Fong - I seem to be following Ned around tonight here on BP but he said what I was going to suggest -- get out there and meet those actively rehabbing and renting in these areas.  Another great resource is the BWI Meetup --> www.meetup.com/bwimeetup  The next meeting is THIS Weds April 6th at 6:30 PM.  I strongly suggest networking and building up relationships because they will help you get through those first investments.  At some point you have to take the plunge and I think whether it be a "sub 30" house or a nice place, either which way you are fairly green when you do the first project.  It's nice to have someone being an active safety net but to get that you have to build the relationship.  Some will disagree with me saying you can do it on your own but I know from experiencing it right now that if you're looking at 10K houses in Baltimore city, that every little bit of support and guidance from those who know what do to, helps.  As mentioned above, once you start the rehab, you're in and there is no going back.   The Spirits West lunch is a great place to start and if I didn't teach,  I'd be there very Monday.   With the entry point I think you're looking at, that lunch is THE place to learn about how to be successful with low income rentals. 

Shannon the only reason to invest in Baltimore city right now is the upcoming appreciation, if you believe in that sort of thing.  This is important because certain neighborhoods will do better than others.  This is a very complex subject and an unpopular one for some so I won't go any further other than to say that you can't just look at a neighborhood in isolation.  Rather, you need to look at a neighborhood as it is evolving over time.  How you accomplish this task is up to you.

Thanks again, everyone.

I can't make the Monday group meetings.  But I will be at the Wednesday BWI meeting.  I can't wait.

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