I have done very well in TN and I have clients/friends that do well in TN. To write off an entire state because of such a tiny and I do mean tiny sampling is crazy. There are always going to be bad deals in any state, city, town you go to but there are also gold mines to be had if you know where to look.
Just read through @Larry Frieds article. It make some great points on the pros and cons of the three approaches. I invest in all three options myself and think it's a good way to have a balanced portfolio (within real estate of course).
4/21, had phone conversation with both steve from Norada and turkey provider , narrow down a single family with cap rate 7%, almost want to put tricker and just jump into my first deal but after asking on biggerpocket and think over the weekend myself . I can still find cap rate 7-8% in NJ. Why invest on houston for 7%?
For second phone call steve was still easy to reach and very transparent and patient when help me to narrow down the properties . I do feel like I have someone holding my hand on the process as a newbie turnkey buyer.
4/25 today Email steve for other city turnkey listings. And let him know 7% cap rate I lower than my expectations of investing. So I ask him to connect me with others state turn key providers.
So far everything is very positive with steven from norada.
I will keep updating my story .
Why are you trying to value single family homes based on CAP rates? Turnkey operators love to advertise that way because it often makes their investments appear to be more attractive than they usually are, but it is often total bunk based on blue sky pro forma projections that you will never see or achieve. Lesson 1: what are the sold comps? That is how you value single family homes, and that is what you should be checking to make sure you are not overpaying EVEN if the property meets your cash flow requirements based on REAL projections of income and expenses (independently estimated, not given by the turnkey provider) ... if you overpay based on sold comps, then you have eliminated your exit strategy and painted yourself in a corner ... I'm not saying or implying that the property you are considering is a good deal or not, or will be profitable or not, just trying to educate on how to determine fair market value so you don't overpay and severely limit your exit options. Good luck with your investments.
Why are you trying to value single family homes based on CAP rates? Turnkey operators love to advertise that way because it often makes their investments appear to be more attractive than they usually are, but it is often total bunk based on blue sky pro forma projections that you will never see or achieve. Lesson 1: what are the sold comps? That is how you value single family homes, and that is what you should be checking to make sure you are not overpaying EVEN if the property meets your cash flow requirements based on REAL projections of income and expenses (independently estimated, not given by the turnkey provider) ... if you overpay based on sold comps, then you have eliminated your exit strategy and painted yourself in a corner ... I'm not saying or implying that the property you are considering is a good deal or not, or will be profitable or not, just trying to educate on how to determine fair market value so you don't overpay and severely limit your exit options. Good luck with your investments. @Liz C.
Good points David. We don't want investors focused on cap rate because it's a one-dimensional metric, and not the best one to use in the first place. It's better to gauge using the cash-on-cash (COC) return, and the Total ROI.
Verifying all numbers, including market value is part of the due diligence, and should not be overlooked. We don't like it when other companies inflate the real numbers to make the deal look better than it is. It's best to be conservative and factor in vacancy and repair, along with the actual lease amount of the tenant.
Continued success!
@Marco Santarelli, I am looking at your website and each property have CAP Rate so the buyer can compare it. Shouldn't you be replacing that (or adding) COC or ROI if you want buyers focus on that?
@Marco Santarelli, I am looking at your website and each property have CAP Rate so the buyer can compare it. Shouldn't you be replacing that (or adding) COC or ROI if you want buyers focus on that?
Hi Oleg -- If you're only looking to the right side of the thumbnail image, then you will only see basic financial info. The best thing is to click the Orange Button under the photo to get a complete and detailed cash-flow analysis and pro-forma for years 1-5, 10, 20, and 30.
Hope that helps! Please let me know if you have any other questions.
Hi @Liz C. thanks for the update! I can understand wanting to get a cross country move in the rear view mirror before you really drill down on investments.
Between now and August, I don't anticipate the market changing "too" much, but its certainly possible. For example, a year ago, I was seeing rent to value ratios in decent neighborhoods at above 1% (like 1.1-1.4). Now? Unless you're in C class neighborhoods in places like Cleveland, Chicago, Memphis, Birmingham, etc, you're likely going to be at anywhere from .8% (that's for new construction or A class neighborhoods in growing markets) through 1.1% (more B class properties in the 80-110k range in places like Kansas City, Indy).
Bottom line, if somebody is showing you a deal with a rent to value ratio in the mid 1% range...something's up. If a deal can cashflow that well, why would a seller give all that money up?
Anyways, this isn't intended to open a big can on what metrics to use when evaluating income property. There's much more to it than a rent to value ratio, cap rate, cash on cash return, etc. But when you're ready to chat in August, I'll be ready too! Have a save and successful move!
@Marco Santarelli, I am looking at your website and each property have CAP Rate so the buyer can compare it. Shouldn't you be replacing that (or adding) COC or ROI if you want buyers focus on that?
CAP is "better" to advertise than COC since COC takes into account your financing, which a seller couldn't possibly know.
If I buy an 8 CAP property all cash, I'm going to make 8%. If I buy it with 50% leverage at 5% interest, I'll make 11% (keeping principle reduction out, which lowers return by the same amount it increase equity). If I buy with 80% LTV I'll be at 20% COC.
COC should be calculated by the buyer based on their own situation.
I don't like ROI because it's typically based on future rent growth, appreciation, tax savings, etc. which are estimates and better done by a buyer based on how conservative or not they want to estimate.
But hey, that's just my opinion.
Hi @Liz C. t
Bottom line, if somebody is showing you a deal with a rent to value ratio in the mid 1% range...something's up. If a deal can cashflow that well, why would a seller give all that money up?
I caution not to overthink that. I've bought many properties that were slam dunk money makers. One of the best properties I bought was last year. An 80 unit that I haven't had to do a thing to. Literally nothing. It brings in buckets of cash. The guy just wanted to move on and focus on other markets.
Hi @Liz C. thanks for the update! I can understand wanting to get a cross country move in the rear view mirror before you really drill down on investments.
Between now and August, I don't anticipate the market changing "too" much, but its certainly possible. For example, a year ago, I was seeing rent to value ratios in decent neighborhoods at above 1% (like 1.1-1.4). Now? Unless you're in C class neighborhoods in places like Cleveland, Chicago, Memphis, Birmingham, etc, you're likely going to be at anywhere from .8% (that's for new construction or A class neighborhoods in growing markets) through 1.1% (more B class properties in the 80-110k range in places like Kansas City, Indy).
Bottom line, if somebody is showing you a deal with a rent to value ratio in the mid 1% range...something's up. If a deal can cashflow that well, why would a seller give all that money up?
Anyways, this isn't intended to open a big can on what metrics to use when evaluating income property. There's much more to it than a rent to value ratio, cap rate, cash on cash return, etc. But when you're ready to chat in August, I'll be ready too! Have a save and successful move!
There are plenty of properties in Cleveland B class cities that will get you 12-18% ROI.
Where are you seeing 7% cap in NJ? Keep in mind Cap is on paper so a 7% cap in Newark or worse Paterson is not even close to comparable to a 7% cap in B class Houston.
@Cody L., I agree. My point is that those kinds of deals aren't rolling off the turnkey conveyor belt. They're more of a rare find. But if you're coming across them all the time, then you and I need to tal asap :)
That sounds like an awesome one you got into! I'm all for "buckets of cash."
@Steve Olson Lets define A, B, and C
There are many definitions floating around attempting to define investment properties.
I like to start with the community in which the properties is located.
A neighborhood = 95% homeowner or better
B neighborhood = 65% homeowner or better
C neighborhood = All renters
These neighborhoods could also be defined by the land value, on which the subject property is located. In an A community the land value is high enough that if the subject property were to burn down, it would make sense to rebuild a bigger and better property.
In a B community the land value should be substantial enough to rebuild the same property, in square footage and included features.
In a C community the land does not support rebuilding, and the lot will remain vacant for years to come.
Then I look at the condition of the property
A = Brand new construction
B = 1975 and newer homes with a FULL renovation (Roof, HVAC, Appliances, All hard-surface floors, Exterior and Interior cosmetic repairs and paint, Hardware replaced, New light fixtures, Fenced in Backyard, and more!) my average FULL renovation cost between $25,000 - $35,000 in Memphis
C = Rent ready. Just livable
The best advice I have received from my mentors pertaining to my Class C investments is:
1. There is strength in numbers.
Some of my clients have 100+ C Class properties in Memphis. These investors do very well! However, I've spoken to several investors who have 5-10 properties in town and when they have a couple of vacancies... they are miserable.
The moral to this story, is to have a strategy to eventually "Go big or go home!" and until you get to 20+ properties... expect it to be an uphill battle.
2. Do a A Class renovations on your C Class properties.
One of the most successful TurnKey companies in town only renovates Class C properties. However, he installs new 30 year architectural shingles, Stainless appliances, hardwood and tile floors, newly painted interior and exteriors, and more.
If you are going to own a property on a street of mostly rental homes, I'd suggest that you stand out from the crowd. By having the nicest home on the block you can be pickier about who rents your home, and in most cases your tenant will stay longer!
This thread has been great and very helpful. Thank you @Liz C. for having the boldness of posting your experience as it's really been on BP. I'm actually not too far behind your current status as I'm myself looking into Norada for out of state investing (country in my case) and have reached out to Norada already. I'm just in an intermittent phase waiting for the consultant to get back to me. Hopefully soon since I hope to come out and do some site visits!
Hi @Account Closed -- glad to see you're working with Ron, and that you're considering a trip to the U.S. I would encourage it and know you will find it helpful and educational to meet our team(s), etc.
I'll be speaking with Ron in the morning and follow up for you.
Feel free to contact me anytime with any questions.
Continued success!
@Matt R. Thanks for the comment on valuing single family homes. What did you mean when you said "the lowest caps sfrs might actually be the most profitable"? How do you value single family homes? Would like to learn more.
Sure, sfrs are valued by comps. You can still figure out a cap but it might have little relationship to total profits. You could have two physically identical homes, one has a 6 cap and the other has a 2 cap. Fives years later the 2 cap is worth 100% more and rents doubled and the 6 cap rents are the same as before and the value went up 10%. Becuase the 2 cap was located in a high demand location and the 6 cap was just an average location. Supply and demand, location, schools, jobs , crime etc were superior factors in determaining possible profits not the initial psuedo cap rate.
I am just starting out in turnkey properties. I plan on buying my first property in August. I contacted both Norada and Roofstock. Roofstock called first and said they would call me back in July. Melissa Nash from Norada contacted me today and gave me a wealth of information including podcasts, articles and names of books I should read. Right now, I am now looking at current properties priced at $111k with 20% down, 3 bdrm and in a “B” neighborhood in either Birmingham or Mobile. I realize I will have to sacrifice appreciation compared to Kansas City but at least I am getting my foot in the door. Everything I have read on Bigger Pockets and researched on the Internet, I have read so far in Melissa’s info and listened to on both BP podcasts and the Passive Real Estate Investing podcast. I haven’t heard anything negative about Norada so far but if anyone knows something negative, please tell me on this thread or give me a link. In the meantime, I will continue learning through Melissa’s referrals and other Internet research.