Can't Find Good Investments - Build Instead?
Rental Property Investor · Summerville, SC · Member since 2017 · 169 posts · 36 votes
Can't Find Good Investments - Build Instead?
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Rental Property Investor · Charleston, SC · Member since 2016 · 7 posts · 3 votes
9y@Andrew Merritt - sorry was out of town, but to answer your question. "How do your returns look w/ the new construction property?" If you use your formula - "cash flow = rent - (mortgage + taxes + insurance + HOA + vacancy (1/12 rent) + PM (10% rent) + repairs (5% rent) + capex (5% rent))". I (and this is me) would get rid of PM (10%) & repairs (5%) & capex (5%). Save yourself 20%. The new construction is obviously not going to need any repairs, better not need any capital expenditures (except a fridge if the new house doesn't come with one, but Best Buy offers extended warranties if you buy one). The new home warranty is going to cover all parts of the home for varying timeframes for the different systems. Use a preferred lender and most of your closing costs are paid for. Best part is the company you buy from usually does a 12 month touch-up to fix nail pops, wall cracks, repaint, etc. So your 1st year rental gets "fixed" if anything needs fixing.
The New Construction SFR I just sold ~3 years after I bought it got me 5.5x what I originally put in, made me a few hundred a month x 3 years, and helped with taxes. Same tenants for 3 years, no problems ever. The New Construction SFR I have a signed contract for should get me ~$600/month, I'm not going to expect the same appreciation (but some), and will help with taxes.
You said you're looking to buy your 1st one. Do you have a primary? If you don't buy a new one. The model I just bought has both a 1st and 2nd floor master. Then you could house hack. I'm sure someone out in Summerville is looking for a roomie. If you have a Primary you could upgrade, or side-grade. and move into a new Primary. You keep the low interest rate where you were (instead of the crappy investment rate). And you wouldn't need the 20% down. That opens more options.
@Jay Hinrichs - That's the good thing about the Peninsula, there are a ton of old warped wood sideways leaning fixer uppers down there. The problem is the primo prices they are wanting for those 1800s rebuilds. It sounds like you have a good system and people in place, that is way out of my comfort zone right now.
25 Replies
- Investor · Charleston, SC · Member since 2015 · 10 posts · 3 votes9y
Hey Andrew,
I saw your post on BP - I'm a flipper / wholesaler in the Charleston area. What is the formula you're looking for for rentals? I'm seeing way less rental grade real estate available as i feel prices have outpaced rent increases in most neighborhoods. I do find rental grade stuff from time to time and have done several deals with landlords the past year or so. In what neighborhoods are you looking?
- Charleston, SC · Member since 2017 · 6 posts · 2 votes9y
@Andrew Merritt you are certainly right about Charleston, slim pickings right now. What has worked for me in Charleston is looking beyond the formulas. I focus on finding downtown duplexes that are mismanaged. For example, I bought a duplex downtown (below crosstown) in 2015 that was renting for $3800 total, I am already up to $5100 in rent (I did not make any major upgrades to the units). At time of purchase I was cash flowing, but not anywhere near the 1% rule you read about, but am now on pace to exceed it and will likely not see any vacancy (given the student/grad student/MUSC market). Formulas/rules are great, but with the current market being so hot it's hard to let them be the only basis of your investment, in my opinion.
- Rental Property Investor · Summerville, SC · Member since 2017 · 169 posts · 36 votes9y
Hey @Daniel Pitcher,
My formula is roughly as follows:
cash flow = rent - (mortgage + taxes + insurance + HOA + vacancy (1/12 rent) + PM (10% rent) + repairs (5% rent) + capex (5% rent))
I estimate rent based on square footage. I found a bunch of other homes in specific areas (Goose Creek, Summerville, Ladson, North Charleston) and have averaged out the rent/square foot for each of those areas. Taxes are a little trickier, I'm pretty much guessing there at about $200-$250/month depending on the property.
I should also add that I only have about $40k to spend, so my price is somewhat limited to houses <$180k or so w/ a 20% down payment.
I'm specifically looking in nice areas in Goose Creek (Crowfield Plantation), Summerville, and Sangaree. I'm working w/ a real estate agent and she's able to guide me towards good properties w/ good schools and away from the bad areas and places w/ not so good schools.
- Rental Property Investor · Summerville, SC · Member since 2017 · 169 posts · 36 votes9y
@Danny Mansukhani that's not a bad idea. I think the property you found would be way out of my price range, but I might be able to replicate that to a smaller scale in summerville. How do you go about finding mismanaged duplexes? Are you looking in nicer areas, or are you going into rougher areas as well?
- Charleston, SC · Member since 2017 · 6 posts · 2 votes9y
@Andrew Merritt the typical methods mentioned on the forum work well. I've been lucky enough to find mine from mls listings. Pay special attention to those that have price drops, often times could mean it fell out of contract and they are getting desperate to move it.
- Charleston, SC · Member since 2014 · 36 posts · 31 votes9y
Hi Andrew,
I agree yes deals are hard to find. I am looking at practically all listings within my price range (on the mls, google maps, maybe rentometer.com etc.) and considering multiple strategies. Knowing nothing about your agent and their expertise, is it possible that you're missing out on acceptable and profitable areas that your agent is filtering out? Does your agent specialize in retail sales or investments? You may need to broaden your horizons and drive and become familiar with more neighborhoods. There are many different types of tenants beyond families with school aged children who put good schools and the appearance of safety first. And then of course when you find something that meets your parameters, be extremely aggressive. I see maybe a half dozen seemingly cash flowing deals a year with this strategy, and jump on one when possible. My underwriting is a little more conservative than yours with 10% vacancy, 10% PM, 10% maintenance, and 10% cap ex, but I target older homes.
In regards to building, I would love to do that too! Definitely out of my comfort zone though.
- Investor · Charleston , SC · Member since 2014 · 160 posts · 142 votes9y
Hey guys.
I am an investor and GC here in Charleston. I do flips and new builds but looking to expand a bit. Any one want to get together next week for a beer/club soda and talk strategy? I think we could probably all help each other a good deal
- Rental Property Investor · Summerville, SC · Member since 2017 · 169 posts · 36 votes9y
@Justin Smith I could get together next week. I'll send you a PM
- 9yTroy GandeeBusiness MemberReal Estate Broker · Charleston, SC · Member since 2013 · 794 posts · 454 votes
@Andrew Merritt. They're still there. You may just have to alter your preferred areas. Your formula is pretty much exactly what I use and I come across things that I would buy all the time. I'm taking short break on buying due to weddings. Unfortunately, other areas outside of Charleston metro may need to be your new farm if you require more than a certain dollar in cash flow. I'm sure you can build units that will cash blow, but without development experience, I would hesitate to try that.
- Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes9y
How are your margins better on building be rehabbing?
Ive never built but it seems way more out of my expertise than rehabbing
- Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes9y
Hello and welcome to BP! You might have to change your primary market area and hustle more and make more offers. As far as building new places that will allow you to do make money make sure you can do that cheaper that is cheaper than existing rentals properties or whatever you have as your primary niche, Know any local fees or laws that exist that will cost you more money or time. I have more to add to this but I want to say but I will keep this short for now. I am 60 years old right now have a bunch of construction and a little experience with real estate.
Good luck to you!
- Wholetailer & Architect · San Francisco, CA · Member since 2015 · 544 posts · 298 votes9yBuilding new has a lot of variables and could lead to a very expensive education if you don't factor in all the costs. Interview some local contractors with good reputations on costs per square foot based on the level of finishes and quality you want. See if it is cheaper than buying an existing place after figuring all the holding costs, land purchase, utility hook up, school impact fees etc. If it still makes sense find some vacant land or a tear down house and hire a good architect or partner with someone who has done this before
- Rental Property Investor · Summerville, SC · Member since 2017 · 169 posts · 36 votes9y
@Chris Purcell I have not looked into it much at all yet but my understanding is that it's cheaper to build than to buy an existing house. Of course, it takes a lot more time and effort though too.
@Michael Lee There are actually some properties I've looked at that I would consider making offers on but my agent either didn't get back to me about them or said they're not in a great location. She has a lot of experience in this area so I trust her on that part. She's done a lot of work for me looking for houses and I don't want to have her keep writing up offers and doing a lot of extra work. Is there a way I could write offers up myself?
@Sean Walton Good idea to talk w/ others in the area. I would love to find someone to partner up with that has this kind of experience.
- Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes9yAndrew Merritt here are a few of the things that have gotten deals in front of me. Calling for rent signs. Calling Craigslist for rent ads(did it this Morning) Asking management companies if clients want to sell(did this last week) Search MLS for mislabeled houses. Like a single family listing in a MF zoning. This one is tougher but if you get the zoning maps and start getting to know them it'll be second nature. If the house isn't listed correctly the people going to showings will be looking for one thing and get something else. So the house will sit. If a house sits you can get a deal. I will ask a complete stranger with large key rings if they are a LL or a maintenance super. A few weeks ago I saw a well dressed guy getting into a 90k Tahoe. The neighborhood is really bad. It's where I'm buying now. I hopped out of my car and literally flagged him down as he drove up in me. After asking him if he was a landlord he was really puzzled. I then quickly told him I was looking to buy houses. Handed him a card. He did have a house. I'm closing on it Tuesday. This last one is a little much I know. But I got a sick deal in the house.
- Rental Property Investor · Charleston, SC · Member since 2016 · 7 posts · 3 votes9y
@Andrew Merritt are you and @Jeffrey Stasz building an apartment complex yet? There is nothing on the market here. Multi's that aren't in a warzone sell in 2 days, over ask, for cash. Sadly I think I'll be buying yet another Single Family on John's Island (new construction at least).
- Rental Property Investor · Summerville, SC · Member since 2017 · 169 posts · 36 votes9y
@John Hickey haha not yet. I'm still working on getting my first property, so I'd like to be in your shoes buying another SFR. How do your returns look w/ the new construction property?
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Scott Person I am in the final throws of a mix of new build and rehab in the downtown area.
rehabbed an old lady.. then built a new one behind it.. sold before it was done for all cash at a 5 cap. Charleston is a premier location and the real estate and cap rates reflect that.. And with no rent control..
anyone wanting to build in Charleston these days .. its like any other hot area Quality GC and Labor is extremely tight.. @Sean Walton would be nice if you could get a list of GC and interview them but that simply is not reality in that market today..
- Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes9yAndrew Merritt I have to admit I got the idea from a bigger pockets podcast. Either Josh or Brandon said it. They were saying call lawn for rent signs and I just applied the idea to Craigslist. Yes, it does get leads in the pipeline. As for does it work or not.....I'll let you know if it closes. Here's two recent ones that are in process. The first was a few months ago. Saw multiple ads on Craigslist with similar style ads. Guy had a 1 bd/1ba. And a few 2bd/1ba with all different pictures. I hit the reply button and saw his phone number. I copied and pasted that into CL search and saw multiple ads for different size/location. Now it could have been a property manager but it turned out he owns multiple buildings. Yes he was interested in selling a 15 unit. After talking with him he subsequently put the property on the market. I made an offer he said wait. After sitting for a bit he has indicated he's willing to see me again. I have made an offer and we're negotiating face to face on Friday. Now in this case I might have seen the property on the MLS but I had an This weekend i was at it again. I saw a commercial space with several ads. Hit reply and it was anonymous. So I sent a blind email explaining that I was an investor looking for off market properties. He text my number a few hours later. Mostly asking why I was replying to a for rent ad. I re explained myself and after a few back and forth texts he said he was willing to sell at 3 properties at around 400k each. A little high for me in that market/location. I am going to look later in the week and I will make my own offer.
- Rental Property Investor · Charleston, SC · Member since 2016 · 7 posts · 3 votes9y
@Andrew Merritt - sorry was out of town, but to answer your question. "How do your returns look w/ the new construction property?" If you use your formula - "cash flow = rent - (mortgage + taxes + insurance + HOA + vacancy (1/12 rent) + PM (10% rent) + repairs (5% rent) + capex (5% rent))". I (and this is me) would get rid of PM (10%) & repairs (5%) & capex (5%). Save yourself 20%. The new construction is obviously not going to need any repairs, better not need any capital expenditures (except a fridge if the new house doesn't come with one, but Best Buy offers extended warranties if you buy one). The new home warranty is going to cover all parts of the home for varying timeframes for the different systems. Use a preferred lender and most of your closing costs are paid for. Best part is the company you buy from usually does a 12 month touch-up to fix nail pops, wall cracks, repaint, etc. So your 1st year rental gets "fixed" if anything needs fixing.
The New Construction SFR I just sold ~3 years after I bought it got me 5.5x what I originally put in, made me a few hundred a month x 3 years, and helped with taxes. Same tenants for 3 years, no problems ever. The New Construction SFR I have a signed contract for should get me ~$600/month, I'm not going to expect the same appreciation (but some), and will help with taxes.
You said you're looking to buy your 1st one. Do you have a primary? If you don't buy a new one. The model I just bought has both a 1st and 2nd floor master. Then you could house hack. I'm sure someone out in Summerville is looking for a roomie. If you have a Primary you could upgrade, or side-grade. and move into a new Primary. You keep the low interest rate where you were (instead of the crappy investment rate). And you wouldn't need the 20% down. That opens more options.
@Jay Hinrichs - That's the good thing about the Peninsula, there are a ton of old warped wood sideways leaning fixer uppers down there. The problem is the primo prices they are wanting for those 1800s rebuilds. It sounds like you have a good system and people in place, that is way out of my comfort zone right now.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Andrew Merritt:
I've been looking for good investments in my area (charleston, SC) since January and can't seem to find anything that will cash flow that 1) are in a decent/safe area or 2) cash flow according to my formula. I feel pretty confident in my formula (which is conservative but not too conservative), so I don't think that's the problem.
I've also considered flipping, but I just don't have the experience to feel comfortable w/ that..
You may have to define in with some specificity what your definition of a 'good investment' is numerically and the particular investment strategy contemplated. Also limiting your investment option to a Charleston, South Carolina may explain the drought.
- Rental Property Investor · Summerville, SC · Member since 2017 · 169 posts · 36 votes9y
@Scott Person good point about not having to sock away extras for repairs, capes, and maintenance. I actually just listened to one of the podcasts (episode 168) where the guy builds new houses and he said pretty much the same thing. The more I think about it the more it seems to make sense to do. From your experience, how does the cost to build compare to just buying a similar pre-owned house?
- Rental Property Investor · Charleston, SC · Member since 2016 · 7 posts · 3 votes9y
@Andrew Merritt Building for me has always been cheaper. The giant neighborhoods that Beazer, Pulte, Mungo, Crescent, etc. build in are always offering monthly specials. $8500 off upgrades, $5000 off total price, and on and on. Plus the closing costs are paid for with a preferred lender, that will be ~$6500 for my new one. I've had 4 built total, this one I did something different with though. I didn't design it. The neighborhood I bought in had 2 or 3 homes that the contracts fell through because the buyers had a contingency on selling their house, which obviously didn't sell. I bought one that is very far along in the process and should be finished in early July. I liked most of the options that they picked. Some were strange and I would have never picked, and I would have done hardwood through the whole house if I started it. But they discounted the house two times up to a total of $17K to unload it. (I'll take that, thank you!) There is one for sale in the neighborhood right now in the 1st phase that is selling for $10K more than the one I'm buying and it's 500 sqft less. Should I just close and then sell it? Maybe it's a new form of flipping! Check the local mega-subdivisions around you for any houses that were started and then the contract fell through. The agents at the models will be glad to give you info for a potential sale. You might even be able to make an lower offer than what they're asking and get it depending on how bad they want to unload the house. Darn! I wish I would have thought to do that, maybe for the next one.
- Rental Property Investor · Summerville, SC · Member since 2017 · 169 posts · 36 votes9y
@Scott Person Interesting, I would have never thought that buying a pre-built home in a large development would be profitable but I'll have to look into that.
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