Marlton, NJ · Member since 2017 · 129 posts · 16 votes
Seems to me when I look into buying a 60k house it comes with issues it's potentially on its last leg in a neighborhood that is consistent with the same issues in the same price point.
When going up to 100k you are getting basically turnkey and not much to fix up.
What do you think an investor should do? I'm after cash flow not appreciation.
Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes
9y
Make money on the buy side. How about buying a 50k property, putting 25k into it, and ending up with a 100k rental?
Best I've done is buying a 4K property, putting 25k into it, and ending up with a 70k property that rents for $795/month.
Second best is buying a 22.5k property, putting 25k into it, and ending up with a 85k property that rents for $725/month
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
Michael P. For what it's worth, you can get a conventional mortgage on that $100K property. With the $60K property, you'll struggle to make a $50K -> $75K many financiers have as a minimum loan amount. Not to mention that costs like an appraisal, county transfer tax, title search, etc. (all of those closing costs) are largely similar regardless of if the loan is $50K vs. $80K vs. $200K. Basically, your cost-of-capital isn't equal.
Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes
9y
Make money on the buy side. How about buying a 50k property, putting 25k into it, and ending up with a 100k rental?
Best I've done is buying a 4K property, putting 25k into it, and ending up with a 70k property that rents for $795/month.
Second best is buying a 22.5k property, putting 25k into it, and ending up with a 85k property that rents for $725/month
Developer · Memphis, TN · Member since 2017 · 352 posts · 148 votes
9y
@Account Closed Those are some great numbers. How much time would you say you personally put into each deal? Is this your main job or side job?
When it comes to Turnkey the key is to find a great team! Ideally you would find a company that has everything under one roof. Acquisitions team, renovation crews (fully licensed and insured), Property Management, and a Real Estate Investment Brokerage in case you ever decide to sell.
By teaming up with a solid firm you can mitigate your risk and have some "boots on the ground" that have your best interest in mind.
Deal #1 I bought last November and "did rehab" remotely from Denver with a property manager in place (her team manages another property I own). It was painful but it worked out. Property is up the road from you in Indiana.
Deal #2 I closed on last September (Friday before labor day weekend) and did the work myself here in Colorado. It rented out in January. I spent every Saturday & Sunday + 1 week of "vacation" working on the house (with the exception of a week I took off in November to go to Indiana).
This is a part time thing for me - investing through an LLC that is not registered to do business in Tennessee. I've seen a lot of opportunities in your area, but I really like the property manager and her team I have in place in Indiana and I've gotten together a pretty good list of who to see for what for future projects in that area.
Here in Colorado it's tough....it's either outbidding asking prices on homes in the Denver metro area, wishing I could put together capital to purchase a $1.2 million empty 43 spot mobile home park with a TON of opportunity, or investing in areas where houses are selling for $3,000 - $5,000 more than they were 10 years ago (not a very good proposition).
Strategy for the rest of the year is to close on two deals (I'm about 45 days away per the attorney) in Arizona, let things season, and see what I can drum up in Indiana or Ohio this Fall.
Developer · Memphis, TN · Member since 2017 · 352 posts · 148 votes
9y
@Account Closed Thanks for the information! I actually spent 2010-2017 in Denver studying at DU then working and the appreciation around my area was absurd! I'm shooting myself in the foot for not buying a place.
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
You have to understand that cash flow is not constant ... it changes over time. In markets, neighborhoods, and properties on their last leg, cash flow may start out very high but go down over time as prices and rents don't keep up with inflation so that eventually CapEx eats it all ... CapEx always seems to keep up with inflation, even though prices and rents do not always.
On the other hand, in a vibrant and growing community cash flow may start out lower, but is will go up over time as prices and rents exceed inflation, or at the very least stay steady as they keep up with inflation.
So, even if you are in it for only cash flow, you still should care about and consider growth and appreciation ... those can be negative too. If properties are regularly selling turnkey on the open market for well below replacement cost (~$150 SF), then right off the bat you know you are dealing with a neighborhood with negative appreciation. Food for thought ...
Lender · Tucson, AZ · Member since 2015 · 279 posts · 91 votes
9y
@Michael P., you ask a great question. There's a loan product out there that will enable you to purchase a distressed product for cash, do the necessary rehab to bring in up to a habitable/lendable level, and immediately pull cash back out of the property BEFORE you sell it.
You'll find that this product is perfect for cash flow (and/or appreciation) depending on what you're looking to do.
You need to figure out your goals and your risk tolerance... You could do flips or rentals. You could go Single family, or multifamily. You could go low income or bread and butter...
I own a property management company here in Indianapolis. I designed our systems around finding good tenants for low income houses. I manage rentals from $450 - $1900 a month. I have just as many bad tenants in high income houses as I do the low end ones. High end tenants are so whiney. "My LEFT shower door doesn't work.. Come fix it!" "I pay a lot of money to have a shower door that works, so you get your butt out here to fix it.. NOW..." Recently had a guy complain because there was three wire brad-sized nail holes above the fireplace... Seriously?!?
As others have said you will have a hard time cash out refi'ing the lower income stuff.
Just really depends on what you want to do. I prefer to have 2-3 lower end rentals to the 1 bread and butter, but that's just me.
@Account Closed I'm curious where you invested in Arizona?
I have tax liens in Pinal County (Eloy). I am working on foreclosing on two liens this year. It also looks like I will have 5 more to foreclose on next year if it works out.
Seems to me when I look into buying a 60k house it comes with issues it's potentially on its last leg in a neighborhood that is consistent with the same issues in the same price point.
When going up to 100k you are getting basically turnkey and not much to fix up.
What do you think an investor should do? I'm after cash flow not appreciation.
Rental Property Investor · Hong Kong, Hong Kong Island · Member since 2014 · 188 posts · 114 votes
9y
if you go for a low income tenant, pm becomes crucial. You won't make the pro forma on that investment, and lending is hard. In short, 100k is cash-flow, 60k is trashflow. Both may work well, see what works for you.
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
9y
Hey Michael. You're basically right. But even more to the point...you can buy $60k fully-turnkey'ed properties, just as you can $100k. But in my experience, the $60k turnkey will absolutely come with more hiccups. I started buying turnkeys 6 years ago and have been working with turnkey buyers ever since, so I hear all of their experiences first-hand, and $60k properties definitely do come with more drama.
That is, of course, dependent usually on the market you are talking about. Right now, $60k in just about any [turnkey] market will have more drama. 6 years ago when I bought, for example, $60k was an expensive turnkey in a lot of markets. So it can all be relative based on where and when you buy, but you are correct in your assumption.
Investor · Broken Arrow, OK · Member since 2016 · 210 posts · 314 votes
9y
As I've always stated, it all depends on your goals and objectives. Mine is long-term cash flow for retirement. Interestingly, I just reviewed the market values of all of my properties. Yes, they have all appreciated nicely. But, so what? I do NOT want to sell them as they are golden eggs. So, I don't care one whit what the appreciation is. What I do care about is the ability to produce consistent and increasing cash flow (property that is desirable in a market/neighborhood where rents will increase over time). Know your goals and stick to your knitting!
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
9y
There are some decent properties in Philly in the $60-70k range actually. The ones I work with are now cash-only deals, no financing, but at least they are there so I know they are out there. Just depends on what you are looking for.
Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
9y
Hey @David Faulkner - I wanted to learn a little more from you and had a couple questions. I started to message you since it's slightly off topic, but as I started to write it out I thought that it might useful knowledge for others as well. And it's close to on topic.
...
So, I think I understand your stance and there is a lot of validity to them. I have a couple questions I was hoping you could answer them so I could better understand and learn some more.
1) If properties are regularly selling turnkey on the open market for well below replacement cost (~$150 SF), then right off the bat you know you are dealing with a neighborhood with negative appreciation.
- Even if there's a new kitchen, bathrooms, flooring, light fixtures, HVAC, & roof... How does your statement account for the difference in buying a 50-100 year old foundation, insulation, wiring, plumbing, etc instead of buying brand new everything? There's also a big preference for the new layouts & design of a new build vs the old one (trust me in dealing with tiny closets, small bathrooms, & an OK at best entertainment layout in a ~110 yr old personal dwelling!)
...
2) When you say: "In markets... cash flow may start out very high but go down over time as prices and rents don't keep up with inflation so that eventually CapEx eats it all ..."
- How does this account for areas & markets that would fall into this category in your eyes, but are still being rented out today for profit? I'm thinking there would be markets/neighborhoods/areas that would fall under this category in your analysis but have had profitable rental units in them for decades and decades. How long does that take to happen? It seems as though this statement would mean eventually you couldn't make any money renting anything in these markets, but there have been rentals for decades in them.
Investor · Baltimore, MD · Member since 2015 · 71 posts · 24 votes
9y
To me its really dependent on your market, my brother invests in Cali and would laugh at 60k but in my market 60k is usually a nice sweet spot in a decent area with decent schools, but my market isn't an area based on or zip code and rarely neighborhood, its block by block. For my investments I am usually all in at 40k (I actually haven't hit the 40k number yet on any of my investments but that's usually my cap) and usually rent at about 800 to 1000 so it cash flows very well but it all depends on your market and what's most important to you
Seems to me when I look into buying a 60k house it comes with issues it's potentially on its last leg in a neighborhood that is consistent with the same issues in the same price point.
When going up to 100k you are getting basically turnkey and not much to fix up.
What do you think an investor should do? I'm after cash flow not appreciation.
We manage a $40 million portfolio of 60k houses, 100k houses & everything above, below and in between. There are always so many variables at play at all times that you can never predict exactly how one home will perform. Sometimes it goes well, sometimes it doesn't. Sometimes it goes well for awhile then it goes bad. The one common factor is always that the nicer the home and neighborhood the fewer issues you have. Less repairs, less turnover, less non pay etc.... I think that you should purchase the nicest home that you can afford.
@James Wise Question to you... Is it dumb to buy @ retail even if it cash flows?
Not it's not dumb to buy at "retail"
The better question tho is what competitive advantages are you using in your business that leads you to believe you will be able to buy a property at a price other than retail?
Marlton, NJ · Member since 2017 · 129 posts · 16 votes
9y
@James Wise I cant find a deal for my life. Most properties I walked are not livable, requiring specifics that a conventional mortgage wont allow. Properties I am seeking through zillow are mainly listing at retail. I am getting to the point to just give up. I have see lots of properties in a specific affordable housing area.