Hi, I am trying to purchase my first property. I am looking for Single Family homes with 3+ beds and 15% equity or more. I am looking for a rental property and so far I found one or two properties which I called for and were already under contract. I am looking in the markets of Memphis, TN, NJ and Orlando, Fl. I go through many properties and run the numbers whether they have at least 13% cash on cash return. So far I found one but sold. What am I missing or is my criteria crazy? I have a little over 30k for down payment and I am also interested in owner occupied investment in my city of NYC.
Cash offers are best in this housing market. 3/1 is very popular, but look for 2/1 and you might find slightly less demand.
I think this comes down on how you are looking for your deals. Sounds like you are looking at deals that are already on the market. In todays would those are hard to find. Almost all good deals are found off market. Meaning you are dealing directly with owners. Direct mail is one of the best ways to go after those types of deals. Having said that if you are only looking for one deal direct mail may become cost prohibitive. You may want to just do some door knocking in one or two areas in your local market where you want to do your deals. And try to get off market deal that way.
Also, I would not look all over the place for this deal like you are doing. Owning one rental property that happens to be in another state is not the best idea. Stay local....
Hope that helps, if I can be of any other assistance please do not hesitate to PM me directly.
Your criteria isn't crazy, but you are choosing the criteria that other investors like which means competition. If you're looking to find an abundance of deals on MLS, than I would say you are being crazy lol
Have you done any marketing or have ways to get off-market deals or at a minimum, pocket listings?
I have been looking for properties on the MLS. I think I will try Direct Mail Marketing in my area to see what kind of options come up. I'm going to stick with properties in my area for the first few properties. Thanks for the help
You're welcome. Here's a direct mail game plan. If you want scripts on how to process orders, or a check list of things you need to prepare in order for your direct mail to be successful, I can send those as well.
1) Attend your local REIAs and network, you need to build a buyer list of investors that will buy your properties and network with other people in our industry. Do not spend too much time on this but at least know a few guys at your local REIA that are actively flipping that you can sell to when you get your first assignment.
2) Next develop your strategy, build a list of at least 200 properties to mail to. Response rates are typically 0.5-2% so the bigger the list the better. Options include driving for dollars, absentee, probate, using listsource if you are not in a competitive market, buying lists that are exclusive for your market type (we partnered with a guy that does this)
3) Practice negotiating by calling ads on Craigslist (for sale by owner) for properties. Learn to listen for DMF (distress, motivation, flexibility). End of the day you need to figure out whether they are truly motivated to sell, and help them solve their problems.
4) Start a sustained direct mail campaign. First batch with postcards using first-class, then follow-up with yellow-letters using standard mail. There is no point in starting if you cannot sustain because statistical data shows that responses typically occur after at least 3+ mailings. You want to use postcards first since they are cheaper and some may bounce so you can remove the bad ones off your list and skip-trace those so you do not waste money mailing to bad addresses. If you wanted to, you can even skiptrace the bad addresses to find where the owner moved and target the right address.
5) Always mail first class postcard for the first part of your campaign. Feel free to ask why J
For fulfillment you can do it yourself to save money if you are broke, but ultimately if you want better response rates and focusing your time on value-add, then you will want to outsource fulfillment to a shop that has economies of scale and can offer you great rates.
Remember, a campaign usually does not get a response until 3+ mailings. A lot of newbies quit after 1 or 2 letters without realizing that people do not open the first letter they see. Focus and sustainment is the key. I would recommend a different marketing piece every 4 weeks for 5-7 months from past data analysis, but you should test this out for your market and see what works best response rate wise
Also, when you become more advanced you will want to do split testing and other methods. You should always be tracking your response rates and seeing what lists work bests. It is always best to include a website and a local phone number on the postcards as well to maximize your responses.
Another protip: If you are in a competitive market, deals are harder to find however if you do find a deal, someone will be much more likely to split the profits and show you the ropes if you make a friend in the industry. It is better for them to get half the profits than no profits, and you gain invaluable experience as they take you through the process with them.
DO NOT go half-cocked and mail without having an understanding of the legal requirements for your area for assignment contracts. That is how you get in big trouble.
Another recommendation: If you want to make even better money, invest in yourself and become a licensed real estate agent. That way you can buy houses from distressed homeowners (wholesaling) and sell the homes in good condition for a nice commission. You also learn a lot like how to run comps and get direct MLS access which is nice.
Wow thanks I really appreciate the tips. I actually just cameback from a Real Estate Workshop. May I ask how many deals you have done so far? I need to learn how to use listsource because it looks like a complicated website.
@Sulaiman Shah - If you are not finding properties in Memphis, TN, NJ and Orlando, Fl, something is wrong in your approach. Drop me PM I can connect with you the brave investors before you in these markets.
We have an amazing market here in Memphis! There are plenty of quality investment properties ranging from 40k-100k
Depending on how much work you want to put in and what area you're looking at. For 30K I am assuming you'll be leveraging the property and buying approx $150K property, 30k would be used as down payment. There are many properties in NJ and out of state that will give you even more than 13% cash on cash. The question is how much work you want to put, do you want to get a ready turn-key property? Do you want to rehab it yourself? If you want to do some work yourself you can find something easier but it will require more work and experience. If you're just looking for a turn-key then there are many companies out there that will do that for you.
i prefer to find homes on which i can do some light rehab to gain experience on working with contractors and how much time and money it may cost. Maybe even use a hard money loan for rehab and then refinance.
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@Sulaiman Shah , welcome to BP! You're in the right place. I've analyzed every zip code in the Orlando Metro Area. Many zip codes already sit 0.60-1.1% average rent-to-purchase ratios without even adding distress. What you're searching for can indeed be found in Orlando. I always recommend shooting for 15% cash-on-cash return for SFRs and 20-25% cash-on-cash return with duplexes and small multi-family.
If you are going to use hard money, I'd look for at least 20% equity of the ARV. Try to follow the 75% rule (purchase + rehab <= 75% of ARV).
You also mentioned owner occupied... keep in mind that you can't do this with hard money (at least until you refinance out of it). They will not lend you money on something to live in.
Every time I have called an agent or broker for information on a property which I thought was a potential investment have all been under contract. Does this mean I am jumping on the properties too late because they are good investments or is the MLS just that behind on updates on whether a home is still available to purchase? I am only looking on the MLS so far.
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