Anyone Buying Class-A Single Family Homes?

90 Replies

I'm just curious as to who in here is buying more of the Class-A type single family rentals? After listening to the Tim Shiner episode it got me thinking. 

A lot of people talk of buying the 30-50K home in Memphis or wherever but what about a great Class-A neighborhood with a great school district etc. ? How do your numbers look? Are you playing the appreciation game or are you also seeing cashflow?

A can be hard, but b+ can make sense.

Also depending on how you assign letter grades on person b could be anothers a...

@Andrew Neal I'm not sure about California but KC there are some RE investors that specialize in these types of rentals. Average monthly rent is 2.6k. Great tenants that take care of the property and want to sign longer term leases, 2-3 years. If you can do the down payment and get the loan, it can be very lucrative. If you can't do it traditionally, I've heard of people using private money or hard money + BRRRR strategy to acquire properties.

Thanks @Tito Huynh yes I am mostly interested in out of state for obvious reasons. 

The 20-25% down payment on a Class-A home in other states isn't bad at all. Many markets consider $250-350K to be high which we would kill for out here haha.

@Matt K. very true, to me class B+ to A would mean built in the past 30 years or so, needing maybe some minor cosmetic updating and great schools. I see a lot of homes like this in some of the Dallas suburbs I was researching when my wife and I were considering moving out there.

@Andrew Neal Right! You can buy properties outright in B or even A areas with that capital. 

Originally posted by @Andrew Neal :

@Matt K. very true, to me class B+ to A would mean built in the past 30 years or so, needing maybe some minor cosmetic updating and great schools. I see a lot of homes like this in some of the Dallas suburbs I was researching when my wife and I were considering moving out there.

 https://www.redfin.com/MO/Kansas-City/8124-N-Elmwo...

would probably rent for about 1000-1200. You'd probably be able to find a less updated one for bit cheaper/get little aggressive on the offer. You'd likely see better quality renter pool and longer term renters in a rental like that w/ less headache during turnover then you would on lower ender property. 

With that said, you're losing a bit on the numbers side because the rents don't always align well w/ higher end properties.  Sometimes the rents are only slightly higher and depending on the school district it could drive up buying prices when your rents might not have kids... so it could be a gamble.

I'd say this could be easily an A by most definitions... but I have hard time because I feel like the ratings should take into account the exclusiveness of a neighborhood. Something like a historic or gated/semi private neighborhood should be needed for A or A+....  B/B+ would be normal neighborhood but top schools/low crime... B/B- would be good schools etc... 

But I'm probably getting way into the weeds on this lol...

Originally posted by @Tito Huynh :
@Andrew Neal I'm not sure about California but KC there are some RE investors that specialize in these types of rentals. Average monthly rent is 2.6k. Great tenants that take care of the property and want to sign longer term leases, 2-3 years. If you can do the down payment and get the loan, it can be very lucrative.

If you can't do it traditionally, I've heard of people using private money or hard money + BRRRR strategy to acquire properties.

 more info on this, 2600 is typically steep for KC... and you're probably looking at 300-350+ purchases if I had to guess...

@Matt K. Correct. It is steep but there are people who want to move into certain school districts but can't find a house/can't qualify despite their income. Some of these renters may not want to deal with trying to sell a house if they feel they could move in less than 5 years. I find it is a good market that is underserved for renting. I'd go in myself but my company is too young and no capital for down payments.

These properties are in southern Johnson County. I'm not doing it myself but I know a broker's client that is doing this. Unfortunately, I don't have more details than that.

Originally posted by @Tito Huynh :

@Matt K. Correct. It is steep but there are people who want to move into certain school districts but can't find a house/can't qualify despite their income. Some of these renters may not want to deal with trying to sell a house if they feel they could move in less than 5 years. I find it is a good market that is underserved for renting. I'd go in myself but my company is too young and no capital for down payments.

These properties are in southern Johnson County. I'm not doing it myself but I know a broker's client that is doing this. Unfortunately, I don't have more details than that.

 Let's make this pretty easy...

https://www.zillow.com/homedetails/5001-W-159th-Te...

that home rents for 2,500 BUT... you're paying nearly 400k for it. Plus if you ever go to update it, it'll be expensive because of the higher end finishes and larger size.

or this HUGE house

https://www.zillow.com/homedetails/5225-W-161st-St...

3 100, but going to take about 500k to get there.


I dealt with this company briefly, lot of higher quality listing etc. But the numbers on the higher end stuff... it doesn't make as much sense as some of the lower priced stuff in similar/same school districts.

http://www.home4rent.com/kansas-available-rental-h...

KC is pretty easy to hit/get near 1% purchase price for rents..

@Matt K. You're right. I'm not sure how that individual plans his capex and other operating costs. I'm not in the rental game now but I can try to get in touch with him and learn more.

Originally posted by @Tito Huynh :

@Matt K. You're right. I'm not sure how that individual plans his capex and other operating costs. I'm not in the rental game now but I can try to get in touch with him and learn more.

 Let's just pretend:

https://www.redfin.com/KS/Stilwell/16028-Rosewood-...

400k, 5% interest, 25% down.

You're looking at about 2300 mo, so rent of 3100 mo gives you some left over. But... at almost 4k sqft it's not going to go very far even for maintenance. Even if you got it to 4k mo (executive rental, but it'd probably have to be furnished) it'd still likely be harder/more costly to operate than a lot of other things just due to it's size and tenant profile.

You'd be way better off buying something like 3-4 townhouses or similar at like 110k each that rent for 11-1200 ea. Spread the risk/repairs/vacancy out...

@Matt K. and @Tito Huynh I appreciate the insight. Very interesting discussion because like I said a lot of the posts on here focus on buying cheap houses with little to no money out of pocket.

I do like your point Matt about buying maybe a smaller home but still in the great school district. We see that out here in the Bay Area, I live out in the suburbs and there are hardly any rentals but because our schools are great if I ever wanted to rent my primary residence I could get a ton of great applicants in one weekend.

Matt we may need to go grab a beer soon and chat about KC.

@Matt K. You're right. Having a bigger portfolio is better for avoiding vacancy. But that on redfin property wouldn't be one I'd invest in since it is okay. I'd invest in something that someone has let run down. Usually empty nester that is widowed or getting along in age. Could be a divorce or personal life change that could cause someone to want to sell the house fast. Those properties will tend to sell for less and you can rehab to get ARV backup then rent it out. But those are hard to find as OOS investors without boots on the ground.

I'll let you know when I get more information on how the guy runs his operation. Like I said, 2.6k is his average so he's renting some out of more than that.

@Andrew Neal anytime, always ready for some beers and to talk shop. You're on the right track, but there's pretty quick drop off when you go up in housing prices (at least in KC). The rents just don't match up to the prices...nor is the demand there as it is out here in CA. Plus in a downturn if you're too high you'll have even harder time getting premium rents...

@Tito Huynh what you're talking about works, I've done it a few times.  But there's still value in the one I posted, granted it's not at that price. If you could you could get it at 105-115 it'd probably make sense. Construction is BOOMING in KC it's expensive and hard to get good work for small projects.

Look at something like this:
https://www.redfin.com/MO/Kansas-City/10523-E-41st...
The dark brown floor, probably 2-3 bucks sqft to install, the stuff in the kitchen cheap probably like 15 bucks sq yard installed. Paint, probably 2k or so maybe little less...  That deck probably 2500. Granite usually like 35 or so sqft, figure 1k for new appliances.. 

I guess my point is this BASIC looking remodel probably close 10k..... 

The sweet spot is something like this 

https://www.redfin.com/KS/Lenexa/12211-W-79th-Ter-...

where it's entirely rent ready, few upgrades so it shows pride of ownership... but it's outdated. Update stuff at turnovers and then at the end when you go to dispose of it and sell it... remodel it to reflect current market trends.. or do it when the market is down and people are desperate for work...

In my area the class A rentals are bringing $2500 to $3200 a month . The tenants are generally military or newly transplanted to the area . They are in my area for the schools . Heres what happens , the military stay 1 to 3 years , they are the best . The transplants needed a house in great schools and couldnt find one quickly . So they rent , they only stay 1 year , thats enough time to get a feel for the area and find a house .  A cheap class A in my area is $450,000 and isnt updated .

BUT its common for these houses to be vacant 6 to 9 months waiting for a tenant . 

I will stick to my class B and C plus in good school districts 

@Andrew Neal the class of the home is mostly the desirability of the neighborhood., reflected in premium prices. The age of the home is next to irrelevant . Where did you even come up with that criteria?
@Tito Huynh I doubt you are going to find any investors with any sense taking hard money loans to buy “class A” properties , which rarely cash flow , for use as rentals. Where did you hear this?

Market appreciation plays are not penciling out for many investors right now.  I am redeploying capital into cash flow plays (and always adding value).

Originally posted by @Matt K. :
Originally posted by @Tito Huynh:

@Matt K. You're right. I'm not sure how that individual plans his capex and other operating costs. I'm not in the rental game now but I can try to get in touch with him and learn more.

 Let's just pretend:

https://www.redfin.com/KS/Stilwell/16028-Rosewood-...

400k, 5% interest, 25% down.

You're looking at about 2300 mo, so rent of 3100 mo gives you some left over. But... at almost 4k sqft it's not going to go very far even for maintenance. Even if you got it to 4k mo (executive rental, but it'd probably have to be furnished) it'd still likely be harder/more costly to operate than a lot of other things just due to it's size and tenant profile.

You'd be way better off buying something like 3-4 townhouses or similar at like 110k each that rent for 11-1200 ea. Spread the risk/repairs/vacancy out...

 when U go to sell you will have to do a 50k remodel to get market value.. I know this first hand.

Originally posted by @Steve B. :
@Tito Huynh I doubt you are going to find any investors with any sense taking hard money loans to buy “class A” properties , which rarely cash flow , for use as rentals. Where did you hear this?

He didn't, no one is BRRR high end stuff in KC... But he's probably heard this method a million times over for the d-b stuff...

Flips though, still are going on and have better margins on the high end stuff. But I'm not a flipper so don't hold me to that.

Originally posted by @Jay Hinrichs :
Originally posted by @Matt K.:
Originally posted by @Tito Huynh:

@Matt K. You're right. I'm not sure how that individual plans his capex and other operating costs. I'm not in the rental game now but I can try to get in touch with him and learn more.

 Let's just pretend:

https://www.redfin.com/KS/Stilwell/16028-Rosewood-...

400k, 5% interest, 25% down.

You're looking at about 2300 mo, so rent of 3100 mo gives you some left over. But... at almost 4k sqft it's not going to go very far even for maintenance. Even if you got it to 4k mo (executive rental, but it'd probably have to be furnished) it'd still likely be harder/more costly to operate than a lot of other things just due to it's size and tenant profile.

You'd be way better off buying something like 3-4 townhouses or similar at like 110k each that rent for 11-1200 ea. Spread the risk/repairs/vacancy out...

 when U go to sell you will have to do a 50k remodel to get market value.. I know this first hand.

 I'm working on this right now as I'm tempted to transition out of one of my houses in KC. But market so hot right now basically rent ready will get me nearly market value. The full remodel is tough though because labor shortage in KC and contractors giving FU prices because they're so busy lol

My favorite assets in my portfolio are my A/B class single family rentals in the DC suburbs. Purchase prices in the $400-$500k range and rents in the $2500-$3000 range. Rents go up about $100 per month each year and value goes up about $20-$25k per year.  High quality tenants generally.  Usually break even on purchase, but with patience they cash flow more with the rent growth than my cash flow properties. I have one property that Ive owned about 10 years now I have free cash flow of about $1700 a month, and the value is up about $140k (it went down in value the first 2 years I owned it)

@Steve B. I suppose everyone’s definition of types of neighborhoods could be different. I was more curious about folks investing in nicer homes in general and not 50k homes in C-D neighborhoods since I don’t see much conversation about them. To me, a newer home may have fewer potential major surprises. I’m not saying new Home equals great neighborhood. We have plenty of neighborhoods filled with new homes in my market and I’d never live there. So I guess a better criteria is would my wife want to live here with our toddler? Haha
@Russell Brazil great insight and exactly what I was curious about. I’m fine to go the slow road and wouldn’t be “playing the appreciation” game so the tenant class and increase in cash flow is great. Appreciation is the added bonus but not the main goal. Thanks for sharing!

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