Anyone Buying Class-A Single Family Homes?

Real Estate Professional · Brentwood CA / Dallas, TX · Member since 2016 · 185 posts · 146 votes

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?

1 Reply

398 views

Most Popular Reply

Russell BrazilBusiness Member

Moderator

Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

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)

[email protected]301-893-4635 Podcast Guest on Show #192

District Invest Group545 Reviews

Website View Page

10 Reply

See this reply in the discussion

91 Replies

Jump to latestLatest

Sort by

Andrew Neal
OP
Real Estate Professional · Brentwood CA / Dallas, TX · Member since 2016 · 185 posts · 146 votes
8y
@Martin L. glad that has been working out for you. I love that there are a million and one ways to invest and what works for one person doesn't necessarily mean it will for another.
I would have kept my last home however my wife and I made about 100k in appreciation in 2 years, sold it to get out of our FHA loan and there was no way it would have cash flowed with the FHA payment. We used the proceeds to buy the cheapest home in town with a conventional loan in the most desirable part of our town and put about $7K into rehab to raise the value about $30K (est.) before ever moving in. Moving in this weekend!
1 Reply
Clifford Paul
Rental Property Investor · Member since 2018 · 483 posts · 956 votes
8y
I have 6 new homes that are crash pads in A neighborhood. Have a deposit on #7 with my builder. Just rented my primary residence in A+ neighborhood for $4800 a month.My other rentals are all B neighborhood's.
I do buy C and D homes but they are all flops which I immediately sell to local buy and hold investors. Until this last Monday I have never keep any. Keeping these 2 because one is going to be a place for us to stay when in town. The other I gave to a house moving company because I'm building a new office building on lot. Closing on 2 more flops on Friday.
0 Reply
Matthew McNeil
Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes
8y
Originally posted by @Andrew Neal:

I'm just curious as to who in here is buying more of the Class-A type single family rentals? ... How do your numbers look? Are you playing the appreciation game or are you also seeing cashflow?
I buy rent ready 3 bdr /2 bth Class A SFHs using conventional loans. $200k - $250k price range. I usually pay 30-35% downpayment. Avg rent in my area is $1600/month. Cash flow works, and I Recast at years 1 and 2 resulting in new amoritization and increased cashflow. Appreciation is healthy; double digits. My strategy is buy and hold.
0 Reply
Martin L.
Rental Property Investor · Las Vegas · Member since 2018 · 87 posts · 87 votes
8y
Oh... so far my strategy has been more like "please don't go broke" :)
4 Reply
Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
8y
I have never heard single families referred to as class - A. It is always a multi family term from the world I have come up in. It works though. It makes sense.
0 Reply
Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
8y
Regardless of the class of property rent must be in the 1% range (minimum) of property value to achieve positive cash flow. Class A properties are a appreciation move and very rarely show any positive cash flow except in special markets. Class A property ownership is primarily a prestige purchase for home owners and as a result are generally over priced and much larger than needed. With negative cash flow and unpredictable real estate markets Class A properties are very high risk as long term holds. Primarily appreciation speculation.
A 250K property in a A class neighbourhood with rents at $2500/month would be a gem.
1 Reply
Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
@Andrew Neal Everyone is different but don’t just assume that a 50k house is in a bad area just because of the price. You can find lots of B minus type houses in some markets for 45-60k each. For each 250k rental you buy I can buy 5. If you pay 500k I can buy 10. If your 500k rental got you say 3500 in rent, my 10 would get me 7500-8000 in gross rent. I’m not saying it’s a bad strategy. I’m saying you should consider doing both.
1 Reply
Omar Khan
Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
8y
@Andrew Neal Tim Shiner bought right and continuously kept buying in some of the nicest parts of DFW (Southlake has a higher median income than Highland Park).
I agree with @Russell Brazil point. If I was buying SFRs, I would focus on Class A/B. Simply because I want a higher quality tenant and I want to hold for over 7/10 years. I'm willing to strike a balance between cash flow (must cover all expenses including R&M) and appreciation.
@Jay Hinrichs made a valid point about needing $50K to remodel and sell. But to my knowledge, Jay is in the business of developing/buying and selling within a few years. That's a different business than the typical buy-and-hold. He's also done exceptionally well... so maybe there's something to his model ;)
1 Reply
Andrew Neal
OP
Real Estate Professional · Brentwood CA / Dallas, TX · Member since 2016 · 185 posts · 146 votes
8y
@Caleb Heimsoth I think that is part of my hang up. Living in California I have a tough time wrapping my head around a 60K house being something that wouldn't be in a bad neighborhood. I have really increased my out of state research in the past month and am connecting with realtors/project managers etc.
@Matthew McNeil Thanks for sharing. Are you buying in and around Boise?
@Thomas S. I agree that most of the time those higher end big homes don't have favorable numbers. I think this question first came to mind in researching homes in my sister in law's Dallas suburb and knowing what they pay in rent (in the $2,500) range and seeing homes listed under $300K in that zip with a great school district. I have been the benefactor of appreciation only because my wife and I need a home to live in and happen to be in one of the hottest markets in the country. don't think I would go "all in" on it though.
1 Reply
Andrew Neal
OP
Real Estate Professional · Brentwood CA / Dallas, TX · Member since 2016 · 185 posts · 146 votes
8y
@Omar Khan some great points. I have family in the Wylie area and that place has exploded as well. I love how many great suburbs are within 45 minutes of Dallas. We are suffocated by the coast here which is why I think the A/B neighborhood play could work out there.
0 Reply
Omar Khan
Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
8y
@Andrew Neal I totally agree! Living in Toronto distorted by view of how much a house/condo even costs. I, still, get surprised that houses cost less than $200K (let alone $30K!).
Nonetheless, I wouldn't touch a $30K house if my life depended on it.
1 Reply
Andrew Neal
OP
Real Estate Professional · Brentwood CA / Dallas, TX · Member since 2016 · 185 posts · 146 votes
8y
@Omar Khan haha I was just telling someone we had a manufactured home in a "fancy" mobile home park listed for $299K in my town just a month or so ago, I should look up if and what it sold at. But yes it is hard not to get a distorted view at times. I have spent considerable time in Dallas and could definitely live there if it weren't for my awesome family here.
0 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
8y
There was a podcast with the co author of the Keller Williams RE book, who felt these type tenants suited his lifestyle more so than the lessor property classes. I think there are some who would feel the same. As Russell points out these eventually can cash flow significantly higher over time.
Some part of this is who you want to deal with and pay your bills sort of speak. The numbers still have to work and for some they can. At a cetain point the cap ex % might very low too when compared to the sub 100k types. Lastly, since schools can be pretty good in the A class, tenants with kids can make turnovers few and far between thus making A stuff act more like an investment vs part time job.
2 Reply
Derek L.
Rental Property Investor · Irvine, CA · Member since 2016 · 21 posts · 3 votes
8y
In general, class A SFH are better for flips and less for buy and hold cash flow. It is much harder to find a class A SFH that rents for as much as the lower classes for price of the house. Though the nice part about renting out a class A SFH is the tenants are the best.
For cash flow, I want to say the sweet spot is class B/B+ for the better rent to price value, the quality of the tenant pool is still quite up there, and it has better chance for appreciation (into a class A) one day.
1 Reply
Martin L.
Rental Property Investor · Las Vegas · Member since 2018 · 87 posts · 87 votes
8y
@Caleb Heimsoth @Thomas S. I agree with most of what you've all said, but as I mentioned earlier, I really fell into all of this by accident. Two of my first three rental properties were actually occupied by me, prior to renting them out. The last one I bought was also before I found BP. Now I want to diversify and try some of these strategies, but I believe that I wouldn't have been able to ever move on a Class C if I didn't have these Class A's already under my belt. I do cash flow, but it's definitely not much compared to the value of the properties. However, the appreciation value has been tremendous. For instance, I put down 80K for one property that has appreciated by 250k in the last 5 years with a small net cash flow. 60k down on another property has appreciated by 80k in 2 years. Appreciation happens on the total value of the property, so the return on my cash down is fantastic.
2 Reply
Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
8y
Originally posted by @Thomas S.:

Regardless of the class of property rent must be in the 1% range (minimum) of property value to achieve positive cash flow. Class A properties are a appreciation move and very rarely show any positive cash flow except in special markets. Class A property ownership is primarily a prestige purchase for home owners and as a result are generally over priced and much larger than needed. With negative cash flow and unpredictable real estate markets Class A properties are very high risk as long term holds. Primarily appreciation speculation.
A 250K property in a A class neighbourhood with rents at $2500/month would be a gem.
With little bargaining/luck
https://www.redfin.com/MO/Kansas-City/7304-Walnut-...
https://www.zillow.com/homedetails/1008-W-70th-St-...
this would probably be close to 23-2700
https://www.redfin.com/MO/Kansas-City/6330-Oak-St-64113/home/93230324
0 Reply
Jameson Sullivan
Real Estate Broker · Tacoma, WA · Member since 2016 · 545 posts · 252 votes
8y
I always wonder about the long term viability of those high end rentals because a) if things tank, spending 30k a year on rent because difficult for people and b) it seems like a lot of the renter pool (from what I have seen in my market) are short term renters, coming in to rent for 6 to 12 months while they relocate for work and buy a home during that period. This by designs just means your renter pool is constantly at risk of drying up. Thoughts?
2 Reply
Matthew Paul
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
8y
I have a local guy near who has been in the game 30 plus years . He owns , A properties , and B houses in A areas . He will rent the old B quality house for 5 , 6 maybe 7 years collect rent and do minimal repairs , and then tear it down. And Build a brand new A property in a great neighborhood . Then he doubles the rent . He saves a boatload of money , HE IS THE BUILDER . The guy is about 70 years old , drives a beater truck . When he calls a contractor , they are there right away . Why ? When you are done you call him and he drives out and hands you a check .
1 Reply
Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
8y
Originally posted by @Jameson Sullivan:

I always wonder about the long term viability of those high end rentals because a) if things tank, spending 30k a year on rent because difficult for people and b) it seems like a lot of the renter pool (from what I have seen in my market) are short term renters, coming in to rent for 6 to 12 months while they relocate for work and buy a home during that period. This by designs just means your renter pool is constantly at risk of drying up. Thoughts?
depending on how you rate an area... they can weather the storm. But it depends on how well you enter the market.... Lot of established high end areas can insulate themselves from the downturn somewhat, but you're right about the rents. If the area (bay area for example) has lot of high wage earners then it can be better. Some people will rent because they "downgrade" into your rental after they lose their house in foreclosure. 3k might be half what their mortgage was etc... but they won't want to leave the schools/community for whatever reason.
0 Reply
Andrew Neal
OP
Real Estate Professional · Brentwood CA / Dallas, TX · Member since 2016 · 185 posts · 146 votes
8y
@Jameson Sullivan yeah that's an interesting point but I know plenty of high wage earners here in the bay area who are choosing to rent because of prices continuing to go up so I guess everyone has their reasons. I know Tim Shiner mentioned this a bit in his BP podcast episode since he is in Southlake TX which is a high income area.
0 Reply
Jameson Sullivan
Real Estate Broker · Tacoma, WA · Member since 2016 · 545 posts · 252 votes
8y
I guess that sort of speaks to relationship between the title of this post "Anyone Buying Class-A Single Family Homes?" and where we are in the market cycle. It probably doesn't pencil to buy in these areas currently, but if you either a) got a screaming deal with some value add or b) have held the asset for a number of years then you might be able to make your numbers work.
I think it's an interesting way to protect money as well for high earners. If you're able to put 50% down and have low mortgage payment then your monthly balance sheet will pencil and higher income Tenants generally are lower maintenance. Just another way that REI takes many different shapes and forms for different purposes!
1 Reply
Matthew McNeil
Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes
8y
Originally posted by @Andrew Neal:

@Caleb Heimsoth I think that is part of my hang up. Living in California I have a tough time wrapping my head around a 60K house being something that wouldn't be in a bad neighborhood. I have really increased my out of state research in the past month and am connecting with realtors/project managers etc.
Thanks for sharing. Are you buying in and around Boise?
@Thomas S.
Yes, I buy in Meridian which is the bedroom community for Boise. Surrounding communities have a lot of potential as well; Kuna, Star, Nampa, MIddleton and Caldwell.
1 Reply
Steve K.
Denver, CO · Member since 2017 · 265 posts · 234 votes
8y
Originally posted by @Matthew McNeil:
Originally posted by @Andrew Neal:

I buy rent ready 3 bdr /2 bth Class A SFHs using conventional loans. $200k - $250k price range. I usually pay 30-35% downpayment. Avg rent in my area is $1600/month. Cash flow works, and I Recast at years 1 and 2 resulting in new amoritization and increased cashflow. Appreciation is healthy; double digits. My strategy is buy and hold.
@matthew , I like your double digit appreciation! I'm curious; why do you put 30-35% down (if 25% would do) and why refi in 1 to 2 years? I'm curious your opinion on how much leverage you like?
0 Reply
Nina Hayden
Rental Property Investor · Dallas, Austin · Member since 2018 · 246 posts · 213 votes
8y
@Andrew Neal Pm me please. Would love to share a lot of what you’re looking for. I don’t live far from some of the areas you mentioned. The reason I’ve not done what you’re seeking is because of my long term plans in Austin. However it’s been heavily in my mind to invest in higher end community that screams location, higher income, extremely low vacancy due to highly rated schools and rent market being high! Let’s talk. I think I can answer a lot of your questions
0 Reply
Matthew McNeil
Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes
8y
Originally posted by @Steve K.:
Originally posted by @Matthew McNeil:
Originally posted by @Andrew Neal:

I buy rent ready 3 bdr /2 bth Class A SFHs using conventional loans. $200k - $250k price range. I usually pay 30-35% downpayment. Avg rent in my area is $1600/month. Cash flow works, and I Recast at years 1 and 2 resulting in new amoritization and increased cashflow. Appreciation is healthy; double digits. My strategy is buy and hold.
@matthew , I like your double digit appreciation! I'm curious; why do you put 30-35% down (if 25% would do) and why refi in 1 to 2 years? I'm curious your opinion on how much leverage you like?
Steve, yes, the double-digit appreciation is very nice. There are several markets in the US that are really growing, and I’m happy I started investing in Boise/Meridian in 2008. According to several reports, including a recent Forbes article, Boise is the fastest-growing area in the U.S.
Yes, I realize that 25% down is all that’s necessary, but I generally wait until I have a higher amount to put down simply because it helps with the cash flow.  I realize most BP members don’t follow that approach, but my strategy is different and has been gleaned from some very insightful comments and advice that some well respected members have posted.
The added strategy I use is Recasting – not REFI as you wrote. Recasting results in a new amortization (the general rule is $50 for every $10k paid). My goal is to pay off my existing SFHs which supports my long-term plans, and I use Recasting to accelerate that. I won't put money into an asset (whether it be a down payment or Recast) unless I get something in return out the gate.
Lastly, I think “leverage” and “wealth” have different definitions involving a multitude of variables respective of the values and strategies of each BP member. I don’t consider myself a real estate entrepreneur who maximizes leverage because I’m just not wired that way. Rather, my leverage increases through utilizing the higher down payments and Recasting; both of which accelerate the cashflow I need to increase my portfolio while simultaneously gaining on the appreciation side of the equation.
My next target area for SFH investments will be the Coeur d'Alene, Post Falls area which is where many people from California and other "insane" areas are migrating to.
1 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.