Considering buying rental property investment (newbies)

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Considering buying rental property investment (newbies)

Account Closed
Member since 2019 · 13 posts · 4 votes

Hi! We'd like to start investing in real estate, have some money saved. Have no previous experience. But we live in SF bay area and the real estate market is crazy there. So we're considering other markets. Need some advice. While on vacation in Florida we looked into West Palm Beach area and visited a few properties there which seemed really nice. Does it make sense to buy an investment property that far away from where you live? One was a townhouse for $169,000 (2-bedroom, 2-bathroom) with a living tenant paying $1550. Another townhouse in the same association priced at $160,000(2-bedroom, 2-bathroom) but after eviction and needs some work to be done, like vanity replacement, tile replacement in the shower cabin and a condo at $100,000 (1 bedroom, 1 bathroom), little work to be done. It could be potentially rented out for $1100 as real estate agent assured us. But after running all the numbers, looks like the cash flow would be around $100 for any of it. Is it worth it? What is considered a good cash flow for a condo/townhouse?

Thank you!

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Tim Herman
Member since 2018 · 2k+ posts · 1k+ votes
7y

@Account Closed  There is a possibility of a recession, no doubt about it. If there is a recession the stock market is going to tank.  Let's play the game. The great depression lasted 10 years. Using the same numbers 10 year no growth rent decrease 10% or $100. Cash flow neutral. $37000 mortgage paydown- $9000 selling cost= $27000 cash in year 10. Invest $20000 in stock market lose 30%= $14000. Look at B areas wherever you decide to invest. A areas will be hit the hardest and the most rent decrease. I didn't lower my rents during the downturn in CA in 2008. I keep mine slightly under market. From what I read B areas only went down 10%. Tax benefit to having real estate, to shelter your other income. If you like Florida invest there, you can write off part of your trip to invest there. Income plays are in the Midwest: Indianapolis, Columbus, KC,Detroit, Cleveland. I am going to look in Ohio.

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  • Tim Herman
    Member since 2018 · 2k+ posts · 1k+ votes
    7y

    @Account Closed Why a condo, you have no control of the association and the fees they charge. A single family home or 1-4 units you have more control. I have property in 4 states. You develop a list of handymen, plumbers, electricians, etc. You can manage from anywhere. Real estate is about leverage and mortgage paydown. $20000 down $80000 mortgage. Year 10 house worth $150000 (less than 5% compounded) mortgage now $63000= $87000 equity. No rent increase $1200 a year x 10= $12000. Not all gravy you don't capture until you sell 9%=$13500. $99000-$13500= $85500. To get the same return you would have to get 15% compounded annually. 

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  • Account Closed
    OP
    Member since 2019 · 13 posts · 4 votes
    7y

    @Tim Herman thanks a lot for your reply! Now I feel a lot more confident. What states do you think could be good to start? My biggest concern has always been about a potential recession and what if it will not worse $150,000 in 10 years but goes down instead or the rent drops, maybe you could share your thoughts on this? 

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  • Tim Herman
    Member since 2018 · 2k+ posts · 1k+ votes
    7y

    @Account Closed  There is a possibility of a recession, no doubt about it. If there is a recession the stock market is going to tank.  Let's play the game. The great depression lasted 10 years. Using the same numbers 10 year no growth rent decrease 10% or $100. Cash flow neutral. $37000 mortgage paydown- $9000 selling cost= $27000 cash in year 10. Invest $20000 in stock market lose 30%= $14000. Look at B areas wherever you decide to invest. A areas will be hit the hardest and the most rent decrease. I didn't lower my rents during the downturn in CA in 2008. I keep mine slightly under market. From what I read B areas only went down 10%. Tax benefit to having real estate, to shelter your other income. If you like Florida invest there, you can write off part of your trip to invest there. Income plays are in the Midwest: Indianapolis, Columbus, KC,Detroit, Cleveland. I am going to look in Ohio.

    2Reply
  • Christopher Cook
    Member since 2019 · 9 posts · 4 votes
    7y

    Hello Yulyana... I'm in West Palm Beach.   The rental market is strong here and there are always good properties to buy.   That being said, managing it form that far away just requires a good property manager that you trust.   Going to pay 10% of the rent, but you would need good help.  

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  • Share RossBusiness Member
    Real Estate Agent · Boynton Beach, FL · Member since 2017 · 250 posts · 135 votes
    7y

    @Account Closed A few things to consider....

    Check for rental restrictions - some HOA's and condo associations have very strict rules about no renting the first year, or not for 2 years and some say never! (your realtor can put in this filter.)

    Also, like a few people said, you can set up a team ANYWHERE! It's how you get it done. Get the book Long Distance Real Estate Investing by David Greene! 

    1Reply
  • Jason Tressler
    Real Estate Agent · Indianapolis, IN · Member since 2019 · 72 posts · 16 votes
    7y

    A recission maybe a good thing for investors and even better for qualified regular home buyers, the market is really tight in Indy. Deals are gone with in a day now!

    0Reply
  • Blake Edwards
    Real Estate Agent · Brentwood, CA · Member since 2018 · 285 posts · 225 votes
    7y

    @Account Closed wrote a great book (yes, I am biased) called Long Distance Real Estate Investing which takes the fear out of the equation.  

    I always hear people say they are going to wait to see what the market does.  When the market shifts in your favor, then are you going to start your research?  Will you have your financing lined up?  Will you have the relationships with the banks, handymen, contractors, property managers, realtors, wholesalers, other investors, etc. that you need to build in order to be "ready"?  The best time to start is yesterday, and it sounds like you are well on your way!

    1Reply
  • Account Closed
    OP
    Member since 2019 · 13 posts · 4 votes
    7y

    Thanks a lot for all advice! It's so inspiring! I'll definitely read the book.

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    7y

    Those wouldn't be considered good cash flows, no. And I'd actually be surprised if you could get that $100. Townhouses and those are typically going to have condo fees (not sure if you included those in your numbers), among other expenses. And generally South Florida, or most of Florida for that matter, won't cash flow.

    But that's not to say out-of-state doesn't work... it's just about where you invest. I'm in CA as well and my closest out-of-state property is 2200 miles away. But it does cash flow.

    Happy to help if you have any questions!

    1Reply
  • Arlen Chou
    Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
    7y

    @Account Closed $100/month of cash flow straight up sucks... You could make that selling junk you have in your house on Craigslist or doing retail arbitrage with much less risk and investment. People on BP are broken up into 2 basic camps cash flow vs appreciation. I personally believe that to truly create wealth you need to have both sides of the equation. You can 100% get both in the SF Bay Area you just need to look.  There are many people here on BP from the BA that doing this. Get out to some local meet ups and maybe you will get some ideas.

    Good luck to you!

    Arlen

    2Reply
  • Account Closed
    OP
    Member since 2019 · 13 posts · 4 votes
    7y

    @Ali Boone thank you for your comment! I did include HOA in my calculations. I was under the impression that it is easier to start investing in a condo or townhouse without previous experience because you're not responsible for exterior repairs or maintenance.

    0Reply
  • Jonathan Oh
    Investor · Las Vegas, NV · Member since 2019 · 499 posts · 259 votes
    7y

    @Account Closed In my opinion, investing in a condo/townhouse won't make it any easier than a single family. Like many BP members, I am not fond of investing in condos. There are many limitations of condos. For example, you'll be limited on the type of improvements you can make. HOA can also potentially impact your cashflow later. HOA fees could rise and demand unexpected assessment fees. Condos also tend to appreciate less than single family. But there are people that make condos work, so if you still want to pick up those properties just make sure you do your homework. Good luck!

    0Reply
  • Bob Prisco
    Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
    7y

    @Account Closed find a market that will net you double digits, then find a team that will look out for you . Its all about the team surrounding you. As far as the deal in PB, 170k with 1550 in rent, why bother, no return .

    Rent 18k, Ins 2k, Taxes/ HOA 4k, V/M 1500 10% for maintenance and vacancy rounded down PM 1K again rounded down. Net 9500 into 160k less then 6% why bother ? Again NET double digits is where you want to be.

    Good luck 

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  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    7y
    Originally posted by @Account Closed:

    @Ali Boone thank you for your comment! I did include HOA in my calculations. I was under the impression that it is easier to start investing in a condo or townhouse without previous experience because you're not responsible for exterior repairs or maintenance.

    It's a trade-off... how much are you losing in cash flow every month in exchange for not having to worry about those? And if you have a trustworthy handyman/contractor, repairs aren't usually a big deal.

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