how do investors in expensive markets make money?

Question

Or do they simply put more down, say 35% or more, to reduce the mortgage payments and bring rents and expenses into line?

Russell Brazil · Answer

Yield is a measure of risk in the asset and or market. Lower risk markets, such as DC, Boston, etc will have much lower yields than high risk markets such as Baltimore, Detroit etc.

If ones goal is higher yield upon initial purchase, then a low risk market may not be their investment of choice.

However actual total returns in lower risk markets have historically been much higher than the high risk markets. Both through asset price growth and rent growth. My sfh homes in Montgomery County have averaged rent raises of $100 a month per year over the last decade. In DC proper that number would be higher over that time.

Kevin Leahy · Answer

In Washington, DC, two strategies I've seen fellow BP members using to generate cashflow: 1. Rent-by-the-room in a SFH with 4-5 bedrooms (can combine this with a house hack). Rent to young professionals who can't yet afford or don't want to spend $1500 on living expenses, and are happy living with strangers in a house for $800-900 each. @Ron Gallagher does this. 2. Convert a 3-BR house to a 5-BR, rent to a Section 8 voucher holder family -- DC housing authority will pay above-market rents in certain neighborhoods, enough to cashflow. @Joseph Asamoah does this.

Arthur Schwartz · Answer

how would a rental property investor find or make a positive cash flowing property in an expensive market like San Fran, Seattle, NYC, Washington DC? The prices seem to preclude positive cash flow unless the investor puts 35% or more down. Comments?

Russell Brazil · Answer

Mike literally laughed out loud at this. I think making money in the expensive markets is so easy, and I often wonder how people actually make money in the cheaper markets. When I talk w investors from other markets they act like Im some genius...and Im like any dummy can buy a property here, sit on it, stick tenants in it and watch your values and rents go up every single year.

Mike Dymski · Answer

the hand over fist method

Jay Hinrichs · Answer

APPRECIATION Risk / Reward solid areas/properties that are highly liquid.. can be sold to homeowner for top dollar.

that's why people invest in those markets..

Account Closed · Answer

When I was buying in Seattle I would buy "off market" homes that needed a little tender loving care. My intent was to fix & flip so I wasn't thinking in terms of cash flow. But, taking the property Subject To and taking over the mortgage payment is the means to cash flowing in a market like Seattle.

David Barnett · Answer

Normally, investors in higher priced markets are paying cash, or the investments are not cash flowing (or cash flowing very little). Instead, a lot of investors in higher priced areas are playing off of appreciation, as Jay mentioned.

Zac Ballin · Answer

@A Schwartz I’m new to REI and in Boston, but my first property (triplex) was bought off market and am renting to section 8 tenants paying above market which is cash flowing nicely. I’m closing shortly on my second property which is a duplex which should cash flow as well and is in what’s hopefully a nice spot to ride some development tide. It’s not necessarily easy to find deals, though my second one I’m buying right off MLS, but I’m hoping it’s far more secure buying in a strong diversified economy like Boston for the long term and the appreciation potential over the years could be significant.

Jingru Sui · Answer

Interesting approach! Will be great for someone who's willing to manage and put in sweat equity.

how do investors in expensive markets make money?

how do investors in expensive markets make money?

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