Who is buying in this market?
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
6yOriginally posted by @Arthur P.:
@Russell Brazil I understand the concept but who is buying at these low returns? You can get into stocks with these returns
Well Im certainly buying and continue to grow rich in doing so. However I wouldnt be buying in all cash. The greatest aspect of real estate investing is using leverage to purchase it. Your return is artificially low in purchasing in all cash.
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- Bend, OR · Member since 2017 · 4 posts · 5 votes6y
@Arthur P. Ha not total return. Still much better than stocks and not as risky by far.
- Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes6y
@Arthur P.
Your right the math doesn’t work. It’s either those with all cash or those waiting for appreciation. There isn’t anyway it works for cash flow in minnneapolis so I sit back and laugh at the fools.
- Member since 2018 · 2 posts · 0 votes6y
Originally posted by @Ross Yeager:
@Arthur P. Me!!!! Doing BRRRR can't really go wrong in any market. Biggest risk is any short term debt during rehab, but my projects are in the 3-6 month range to minimize that risk.
Where are you buying for BRRR? I am located near you and don't see anything that works with the numbers. - Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes6y
@Shawna Smith the multi market in boston for the last 5 years has been driving by condo conversion. A lot of those "wannabe" investors were pros who made lots of money. If I could find a two family here in JP at 600K and had a crew ready here I would beg borrow and steal to get it. Nice 2 beds can go for 500-600K each. And rents would be about 2700+ each, so even the cash flow isn't completely out of whack.
I'm actually with you and @Arthur P. on this. We have been able to see 10%+ cash on cash, but in a lot of markets the cash flow is the dividend, not the driver.
at area
Originally posted by @Arthur P.:
@Syed H. What markets are you talking about? Let me know!
I get appreciation but buying on appreciation I don’t believe is a smart move.
But say you bought based on appreciation and my properties tripled in last few years ok great. Where do I put my money after sale? On a property making 4%? Now that I just said that maybe it is a better move. Have to run the numbers. Where are you investing?
In the BRRRR model you're not selling to get your money back, you're refinancing. So you take tax free equity from your property, meaning appreciation is important. It's something you're missing out on as a cash buyer. As I pointed out before, people aren't buying for 5 percent returns, they're doing things differently than you to get higher returns from the same properties.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes6y
Projected returns on properties purchased 2009-2012 were not higher than projected returns for properties purchased in today's market. That's a huge misconception frequently discussed on these forums. There is a lot of uncertainty now but it does not compare to the uncertainty back then...not even close.
There is another huge misconception...people who don't buy during stable economic conditions will buy during market turmoil. Nonsense. The reason why markets collapse is that NO ONE IS BUYING (particularly, people without experience or a network). And, debt and capital dries up driving up the total cost of real estate even when prices are down.
We don't have crystal balls...but we do have criteria and opportunity in all markets. Just takes discipline, work, and the ability to pivot with the market. I have been pivoting from value investing to cash flow investing (and always adding value).
Originally posted by @Tony Kim:
Originally posted by @Account Closed:
Originally posted by @Arthur P.:
@Russell Brazil I understand the concept but who is buying at these low returns? You can get into stocks with these returns
Syndicators are buying hand over Fist.
I hear accredited investors standards have been lowered. The little boy wants in RE after 200-300% rise in prices.
That to me is the clearest indication that one should either start to pump the brakes on new syndicated investments or truly ramp up their due diligence with high levels of skepticism and standards. Also, with all of the 'new syndicators' that are out there trying to establish themselves, one needs to be extra careful. Personally, I feel much more comfortable with direct ownership of property at this stage of the market cycle. Even during the current great economic run we are having, I've heard of a few investments that are currently expected to result in full principal losses. Just imagine how bad the carnage will be when the economy resets with all of the johnny-come-lately syndicators that have joined the game in recent years?
So to answer the OP's question, I am still actively buying right now. And apparently, based on the number of properties that either went into escrow or sold during the holidays, there are a crapload of other investors here in Los Angeles that are actively buying. Also, please define 'returns'. Are you talking about CoC?, IRR? ROE? IRR of a fourplex I bought last year in South Los Angeles is over 25%...but CoC is just under 8%.
Would be talking about cap or coc
@Mike Dymski good comment! But explain it to me.
A few years ago when you could get 15% return and now 5%. How isn’t there a difference? I knew if I spent a mill on a property I would clear 150K and now I have to spend 3 mill for the same 150k
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes6y
Originally posted by @Arthur P.:
@Mike Dymski good comment! But explain it to me.
A few years ago when you could get 15% return and now 5%. How isn’t there a difference? I knew if I spent a mill on a property I would clear 150K and now I have to spend 3 mill for the same 150k
That's a limiting belief. The "you" is only you (and others with the same mindset)...the rest of us are still able to get 15%. You can choose to confirm your beliefs with some on this thread or you can pivot your strategy (and mindset) like others on the thread. Up to you. Not trying to be all knowing...just sharing one man's opinion and experience.
I have one more attempt in me to explain why it's 5 percent to you but not someone else. And yes it comes back to the financing.
so where you say that you could see the 5 percent return in the stock market, you're looking at cash for real estate.
When someone finances it they're collecting cash flow, akin to a dividend. Of 5 percent. You're stopping there because you are paying cash.If the deal is financed there's way more happening. They paid 20k for a 100k property. they're earning 5 percent on the 20k COC. Additionally they're having tenants pay down the mortgage, so on a 20 year mortgage, they're earning an extra $200 a month in equity in the beginning. In 5 years they're warning $250 extra in equity, by the end of 20 years it's increased to over $500. $200/month Is an additional 12 percent of the $20,000! Because you're actually earning based on 100k instead of 20k... So while they're really only earning 2.4 percent on 100k, they only have 20k in the deal meaning the return is a whopping 17%. 12 in equity and 5 in COC... plus depreciation on the full $100k. In the later years of the loan the tenant is paying down the mortgage at over $500/month. I.e. 30%! Plus the 5 percent cash on cash. 35% return on that 20k after 15 years. If they've also found a way to tweak that number up to 7 or 8 instead of 5 it was well worth the wait... that's not including any appreciation on the property. If it appreciated 20k during that time. Thats an additional 20 percent over the life of the loan... now your stuck on the idea you only get equity if you sell, that's not true. Refinancing gives you that money.
Even without doing this over an over again, let's just do this once.
Cash flow over the 20 years- $20kIncrease in value over 20 years 20k
Pay off of loan over 20 years 80k
down payment 20k
Total cash and equity $140,000
That's a total gain of 600% over the life of the mortgage. Or slightly over 10% per year consistently.
Now if you waited the entire 20 years to refinance and do it again, you could buy 6 more with the same exact numbers. That's going to mean after 40 years $20,000 became 1 million. if you trust the stock market to give you 10.5 % returns for 40 years straight then you could do the same thing there. But in the real world that's an outrageous assumption, and you wouldn't wait 20 years to pay off the first property and then buy 6 more... if you contributed no other money, by year 8 you'd have the cash and equity to do it again. The next one would happen by year 5 probably. Until you're doing one every year. There are so many other options too. Refinance after 5 years back to a 20 year payment plan adds an extra 5 percent of cash flow. Now you're at your 10 % bench mark, or if they've found a way to reduce a few costs to bring the original number to 7 percent they're at 12. And I'm still confident the majority are finding ways to show 7 or 8 on that number. We aren't all using the exact same assumptions when running the numbers.I definitely agree with you on this..."one should either start to pump the brakes on new syndicated investments or truly ramp up their due diligence with high levels of skepticism and standards".
You also mentioned that "IRR of a fourplex I bought last year in South Los Angeles is over 25%...but CoC is just under 8%." This return sounds great...Can you share more details? Was the IRR and COC due to value add on your part? Which neighborhoods of LA are you focusing on?
- Member since 2016 · 29 posts · 14 votes6y
Originally posted by @Erik W.:
One of the great ways to find better returns is by re-positioning a property to a higher standard (I think someone else mentioned this already) but here I am specifically interest in the lower cost of renovation vs. a new build. Let's take a place I was looking at a few weeks ago as an example. 20 unit apartment with about 1000 sq ft per apartment. Price was $1.1 million. They needed some work, but approximately half of the units had been renovated nicely within the last 1-2 years. It was also in a good location close to employment, services, and attractions. The cost per square foot = $55.
Compare that to brand new builds which are between $120 - $150/sq ft. You can do a lot of rehab on a place and bring it from C+ to B+ or A- with that kind of margin. Let's say you spent $20/sq foot or $400,000 total ($20K per unit) to freshen up & put some sparkle on it. Turn an ugly duckling into a swan and still be in for 1/3 to 1/2 the cost of a new build.
Although I'm getting into multi-family, I also still buy houses I call "little ATMs" too. $30K "all in" and get $600-$650/rent. Cash flow is typically $200-$300/month per door for $30K. That's 8%-12% return on capital, but if you can get into them for nothing then your return is theoretically infinite as well as significant in terms of real dollars when you have several dozen.
Question, where are you getting into 30k houses and renting them out for $600+??
@Shane H. Love the conversation but one thing with your numbers. You are basing them on assumptions. You are assuming the property value will go up. And rates and being able to get mortgage in future.
Do you know how many people when they wanted to sell after 10,20,40 years could sell or sell for a profit or sold at a loss?
If I sell my properties getting me 20% at three times their purchase price. Then leverage that and use it as down payment for 25% down. On a property getting 5%. I’m losing money.
Originally posted by @Arthur P.:
@Shane H. Love the conversation but one thing with your numbers. You are basing them on assumptions. You are assuming the property value will go up. And rates and being able to get mortgage in future.
Do you know how many people when they wanted to sell after 10,20,40 years could sell or sell for a profit or sold at a loss?
If I sell my properties getting me 20% at three times their purchase price. Then leverage that and use it as down payment for 25% down. On a property getting 5%. I’m losing money.
Again you want to sell. Who's selling?
@Mike Dymski the point of the forum is to learn, open our minds and explore more options as I believe real estate has many avenues and an investor goes through different stages as they progress. Been doing this for 20 years and still learning every single day.
You are making statements very boldly but you are not explaining. Unfortunately that does make you sound like a know it all. Explain to me how you are getting 15% on a 5% property?
Originally posted by @Alison Lee:
Originally posted by @Erik W.:
One of the great ways to find better returns is by re-positioning a property to a higher standard (I think someone else mentioned this already) but here I am specifically interest in the lower cost of renovation vs. a new build. Let's take a place I was looking at a few weeks ago as an example. 20 unit apartment with about 1000 sq ft per apartment. Price was $1.1 million. They needed some work, but approximately half of the units had been renovated nicely within the last 1-2 years. It was also in a good location close to employment, services, and attractions. The cost per square foot = $55.
Compare that to brand new builds which are between $120 - $150/sq ft. You can do a lot of rehab on a place and bring it from C+ to B+ or A- with that kind of margin. Let's say you spent $20/sq foot or $400,000 total ($20K per unit) to freshen up & put some sparkle on it. Turn an ugly duckling into a swan and still be in for 1/3 to 1/2 the cost of a new build.
Although I'm getting into multi-family, I also still buy houses I call "little ATMs" too. $30K "all in" and get $600-$650/rent. Cash flow is typically $200-$300/month per door for $30K. That's 8%-12% return on capital, but if you can get into them for nothing then your return is theoretically infinite as well as significant in terms of real dollars when you have several dozen.
Question, where are you getting into 30k houses and renting them out for $600+??
That's common in some areas. I'm in Northeast PA and that's common but taxes are too high. 2k a year on that 30k house.
Originally posted by @Alison Lee:
Originally posted by @Erik W.:
One of the great ways to find better returns is by re-positioning a property to a higher standard (I think someone else mentioned this already) but here I am specifically interest in the lower cost of renovation vs. a new build. Let's take a place I was looking at a few weeks ago as an example. 20 unit apartment with about 1000 sq ft per apartment. Price was $1.1 million. They needed some work, but approximately half of the units had been renovated nicely within the last 1-2 years. It was also in a good location close to employment, services, and attractions. The cost per square foot = $55.
Compare that to brand new builds which are between $120 - $150/sq ft. You can do a lot of rehab on a place and bring it from C+ to B+ or A- with that kind of margin. Let's say you spent $20/sq foot or $400,000 total ($20K per unit) to freshen up & put some sparkle on it. Turn an ugly duckling into a swan and still be in for 1/3 to 1/2 the cost of a new build.
Although I'm getting into multi-family, I also still buy houses I call "little ATMs" too. $30K "all in" and get $600-$650/rent. Cash flow is typically $200-$300/month per door for $30K. That's 8%-12% return on capital, but if you can get into them for nothing then your return is theoretically infinite as well as significant in terms of real dollars when you have several dozen.
Question, where are you getting into 30k houses and renting them out for $600+??
That's common in some areas. I'm in Northeast PA and that's common but taxes are too high. 2k a year on that 30k house.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes6y
Originally posted by @Arthur P.:
@Mike Dymski the point of the forum is to learn, open our minds and explore more options as I believe real estate has many avenues and an investor goes through different stages as they progress. Been doing this for 20 years and still learning every single day.
You are making statements very boldly but you are not explaining. Unfortunately that does make you sound like a know it all. Explain to me how you are getting 15% on a 5% property?
See prior posts. Buy right, add value, force appreciation, market appreciation, debt, etc. Buy right - Investors are buying properties with a market cap of 5% for less than market value. Add value and force appreciation - Investors are raising rents, reducing expenses, increasing occupancy, and improving operations which drive up NOI, value, and IRR. Market appreciation and debt - self explanatory impact on IRR. I'm repeating the same stuff...not sure what else I can add.
- Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes6y
==Who is Buying in this market== It’s a good question. Smart capital is not aggressively accumulating assets in this market.
Risk #1. Future price appreciation will be muted
Risk #2. Are we due for a recession? Late 2019, this was a valid question.
Risk #3. Will interest rates always remain at this low level? Probably in the foreseeable future. But long term?
Risk #4. Tenant laws are shifting to favor the tenant in several key markets.
Risk#5. This comment applies only to my local market, Chicago. Real Estate taxes are going up consistently faster than inflation, as the City / County and State have financial problems.
So who is buying in this market? I yearly take a look at who is buying the multi family product in my territory. I saw a big uptick in out of state investors. And most importantly, the volume of sales for investment real estate is down.
@Alison Lee, Springfield, MO. Midwest. Some people call them "pigs." I call them "little ATMs." They don't go up in value much, but the cash flow is excellent! Finding the right tenant, screening carefully, and an iron clad lease are the keys to keeping your costs and frustration down. It's getting harder to find them these days: I only bought 4 in 2019. I would be more aggressive but have been focusing on multi-family.
- Investor · Concord, NC · Member since 2017 · 6 posts · 6 votes6y
Great thread and lots of good opinions/ideas from everyone! The bottom line is always in the numbers, and not just using one metric or another. I have been investing for 20+ years in SFH, Duplex, Apartments, MHP, and Condos. This market is tight but always finding a value-add property to increase your return as described by Mike Dimsky is the way to go. This is not easy and takes a good bit of effort and due diligence prior to purchase. There is not one way to "skin the real estate cat" but everyone that is successful skins their cat with hard work in whichever asset class they are comfortable and knowledgeable. You must also adjust your ROI expectations based on the current market and not get too hung up on better ROI you may have obtained in the past in different market conditions. Risk tolerance vs. return plays a large role in what one considers a "good investment". There is no absolute right or wrong. Please continue the comments folks!
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