Should you buy A properties in A neighbourhoods...
Dear BP members,
Here's the thing, we constantly hear about buying value right from the get-go and so I wish to know if buying turnkey properties in A neighbourhoods is a no-no because the value is already priced in...
Or should we be bargain hunting and looking for :
B type property in A type neighbourhood
C type property in B type neighbourhood
What do you think?
Jamie
@Jamie Montpellier I own all three. All will work depending on your goals. You should really be looking for deals. You make money when you BUY! So if you buy right, you will make money. Also if it's a buy and hold long term property, you will want to make sure it will cash flow. I generally like to get at least 25% Return on my cash in from the cash flow. Hope this helps you.
Happy Investing!
Well from the numbers I'm looking at the COC% is near a little over 21% that's considering a 7% vacancy rate and 7% maintenance based on rent. Do you use a higher percentage when running your numbers for cashflow numbers?
No, you are in the ballpark. Some use 10% for both. For me, it varies depending on the type of home construction and age of home.
Happy Investing!
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#1 All Forums Contributor
- Real Estate Broker
- Lake Oswego OR Summerlin, NV
@Jamie Montpellier prime A can run lower than those numbers.. I have 11 what I call A's and they are always full so I have no vacancy factor.. maintenance costs 2 to 3% and that is just filters ... but these homes I brought brand new 5 and 6 years ago.. same cannot be said for used homes generally
Jamie,
Everyone has their own real estate portfolio goals and you have to figure out what strategy works best for you.
Currently, I have one B type SFR property in a C type neighborhood
one B type SFR property in a B neighborhood, and I have
5 A type SFR properties in an A neighborhood where the schools are all rated 10/10/10 and were all acquired brand new in the last 5 years.
When the opportunity arises I plan to trade up my 2 C and B SFRs for two more A SFRs. My goal is to own 10 A type SFRs free and clear. I find that the management of my A SFRs are truly passive and easy to manage and attracts 700 credit / 100k+ income tenants who pay rent before the 1st of the month, takes great care of your property, calls you perhaps 2-4 times a year. These A type assets seem to appreciate much faster than my B and C type assets and it is not uncommon to see multiple applications arrive at your email within the 1st week of listing the home for rent.
For my buy and hold I like to buy A type assets from motivated sellers at a 10-20% discount less than 10 years old.
For fix and flip, my criteria is look for homes built in the 1990s in the A type neighborhood where I know homes in the neighborhood will turn quickly.
James
Originally posted by @Jamie Montpellier:
Dear BP members,
Here's the thing, we constantly hear about buying value right from the get-go and so I wish to know if buying turnkey properties in A neighbourhoods is a no-no because the value is already priced in...
Or should we be bargain hunting and looking for :
B type property in A type neighbourhood
C type property in B type neighbourhood
What do you think?
Jamie
@Jamie Montpellier You should buy in a B or C neighborhood that is on its way to the next higher letter. The house doesn't matter so much because in a good area the value is in the land.
Are you looking to just park money then buy A properties and forget them for a lot of years. If the economy survives the long haul then inflation will have been present and you should gain in both rents and value.
If you can't afford A properties then don't buy them. If financed they could eat you alive for possibly longer than you can take.
Originally posted by @Jamie Montpellier:
Dear BP members,
Here's the thing, we constantly hear about buying value right from the get-go and so I wish to know if buying turnkey properties in A neighbourhoods is a no-no because the value is already priced in...
Or should we be bargain hunting and looking for :
B type property in A type neighbourhood
C type property in B type neighbourhood
What do you think?
Jamie
Hi Jamie,
Solid B class is the way to go in my opinion.
Please see link to a recent blog I write for BP in asset classes.
http://www.biggerpockets.com/renewsblog/2014/06/28/abcs-real-estate-asset-classes/
Thanks and I hope you find it useful.
Have a great day.
It is a No-No. Never buy retail priced investments.
Our entire business model is buying class A- properties in A+ neighborhoods. We have bought them undervalue using short sales or foreclosures. They allow us to manage ourselves long distance do to the clientele. We have had no vacancy costs, since we usually have multiple strong applicants per house.
I agree w/ the comments above about the benefits of A properties being generally better than the paper advantages of lower classes, however, at least where I am at and what I would consider A neighborhoods, no one would be able to CF or find an investment.