What happens when you're not in a 30K market but a 400-600K market?

60 Replies

I've decided to take the plunge into real estate investing. I'm reading all these great articles on BP (thank you for providing this amazing and extremely useful resource!!) and also have a stack of books on house flipping, how to buy foreclosures, creative financing, etc.. that I'm going through one by one. I've also watched HGTV to get a gist of what surprises to expect during renovations (I know, it's reality TV but it was helpful information nonetheless and a good starting point). I've been actively looking at open houses every weekend for the past 3 months or so. So I'm at the point now where I'm starting to see the big picture and feeling comfortable with what's involved in flipping a house and to a lesser extent, investing in rental properties.

Reading all these articles by seasoned RE investors is highly educational and motivating but I live in New England (Boston area) where you'd be lucky to find a single family home under $350K or a 2-family rental property for under $550K (and that's not even in the high end) in the suburbs.  I'm in my 50s, never owned a home and my income doesn't qualify me for a mortgage (at all). However, I do have a little bit saved up but nowhere near enough to pay cash for a property in this part of the world. 

I REALLY want to invest in real estate because all things considered, it's my best bet to make the little bit of money that I have, work for me. However, I feel paralyzed. Stuck between a rock and a hard place because I just don't see how your % rules can ever make it work for me in my geographical location. I need to find a solution that allows me to both buy a house that I can live in *and* create an income stream so that my housing expenses are covered.

It would be great to hear real life stories from investors who started out in the New England area (or similar high-priced markets) to see how they made it work financially. Specifically, here are the criteria:

1. This is your first property purchase, ie. you don't own any real estate

2. You don't qualify for a mortgage (ie. mortgage broker says you have to pay cash for the house or no deal)

3. You don't have a spouse, family or friends to co-purchase with

4. You are dealing with a market where SFR's start at approx $350K (a fixer upper in a lower middle-class neighborhood) and MFR's start at approx $550K - again, fixer upper that needs work. (If I want move-in ready, I'm looking at a min. of $550K for a single family in a neighborhood that's decent and safe.) You might get lucky and snag a foreclosure for $275K-$500K depending on the town and the size of the house but still need to factor in rehab costs.

5. Property taxes in this market vary between $4,400-$9,000/yr.

6. Rents for a 2BR, 1 BA apt average about $1500-1800/mo. 3BR can be as high as $2400-$2700 but that's in a more urban neighborhood where 2-families are selling in the 700K's and higher.

I like to believe that when there's a will, there's a way but everywhere I turn I'm hitting a brick wall. Are there any investors out there who can shed some light on this and offer creative solutions to making this work? Moving out of state is not an option by the way. Any help would be greatly appreciated! I'm sure I'm not the only one in this kind of conundrum so you would be helping others as well.

Thank you in advance!!

You might have to consider buying long distance depending on the price range you are looking for.  This is of course if I assume correctly you want to buy and hold for cash flow correct?  

Hi Curt,

Thanks so much for your reply. I'm interested both in flipping houses (to start making some money to buy a home of my own and eventually rental properties) as well as buying and holding for cash flow, yes. The long distance idea makes me uncomfortable though, mostly because then I have no control over the property and I'm not there to see it, monitor the issues, etc.. and if I need to rehab it, I couldn't be there to oversee it to make sure it meets standards. I'm not a control freak, but I do need to be sufficiently informed and hands-on to know what's going on rather than leave everything in the hands of a property manager or GC that I've probably never met. Too many unknowns.. Maybe once I've bought a few, I might venture into long-distance deals, but to start I think it would be better if it were in my backyard.

Originally posted by @Curt Davis :

You might have to consider buying long distance depending on the price range you are looking for.  This is of course if I assume correctly you want to buy and hold for cash flow correct?  

 I'm outside DC  so in a similar situation as the OP.  I'm not adverse to a two or three sub 30K props for cash flow that I will buy in cash and hold until I die,  but don't want to make that the staple of my portfolio.  I'm interested in any and all replies.  Buying long distance worries me just as much as buying up the street.

@Marjorie D.  if you're interested in flipping but don't have the capital, have you thought about perhaps approaching a local flipper and seeing if they would be interested in hiring you as a project manager? To me this would be the safest and easiest way to get into the game without the necessary capital. This would also raise your income and allow you to get a mortgage and build the reserves to back up that mortgage. Furthermore it builds your reputation and gives you credibility such that investors would want to put money with you in the future. 

@CK Hwang  

Would you hire somebody with no real estate investing or contracting experience to be your project manager? 

@Marjorie D.  

Welcome to BP!!  ...and the Boston dilemma. 

The 2% rule doesn't work in Boston, anywhere.  It doesn't really work in the Boston Metro area either.  There may be an exception somewhere, but I've never come across one in 10 years of looking.

If you want to buy in the Boston area, I'd recommend the house hacking method.  There is a Podcast on it.  Essentially you buy a 2-4 unit property, eliminate your rent payment and live for free.

Investing in Real Estate does not always involve buying physical property.  Most of it does, but there are thriving business in notes, wholesaling, hard money lending and other auxiliary services.  The first thing you need to do is find a niche you can enjoy and don't mind working hard towards your goals.

Alternatively you can invest our of state.  If you have the cash to buy a foreclosure at 275k, you have plenty of money to invest in other places.  This requires a great deal of trust that other people will handle your money with care and with sights on profitability.

Do some research, but limit yourself to a given time period.  You can evaluate, read and reread everything on BP for years... don't.  Take 7 days, find something that strikes you and act.

Let us know what you are thinking.  The BP community has seen and done just about everything in the RE world.  

Hi @Marjorie D.

This is typical of area's in the Northeast near major cities.  I live in NJ, and because of the proximity to NYC prices are very high here as well.  What I had to do to start is to buy a duplex as an owner-occupied investment, with the intent of moving out after a few years.  This worked for me because:

a)  Lending was much easier since it would be my primary residence

b)  Great way for a first-timer to learn a ton by living in your rental while renting the other unit out at the same time

c)  The area wasn't my "dream" community, but it was nice, convenient and safe

I think this strategy can work for you too.  While the majority of duplexes in your area may seem to be too expensive, I have to believe that you can find one that cash flows enough each month for you to be comfortable.  Otherwise, the market wouldn't support those types of properties.  Find a Realtor who also invests in duplexes to help you analyze properties.  And keep on reading and learning.

One more tip, if this is your primary residence you may be able to qualify for an FHA loan and put a small down payment versus your typical 20%+.

Good luck and Happy Investing,

Mike

@Marjorie D.    Hey there.  As a fellow New England investor I felt that way getting started.  There is no reason you cannot find a 2-4fam in the area for a lower price.  Fixer uppers in Everett/Malden.  Move along the 495 loop and rt 2 and you can easily stay under $300K.  

Have you looked in Nashua?  3-4fams all under $400K.

Good luck!

Originally posted by @Curt Davis:

@CK Hwang 

Would you hire somebody with no real estate investing or contracting experience to be your project manager? 

It's a two-edged sword, isn't it. @CK Hwang, yes I've thought of that and would not be averse to doing something like that. In fact, I'd happily co-invest with a flipper on my first flip and could even do some of the work myself (my standards are unusually high and so is the quality of the work that I do). This person would have to take a leap of faith after many conversations to make sure our goals and needs as well as work ethics are compatible.

@Curt Davis - I hear what you're saying and I would probably hesitate hiring someone with no experience as well... but then, everybody has to start somewhere. I'm in my 50s, so I have a bit of life experience under my belt vs the typical young 20-something that's just starting out in life (not that there's anything wrong with that! It's just a different scenario and set of skills and experience).

Originally posted by @Aaron Montague :

@Marjorie D. 

Welcome to BP!!  ...and the Boston dilemma. 

The 2% rule doesn't work in Boston, anywhere.  It doesn't really work in the Boston Metro area either.  If you want to buy in the Boston area, I'd recommend the house hacking method.  There is a Podcast on it.  Essentially you buy a 2-4 unit property, eliminate your rent payment and live for free.

Take 7 days, find something that strikes you and act.

Hi Aaron, thanks so much for the detailed reply. HA. 7 days? Seriously? :) I've been watching the market and combing through MLS listings for the past 3-4 months and nothing I see is in within my reach $$-wise, except maybe foreclosures - but those operate under a totally different set of rules and come with their own issues. That being said, I think FC's are my best bet at the moment. Even the fixers listed on the MLS are priced ridiculously high. You're right... the 1-2% rule doesn't work here!

I will definitely check out the house hacking podcast. Biggest concern with that is since I don't qualify for a mortgage, I'd have to pay cash for the property which means all my money would be tied up in 1 property therefore leaving me no money to flip houses. The other option would be to finance the flips using private lenders but they would also have to cover all the rehab costs, which not all of them do. I don't want to get stuck in a situation where I can't expand my holdings. 

Just being pragmatic :)

@Michael Germinario - thanks for the reply and for sharing your experience. That strategy would work except that my income doesn't qualify me for a mortgage at all. Since I can't pay for the property in cash (cost-prohibitive) I'm stuck having to find alternative solutions to get me to that point. Hence the dilemma... 

@Sean Troy - I've thought about that but keep coming back to location, location, location. There are many 2-families in (downtown) Framingham for example that are more affordable and appear to be good investments on paper (close to commuter rail, stores, lot of rentals) but everybody knows that investing in a less than favorable neighborhoods is a huge risk. Bad resale value (I've been watching the market and many properties are selling for less than they were purchased for 5-10 years ago. That can't be good) or the properties sit on the market for months. In fact, everyone I've talked to has told me to avoid Framingham and that's an even safer neighborhood than Everett or Malden. (We won't even mention Dorchester) I prefer to avoid iffy locations. Nashua would be a possibility if it weren't so far. It's a good hour from here (with no traffic). I need to talk to some RE agents and pick their brains about up and coming neighborhoods to invest in that are safe and still relatively affordable at this point. Medford maybe?

@Marjorie D.   Medford is pricey due to Tufts Univ housing which means students(fine by me but not for some).  What areas do you like?  I own in both A and C areas and find the C is more profitable and less headaches for me.  

Originally posted by @Christina R.

I'm outside DC  so in a similar situation as the OP.  I'm not adverse to a two or three sub 30K props for cash flow that I will buy in cash and hold until I die,  but don't want to make that the staple of my portfolio.  I'm interested in any and all replies.  Buying long distance worries me just as much as buying up the street.

The source of a lot of worry is fear.  So you need to identify what you are afraid of. What have others done to alleviate their fear?  Basically, if you invest in an area where you have a person or company that you trust and who will do an excellent job for you, there's much less to fear.

@Sean Troy I don't mind students (esp. grad students), it almost guarantees no vacancy since there will always be a steady stream of students year after year. Flip side is high turnover. Provide a functional space to live in (sturdy but nothing fancy in case they trash the place) and stick to mostly cosmetic updates.

My preferred areas for MFR's are Watertown, Newton, Waltham, Natick or Arlington. Unfortunately neither of these areas are affordable (relative to my means). Natick actually has very few MFRs, it's mostly SF's. I thought Medford might be a good possibility because of Tufts but if you think Medford is pricey, then I don't even want to think what you think of my preferred "A" neighborhoods :)

What do you consider "C areas"?

Marjorie,

I'm sensing a lot of apprehension and negativity in your posts.

You can't move.  You can't qualify for a mortgage.  You aren't willing to buy long distance.  You don't have friends or family that can co-purchase.  You don't want to tie up all your savings into one property.  You don't want to invest in less than favorable neighborhoods.

I think you need to focus on what you CAN do.  You can continue to educate yourself.  You can invest your money (for the time being) with other RE Investors that have experience and knowledge (I know guys like J Scott and Marty Boardman are always looking to add capital to their investment pools).  You can wholesale deals.  You can fix your situation (whatever it may be) so that sometime down the road, you do qualify for a mortgage.  You can also network in your area, both with possible investors (possibly providing you with more funds) or with other RE professionals (possibly providing you with partnership opportunities down the road).  There is PLENTY you can do, so I would start there.

@Marjorie D.  

  to answer your specific question about 30k houses as opposed to your market at 300 to 600k.... The reality is if you go out of area and buy 30k houses your going to have to pay cash for them.. and then your buying one of the riskier asset class's in the US... especially if its not a smaller little burg type town  as opposed to buying 30k homes in any metro area over 250k population.

so if you are going to consider that then there are other avenues RE related that you could do that are local to you, and at that dollar amount will More than likely out perform a risky low end asset.. and that would be investing with a top HML in your market they will get you 9 to 12% that you can basically count on .. .Nothing is a for sure thing but FAR less risky than 30k homes in the hoods... And you have a Pro setting the deals for you who's business is directly related to great performance.. There is a HML on this site Ann Bellamy right there in your area and I think she has meet ups etc.... You may want to look at that. Along with Reits and other managed investments.. Even crowdfunding Realty Mogul and Realty Shares are two that I am very familiar with and they have some nice offerings.. Of course due diligence is still required but the owners are top notch operators from my experience and meeting with them in their respective offices in Beverly Hills and Mtn. View CA.

So there ya go... Its not all lost there is life after owning rental homes.. Yes rentals are on everyone's mind but I can tell you many many who try to be landlords after a few years and maybe a decade will sell out and become lenders or passive investors.. I know I am one...

JLH

@Marjorie D.  

  in re reading your post if I get it right that you have no funds.. no credit and the price points are sky high but you think RE is for you and your wanting to know how to do it.

Well unlike the guru pitchs its pretty darn tough... But that all said  Get a RE license and sell RE hire on with a keller Williams team  they will feed you leads if your any good you will make money if you can't sell or are not cut out for RE you will find out then you can concentrate on some other endevour... This business is tough and in your neck of the woods the idea and model that many of those that post here do is really pretty tough as I said.. Remember a lot of these folks are working in areas and are really acting more like Auto mobile wholesalers IE its the same price they pay or tie up a home for that auto guys pay for used cars etc...

Originally posted by @Curt Davis :

@CK Hwang 

Would you hire somebody with no real estate investing or contracting experience to be your project manager? 

 Actually, I'm in the midst of a project right now that would be just perfect for a first time project manager since it's just pain carpet and a little termite work. So yes, I'd start them out with a easy project first, then build up the complexity. For my side, project management is really just making lots of calls, dealing with the subs, getting quotes, visiting worksite and checking on work nothing terribly difficult. Just time consuming. 

@Robert G  You are absolutely correct! Great suggestions. Sorry if my posts are highlighting the negatives. I'm just pointing out my hurdles so that I can find ways to solve or overcome them. I find the process of elimination helpful in narrowing down my options. With such a big investment, I think anyone would agree that for a first-time buy, you have to be careful as far as what and where to invest in to make sure you don't lose all your money.  I'm new at this, so I was hoping that the folks here could help fill in the blanks where my lack of experience and knowledge fall short.

As for what I CAN do... I'm continuing to read and educate myself. I have plans to attend a free seminar in town that talks about flipping houses. I have been collecting a list of GCs and names of local flippers as well as talking to RE agents when I go to open houses to broaden my network of contacts. I also found a website that lists local (private?) investors and I plan to contact some of them to start the ball rolling and explore possibilities. 

So yes, I am doing what I can to keep moving forward and I am simply reaching out to the wonderful community on GP to help me find solutions to the challenges that I'm unable to solve myself.

But you're right - I need to shift my mindset to a more positive place so I can focus on the possibilities vs the challenges. 

Originally posted by @CK Hwang :

 Actually, I'm in the midst of a project right now that would be just perfect for a first time project manager since it's just pain carpet and a little termite work. So yes, I'd start them out with a easy project first, then build up the complexity. For my side, project management is really just making lots of calls, dealing with the subs, getting quotes, visiting worksite and checking on work nothing terribly difficult. Just time consuming. 

 That would be easy peasy and perfectly fine with me as a start. Too bad you're in CA :)

@Jay Hinrichs  Thanks for the input. Actually my original post may not have been clear. The reason I don't qualify for a mortgage is that my income is too low. My credit is good and I have some savings so I do have some money - just not enough to buy a house in cash in this market. So any kind of conventional loan is out of the question as far as banks are concerned. $500K is a lot of money to cough up and that's not even for a fancy house in this neck of the woods. In fact my landlord just informed me that he saw 2-families in Somerville listed in the $900Ks and while this is an urban location that caters to a lot of students and hipsters, it's not exactly a swanky neighborhood by any means. How crazy is that? He owns 2 properties and even he says it's become crazy and unaffordable. 

Thanks so much for your suggestions though, I'll definitely do some research on Realty Mogul and Realty Shares and contact Ann Bellamy!

Hey @Marjorie D. I actually almost moved to Jamaica plains. There was this beautiful loft that was previously a brewery we were looking at.

Have you thought about outskirts like Waltham or Newton? Charlestown has much cheaper prices real estate, of course it is a little bit of a rougher area as well.

@Marjorie D. I too live in a area where the price to rent ratios just don't add up to positive cash flows.  Not nearly as expensive as Boston area, but neither are the rents.  That is why I decided to invest in properties out of state, in areas where I am able to hit over 1% everytime?  I never try for the 2% rule, but have cash flow that is well into the double digits, plus tax and principle pay down advantages.  I use turnkey companies that - via vetting and due diligence - I trust, which doesn't mean I don't keep an eye on them.  I don't need the headaches of landlording or renovations, and so have also chosen to be a "passive" investor and make sure that the property management is top notch and tied in with the turnkey provider.  I have also been a private lender, which can be an even safer way to earn double digit returns, but  lending does not have the additional benefits  of owning real estate.  I do leverage my property purchases with financing, but that is not what you are able to do right now.  Depending how much cash you have to invest you could buy all cash, but I personally would avoid the $30-$50k range homes (after renovations).  Yes investing out of your area will take some trust building on your part, but that is a hurdle you may want to jump based on my own experience.  

@CK Hwang  I've definitely been looking at Waltham, for months now.. but single families there are going in the mid-high 500s, with the occasional fixer for a little less. Newton is untouchable... everything is over 1 million, or fixers in the 700-800K range. Would love to live in Newton but can't touch it (yet! :)  Charlestown is like Newton. A small handful just under 1M... most over that. 

@Larry Fried  I've thought about being a private lender, even though my initial investments might be on a smaller scale, there's always someone who needs money. It might be a safe way to start generating a little income and then gradually jump into the flipping pool once I have a little more capital to work with.

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