We are buy and hold investors...invested in Las Vegas, 5 homes, before the boom and pop, and are holding the homes as they are positive cash flow. Next, we discovered a suburb of Houston, TX with newer homes, masterplanned community, and the purchase prices and rents are good... buy for $140k, rent for $1,400... we have 7 there. We are looking for another area to do this in. Ideally, buy newer homes in the $130k-$150k price range, rents in the $1,300-$1,600. Anyone want to boast your town or have any suggestions as to where to do this? We don't want t have all of our eggs, or too many eggs, in any one market place. Do you think 7 sfr's in one market is enough? Even though they are renting well, and cash flowing well, isn't it a tad risky to do too many more? Any feedback will be appreciated!!!
Architect · Houston, TX · Member since 2008 · 10 posts · 0 votes
19y
Originally posted by "buyandselllv":
Next, we discovered a suburb of Houston, TX with newer homes, masterplanned community, and the purchase prices and rents are good... buy for $140k, rent for $1,400... we have 7 there.
Just curious as to what area of town this is in. I don't know if you are trying to keep it hush hush, if so shoot me a PM. I'm from Houston and just curious where abouts you found this. :D
Loveland, CO · Member since 2008 · 1k+ posts · 123 votes
19y
If I were you I would be out of the Houston houses, today. You said that your plan so far is to:
That is a recipe for disaster, and I speak from 25 years in the Houston market. Here's why:
Buy for $140K, whether you borrowed or paid cash, let's assume a cost of money of 8%. That's $1027/month for P&I
I realize that quite often on new construction in TX the first year property tax is based upon the prior year (unimproved) value. But by and large any decent (Katy, Cy Fair, Spring or other) school district the total hit on property tax is going to be 3%, or $4200/yr, $350/month.
As homeowner's insurance is unregulated in TX we have the highest rates in the country. I don't know what you're paying but let's call it a conservative $1000/year, $83/month.
Houston is the land of the preplanned, amenity rich (pool, tennis court, etc) subdivision so I'm guessing a minimum of $300/year, $30/month HOA duses.
That totals $1490/month. How is that going to work for you?
And please don't tell me that you read in "Fortune" or "Business Week" about the great appreciation in TX markets. It averages about 3%-5%. The statistical cause of the higher numbers cited in magazine articles is caused by the disproportionate number of new homes always sold in a market where it's so easy to slap down another one.
I don't see any allowance for vacancies, repairs, painting or any of the other real life things that happen.
I appreciate the input! As an "anal retentive" person, I am really aware of all of those things mentioned, but thank you so much for mentioning them for those who don't. We know of an investor there that was not impounding taxes, nor aware of the 3%, and really got a whammy!
We are impounding, on resale homes, with real taxes (3%), and insurance. I hear what you are saying, but the numbers still seem reasonable for us... We put 10-25% down, which I guess is not something most investors are doing. That being said, do you really think it is a bad area to invest? We are not trying to pick an enormous appreciation, that is a recipe for disaster, but 3-5%, while the mortgage is being paid down by someone else, and we get the tax benefits meanwhile, seems like a conservative bet in the long run, doesn't it?
I know many are looking for a huge return, and end up losing huge amounts in the process, risk vs reward... On buy and hold, what better is out there? What numbers or areas do work for you? What would you rather invest in, if you are a fairly conservative risk taker?
I love this Forum... we have never really had mentors and this is exciting to bounce ideas and give feedback to others that are interested :)
We are in Cypress-Fairfield. I know there are other areas like it out there. The numbers are working for us, but read the other response(s) as they may not agree...
I know if you buy in Vegas, $300k will rent for $1,200... way upside down, regardless of taxes (1%) and insurance (about the same as TX). But the response from ALL CASH concerns me and leads me to believe that 1% is not a good number... I am anxious to hear where else you can get a bigger rent than that without being a slumlord, or very risky area.
Our theory is, if we continue to buy in beautiful association communities, and continue to screen our tenants and get strong deposits, we should continue to have the tenant history that we have had, which is phenominal. We have been landlords for 14 years and love it... never used a property manager. Everyone's input will be awesome!
Real Estate Investor · Las Vegas, NV · Member since 2008 · 1k+ posts · 447 votes
19y
Glad to see someone else from Las Vegas! I am a rehabber who doe about a 50/50 mix of flipping and holding as rentals. I have avoided investing in the Las Vegas market because of the low rent to price ratio. You may want to watch for and do a search of posts from MikeOH, he has a strong sense of reality when it comes to rentals. Most of my investing is actually in the town of Ely about 250 miles north of Las Vegas. It is a rehabbers paradise with a booming economy and a strong rental market with rents in the 1-1/2-2% range.
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
19y
buyandselllv,
I agree 100% with All Cash. What you're doing is a recipe for disaster. Although you say you have 14 years of experience, it is obvious that you don't have many units. The numbers you quoted won't work. It is just this simple: when you buy a property with gross rents of 1% of the purchase price, it WILL lose money. You can put a bunch down and force it to cash flow, but all you're doing is hiding a loser.
You should be buying at a much greater discount. I don't buy anything unless I get rents of 2% of the purchase price (assuming no repairs). Running a successful rental property business is All About the Numbers.
Finally, you realize that All Cash showed your property to lose money without listing all the expenses. He only hit a few of the big ones.
Boonies, PA · Member since 2008 · 333 posts · 15 votes
19y
buyandselllv, I am not sure were you get your intel from. I get calls all the time and emails about properties from Dallas and Houston. They don't send me deals, they send me their problems. I would look at mcallen TX if your bent on TX. I try to get at least 10% return on any property I look at, what ever makes your numbers work go for it.
Wow, I am getting some pretty strong feedback. On one hand, I love it, on the other hand I am feeling a bit like a student asking for help and being told they are stupid.
I am, indeed, an investor for 14 years. My husband and I, be it dumb luck or just positive thinking, have managed to build up a fair amount of equity in our properties without as much knowledge as it appears is out there. We have, to some degree, bought our cash flow. We have done mostly 10% down, which was way more than many suggest, but was our assureance that we wouldn't have to come out of pocket if we need to dump the properties.
Things that are not being mentioned is that we manage our own properties, local and long distance, and love it! We have never had to evict a tenant in 14 years, and I have only had 1 late payment and charged the late fee. I have had only 1 tenant that "thrashed" the place, her dogs loved to dig up the back yard, and she literally asked if she needed more than the $1,200 security and $400 pet deposits I was keeping. Additionally, we have virtually no expenses going into the home besides the down payment, the homes were mostly 1-5 years old and worst case needed some paint and flooring, no costly rehabbing. All that being said, maybe other formulas do work? I am not paying 8-10% management fees of any of my $1,200 - $1,500 rents... multiply that by just the 12 sfr's we own and manage and it does change the formula, doesn't it?
Don't get me wrong, I do appreciate the feedback, but what is working for one does not rule out what works for another.
I am anxious to hear about these 2% & higher rents... please share with me some city names if you will. Just imagine, if dumb luck follows us to a place where the wise investors know about... the possibilities are endless :)
Real Estate Investor · Las Vegas, NV · Member since 2008 · 1k+ posts · 447 votes
19y
I congratulate you on your good fortune. Self-managing definitely improves your cash-flow. If you are dealing in newer homes you will not have as much maintenance now, it will show up if you hold the property long enough. Putting 10% down is not unreasonable at all and you seem to have developed a strategy that works well for you. As a general rule of thumb, 1% is not enough to turn a profit when you factor in all of the hidden costs of owning rentals. Real estate agents in general have a tendency to say that a property has positive cash-flow if it covers debt service and a minimal amount of vacancy and often ignores maintenance all together. You have been doing this successfully for 14 years and that is probably not an accident. Many people on this forum, myself included, tend to be very conservative with numbers and consider appreciation to be gravy. The trick is to be sure that you are not in a negative cash-flow situation while waiting for appreciation.
As far as other areas, I do a lot of investing in the northern Nevada town of Ely which is about 250 miles north of Las Vegas. Rents in this area are in the 1 ½ - 2% range.
Loveland, CO · Member since 2008 · 1k+ posts · 123 votes
19y
buyandselllv; I'm very familiar with that area. It was one of those subdivisions that started in the '80s, just before the crash, and for years it sat with IIRC fewer than 100 houses. Of course US 290 was 2 lane then, LOL.
Putting more money down does not change your overall numbers, just your monthly numbers. It's the opportunity cost of your money. Taken to an extreme,imagine if you put 100% down (which is what I do). It doesn't change your rent roll. It does make the math easier to do.
You said;
and
I don't know, how cheap is a Southwest ticket LAS/HOU and a rental car and a few nights in Motel 6? That will change the numbers.
I'd say you've been somewhat lucky and somewhat "market savvy". At one time all of my tenants had higher salaries at their day jobs than I did. Not a lot of management problems there, but those kind of people want garbage disposers etc fixed within 24 hours.
You also wrote;
Yeah and a lot of stock market "investors" were geniuses from '91-'00. Then the market turned and it turned out it's not all about "buy, buy, buy".
You also wrote;
Wrong-you came "out of pocket" when you purchased, so that you might not have to when you sold. What's the difference?
2-3 appreciation sucks! But that's all you're going to get in TX.
"Tax benefits" do no exist.
Mortage paydown! Are you kidding me? On $150K @ 7% it's about $21K for the first 10 years.
Thank you all for your replies... I got some thinkin' to do! I guess I fall back on my favorite saying: THE MORE YOU KNOW, THE MORE YOU DON'T KNOW"... ever so true when you open yourself up to learning more. Ignorance is bliss, but may be very costly :)
I am a new (albeit enthusiastic) member on Bigger Pockets and the one thing that is dismaying me so far is that some of the member posts really come off as quite beligerent in a sometimes condescending way. That is unfortunate. There are obviously quite a few contributors out there with loads of experience to share but that experience and insight needs to be tempered with a realization that people's investment strategies differ and one approach that might work for one investor might not work for another. That having been said, did anyone actually answer your question when it came to looking for new markets with good rental potential? I saw a suggestion about McAllen, TX (which featured prominently in a recent magazine article in Fortune or Money <can't remember which>.) I personally don't care much for Texas because the exorbitant property taxes tend to damper the appreciation. However, it should be noted that several counties in Texas are in the process of instituting programs that will progressively lower their property tax rates over a period of years. This could indicate some good growth on the horizon for Texas but I still think that better areas are out there for investment.
When chosing a market in which to invest for a long term hold, there are obvioulsy several factors to consider but the two most important from my perspective are expected appreciation and cash flow. I generally like to find areas that have a good mix going for them. I will gladly take a propertry with less positive cash flow in a market that I see as appreciating at a stable rate or ready to appreciate quickly rather than a property with more cash flow in an area that is at the top of its "bubble" or stagnating with regards to appreciation. Another factor to consider is where in the cycle the market is in relation to its rents vs. sales prices. For example, right now Las Vegas is entering a cycle where we expect to see rents increase dramatically over the next 1 - 3 years. As more families lose their homes to foreclosures, as lending guidelines tighten, and as 6000 people per month continue to move to the valley, we will see rental demand exceeding supply and the rents in Las Vegas (which have remained fairly stable for the last several years) will increase to offset the demand. Beacuse of this, all other factors being equal, I would rather buy in Vegas right now and hold through the rent increases. Of course, all factors aren't equal and that is why you need to weigh each one when deciding on the next market in which to invest.
Some of my favorite markets for rentals right now (all things considered) are Raleigh, NC, Kansas City, MO, parts of the Alabama Gold Coast, and Biloxi, MS. Also, don't forget that if you buy new rental property in AL or MS or any other area covered by the Gozone initiatives you will reap substantial tax benefits as well.
I do happen to have some contacts in some of the above regions that might be able to help you out in locating good rental properties. If you want a referral for an agent in those regions, feel free to drop me a PM, and if I know someone in the region you are looking at, I'll respond with the info. I was going to post it here on the response, but I'm not sure what the rules are on that.
Thanks for that valuable info! I see you are a fellow Las Vegan, by your plug for the REI Club. We have many rentals here in Vegas, and look forward to the rents going up... they have certainly remained stagnant in the last 5 years! We have some learning to do regarding raising rents as we tend to leave it alone... which on one hand is why we have tenants that stay many years, but on the other hand hurt our cashfow.
I would love to get some names and numbers from you. We found our agent in TX by weeding out the flakey ones and testing the persistance of the one we ended up with. It worked well, as we have developed a great relationship with him and he takes care of us... Ex: He took a washing machine & dryer out of one and stored it in his garage until my next vacancy came up that needed one, he does drive-by's for us regularly. He goes beyond the call of Real Estate Agent duty and has been rewarded with many a commission check, on the sale of our properties, our referrals, and the rental commissions that they earn in TX!
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
19y
Tamara,
I'm sorry that you feel we are being beligerent. We could all hold hands and sign a song, but that won't help someone new that has a question. All of the experienced investors tend to tell the truth, sometimes in a blunt fashion and even then the new investors often argue that they know better. That's ok with me, I am not the one that will be losing money. However, I think we at least owe it to the new investors to tell the truth. Which is more important, getting the truth that will keep a newbie from losing a bunch of money or agreeing with a bad plan just to be nice?
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
19y
Tamara -
I'll have to agree with Mike here. I don't think people are being belligerent at all. If they were, I wouldn't allow their post to remain on the site. What people are doing is giving honest accounts that will help newer investors see how difficult this business is.
Many other websites, gurus, etc. make it sound like investing is as easy as playing Monopoly. Why do you think there are so many investors in financial trouble?
I'm sorry that you think that people are being harsh, but I believe that it is often necessary. That said, I'm glad you are enthusiastic about the site and look forward to hearing more interesting and thorough opinions and thoughts from you in the future. Welcome!
Well Mike, if we all held hands it would be quite difficult for us to sign a song. Maybe sing a song. Could I suggest Kum By Yah? My point is that it seems like these people asked for advice on where to invest next and instead they got an ongoing critique of where and how they had already chosen to invest. And still, for all of that, no one answered their original question! I'm all for blunt honesty but maybe we ought to consider two things in our replies to posts:
1. Answering the question that the poster actually asked instead of telling them what we think they need to know.
2. Opinions are just that...opinions. Bouncing ideas and strategies off of others works much better when everyone involved is open to new ideas.
I found it interesting that of all the things I said in my post, the only thing you felt the need to comment on was my "aside" at the beginning of the post. You critiqued the fluff instead of addressing any of the meat...and again avoided the whole point of the original poster's question and my answer. Anyway, just my thoughts. Have a great day all!
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
19y
OK, let me try again.
Where to invest next? I would strongly suggest that an investor not invest ANYWHERE if they don't understand the basic rental property business. As everyone told the original poster, rental properties bought with gross rents of 1% of the purchase price are losers.
As for your post:
Cash flow is KING. If you are going to have a substantial rental property business, you muxt have positive cash flow or you're out of business. I don't bet on appreciation. I think the country is in for a major recession and housing prices will decline significantly over the next few years. Even if I didn't believe that to be the case, I still wouldn't speculate. I'm in business to make money, not bet. Instead of betting on appreciation, I insist on getting significant equity at closing. I won't buy a property unless I have at least 30% equity AND $100 positive cash flow per unit per month.
Most properties in bubble areas won't have ANY cash flow. Any property that does, must be bought at a huge discount to market, so in that case you would be getting instant equity - which is the strategy I suggested in the first place.
If you want to buy properties that don't cash flow in hopes of appreciation, that's absolutely fine with me. I'll keep buying with built in equity and cash flow. As Ryan said in another post. I like to sleep at night. I'm in the rental business. I'm looking for a sure thing and I'm not betting. However, one thing is certain, if you are going to gamble, Las Vegas is ironically a good place to do it.
Hey Mike! I've got a great idea. You could develop a paragraph that outlines all your thoughts on investing in rental properties. Maybe something like this:
And then you could just post it as the standard response to ANY question that anyone ever asks! I mean that basically seems to be what you do. Someone asks where to invest? Post the above paragraph. Want to know how to find discounted properties? Here, read this paragraph. Cash flow vs. equity (another interesting thread I've been reading)...yep, you guessed it...read this paragraph.
It's not that I disagree completely with you or that I don't think you make some valid points...it's just that you seem unwilling to answer any of the questions that people actually ask you. I'm sure the newbies would be a little more interested in learning if you could try to answer their questions when you respond to a post. That was my point with my first post, and it is my point now. What you're saying is valuable...but it's not the only thing they need to know or learn. What about all the other questions?
My guess is that you don't have any suggestions on where to invest because by your own admission in another thread on this site, all your properties are within, what was it, 15 miles of your home? Well, of course you're not going to have anything valuable to add on which geographical areas nationwide might be good places to look for rentals. You only buy rentals in your own community. Hey if that works for you...Great! But maybe when people ask for advice on places that look good on the national scene you should just say that you don't know!
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
19y
Tamara -
I would simply like to ask if your purpose on the site is to pick a fight with Mike? It seems from some of your comments like you've got quite a bit of knowledge in REI, but 4 of the 5 seem to gravitate around arguing with MikeOH.
I hope that you can participate here and share some of the know-how that you have accumulated and not just argue with Mike.
Real Estate Investor · Castro Valley, CA · Member since 2008 · 5 posts · 0 votes
19y
Originally posted by "MikeOH":
buyandselllv,
I don't buy anything unless I get rents of 2% of the purchase price (assuming no repairs).
Mike
I've read a lot of Mike's posts, and I know that he's very consistent with his preaching of the 2% formula. But something always puzzles me is: for example you bought a house for $75000 and you turn around and rent it for $1500/mo. So if this renter can pay $1500 rent, why doesn't just go buy this $75000 house? I know, I know, you are an expert so you know where to find this incredible discounted deal, but if I can pay $1500 rent, I at least can buy $100,000 house and that's not hard to find.
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
19y
Dan,
There are many reasons that people rent instead of buy, but the primary reason they don't buy is that their credit isn't good enough to allow them to get a loan. Renters are renters because they consistently make poor choices. A huge percentage of renters smoke, which can be quite expensive. Many renters spend a lot of money drinking and partying. They buy a new big screen TV instead of paying the mortgage. In short, they make poor financial decisions which continually keep their credit down. They really are just not suited to being homeowners.
Over the past few years, when lending practices became ridiculously loose, many of these renters became homeowners. Long term landlords here in my little corner of Ohio said 2006 was the worst rental market in 20 years. However, that didn't last long. These new homeowners continued to make poor decisions and are losing their homes by the millions. They are back to being renters and the rental market has dramatically improved.
Real Estate Investor · OH · Member since 2008 · 1k+ posts · 86 votes
19y
My wife and I were talking about this the other night. Both our grand parents rented all their lives and raised our parents in those homes. One set of grand parents rented one side of an old duplex in Shaker Heights near Cleveland and they lived there until they died. My other grandparents did the same in a small town. They raised their kids in these homes and treated the property like they owned it. It never occurred to us as kids that our grand parents did not own the home they lived in all their lives. Our grand fathers had work shops in the basements and our grandmothers planted flowers in the front yard. They were perfectly capable of getting loans to purchase a house, but maybe their generation just felt more comfortable with renting. I can't answer that, because they are all dead now, but I can say I don't believe that all renters are people with bad credit and like to party; perhaps that was just a different generation and we just don't find people like this any more.