Agree Or disagree and why.
Most Popular Reply
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2yI have been in real estate since mid 90’s so I am definitely a location location location person
Why - because it’s not as susceptible to as significant a price drop during recessions and they typically recover faster and have greater appreciation which is the true wealth builder in real estate. Just my opinion and feel free to disagree. I love healthy discussions on challenging topics
7e investments53 Reviews
112 Replies
- 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Sam Yin:
Quote from @James Hamling:
Quote from @Sam Yin:
This has been an awesome thread to learn from. Thanks!
I feel that each person's experience and tenure will guide them to strong opinions may be controversial to others. As with many things in life and history, those will more experience and tenure are more often better predictors of outcomes.
As for the OP and subsequent responses, I feel there are a lot of good points posted by many. I do feel that there are markets out there right now that are primed for some major pain because the median income does not justify the rise in rents, OH and the San Diego area being the examples that were posted.
I personally feel the 3X rule is a bit tricky. This is where I think @Dan H. has a ground to stand on in his support for the San Diego market. As the median income rises and the rents rises, there is a point where the 3X rule does not accurately depict affordability. When we get into the $3, $4K, $5K+ range, the 3X rule is not as accurate as a tenant's affordability/sustainability qualifications. This is because living expenses outside of the rent are a differing factor. For example, if the average living expenses (not including rent) are $1500 to $3000 in an area, they do not change upward at the same rate as the 3X rule would assume. Thus it is prudent to use the 3X rule for a $2K/m rent but not for a $5k/m rent. I would expect that a stable tenant should make $6k/m for a $2k/m rental, which would leave $4k for other expenses. I truly believe a renter looking for a $5k/m rental does not need to make $15k/m to be a stable tenant. They might spend more than the average $2k for other living expenses, but the remaining $10K required by the 3X rule for other expenses is a bit overboard. This number skews even greater for higher rents. The 3X rule is a sound rule for rents under $3K. Thats just my personal opinion.
HOWEVER, with that said, the formulas, factors, and fundamentals laid out by @James Hamling are truly sound. I would impress upon readers to review his responses again and understand how that can save your portfolio. Take heed and read the writing on the wall. The potential for those types of overhyped/overinflated markets with shakey income foundations to fall is higher than one might believe. To me, his posts are golden nuggets to keep in your tool belt! It will steer you right, and with patience, can steer you into great future wealth. Thank you James!
Keep in mind the calculous is done on gross, not net household combined income. So as income goes up, so does tax % and thus net reduces.
In general I always market 3X requirement. And, I will consider "conditional approval" looking at how the situation is, capital position, how it all works out. I do this on everything up to $10kmnth rent's. And yes, I have tenant's who clear ~$30k+mnth gross income.
I know what people will say "why on earth would that person rent?", well, for some people it does make sense. I have one with 3 properties paying nearly $50k monthly. Owns and runs a multi site medical practice, see's the properties as a tool, not for permanence but for use at this time. Multi-state tenant's, there is all kinds. I had one with almost a dozen home sin a dozen states AND each with full identical wardrobes and furniture at each, lol.
But on the market level, San Diego is full 5-alarm! I would be dumping anything/everything I own in the market and redeploying with HASTE.
I do not disagree. And I do know of people who do pay some crazy high rents.
I only hope to one day get to that level where is have 5figure rentals under my belt.
My rentals are all under $3k/m. I do use the 3x rule as a strong guide. But I have deviated on occasion down to 2.5, but not below that. The demographics of the worker class in my rental are very hardy. Some inherited tenants are closer to 1.5 to 2x, but they always pay on time, long term, otherwise model tenants. In time, my goal is to transition into those markets with average rents above $3k.
This is where your analysis reaffirms mine and brings me hope that I may be able to swoop in when the time is right.
Keep it coming James, and thank you again for your open and candid contribution to the BP Community.
Even though the average household income could not afford the average home using a 3x ratio in San Diego, I still have it as criteria. I have no rents at $10k in part because my units are small MF complexes (even though there are >$10k condo rents downtown) but I have complexes with units at ~50% that rent point. The sum of the tenant income must exceed $15k/month on those units. the units typically get rented in the initial open house.
As the numbers in my previous post depict, our rent to household income ratio is crazy. However our rents are up 8% YOY and SFH appreciation is 11%. People sacrifice to live here. The housing shortage drives the appreciation and rent growth much more than affordability limits them.I will add that prices have always seemed crazy here and compared to other locations they have been high for decades, yet both rent and RE values continue to grow. That is because housing is limited. The area is geographically constrained on west by the Pacific Ocean, on south by Mexico, on north by Camp Pendleton base, and east quickly gets harsh. Add that there is minimal buildable infill space available and it appears there is likely to continue to be a housing shortage.
I purchased $4m in Dec 2021 in this market (my most recent local purchases). It was good timing as my rate on both purchases was ~3%. I have made a few hundred thousand on each in just a couple of years. So just a couple years ago it was definitely possible to purchase outstanding investments in San Diego.
best wishes. - Investor · Member since 2020 · 337 posts · 213 votes2y
When you are investing in a low income city you have to acknowledge that majority of the city will be graded the same way. The only difference will be demographics. Taking Cleveland for example the West side is primarily White, minus a few neighborhoods and on the east side (not including the suburbs) is primarily African-American. Unfortunately, demographics come into play on what areas will appreciate faster, hence the location, location, location argument. It is always assumed that when you are a certain race you are either less risk or a higher risk tenant. However, take the demographics out of the picture and your class of tenants will be the same because the City of Cleveland is majority low-income. I'm not saying go invest in Glenville, East Cleveland (certain parts), Kinsman, Central because to put it short, they are very rough areas for either an OOS or local investor. You have Slavic Village, Lee-Miles/Harvard, Hough (certain parts), Mt. Pleasant (certain parts) that are solid Class C areas. On the West Side, you will have the same C class neighborhoods and same class of tenant but because of a different demographic and gentrification they will cost more because of the "location" aspect.
Just my 2 cents and always enjoy a healthy debate.
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes2y
Great discussion with lots of good points! Mine would be location. I would rather have 10 solid properties in appreciating areas than 100 cheaper properties. My Bay Area properties and one Indiana house are Class A with higher income tenants, which so far have been great. I have been buying in Indianapolis in Class C moving up to B in areas with development (near parks, coffee shops, nice restaurants, downtown) and renovated homes. I ruled out SFHs near busy streets, railroad tracks, and industrial type buildings, has to be be on a quiet residential street.
I've seen some cheap California properties, $299,000 to low $300,000s a few in SoCal and one in the Bay Area (highly unusual for that low). Those prices are great deals for a major city but I think getting higher rent and tenant base could be challenging but works for some investors.
- Investor · Member since 2020 · 337 posts · 213 votes2y
Quote from @Becca F.:
Great discussion with lots of good points! Mine would be location. I would rather have 10 solid properties in appreciating areas than 100 cheaper properties. My Bay Area properties and one Indiana house are Class A with higher income tenants, which so far have been great. I have been buying in Indianapolis in Class C moving up to B in areas with development (near parks, coffee shops, nice restaurants, downtown) and renovated homes. I ruled out SFHs near busy streets, railroad tracks, and industrial type buildings, has to be be on a quiet residential street.
I've seen some cheap California properties, $299,000 to low $300,000s a few in SoCal and one in the Bay Area (highly unusual for that low). Those prices are great deals for a major city but I think getting higher rent and tenant base could be challenging but works for some investors.
@Becca F. I’m also in the Bay Area and was just curious why invest here? The tenant laws are some of the worst in the country.
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes2y
Quote from @Vadim F.:
Quote from @Becca F.:
Great discussion with lots of good points! Mine would be location. I would rather have 10 solid properties in appreciating areas than 100 cheaper properties. My Bay Area properties and one Indiana house are Class A with higher income tenants, which so far have been great. I have been buying in Indianapolis in Class C moving up to B in areas with development (near parks, coffee shops, nice restaurants, downtown) and renovated homes. I ruled out SFHs near busy streets, railroad tracks, and industrial type buildings, has to be be on a quiet residential street.
I've seen some cheap California properties, $299,000 to low $300,000s a few in SoCal and one in the Bay Area (highly unusual for that low). Those prices are great deals for a major city but I think getting higher rent and tenant base could be challenging but works for some investors.
@Becca F. I’m also in the Bay Area and was just curious why invest here? The tenant laws are some of the worst in the country.
Appreciation and long term wealth building. I don't want to take over Bob's original post so I created a new post:
https://www.biggerpockets.com/forums/48/topics/1153455-inves...
- Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes2y
Quote from @James Hamling:
Quote from @Steven Foster Wilson:
Quote from @Bob S.:
Everyone has heard, Location Location Location, and most live by it. NOT me. Its PRICE PRICE PRICE, people live everywhere.
Thoughts ?
It depends on what your goal is? If its to buy assets that will grow exponentially, then yes location absolutely matters, for example, I would invest in Columbus. If I was looking at getting the best COC return at the lowest cost possible, then I would invest in Cleveland or Akron. Thats why its important to figure your goals out first, then pick a city.
I get-it, your in OH, and riding that "OH-Rocket" up, only a fool wouldn't right.
But here is my issue Steve, it's 2 part.
1st part; is because your PROMOTING OH, as so many other similar agent's are, as "THE" great investment market. Not stating to assist/help people in actions, but PROMOTING it as "THE" REI market.
2nd part; What is OH's market FUNDAMENTALS? No, not "prices today are..." but the actual FOUNDATIONAL fundamentals? What is the OH market rent's and real estate valuations and basis WITHOUT out-state investors flooding the OH market with acquisition capital?
Because that IS the issue. OH prices WERE based on OH incomes, OH employment, OH fundamentals.
Than, people across the country, namely bi-costal areas where incomes are WAY higher, cost of living is WAY higher, real estate prices are WAY higher, looked at OH and thought "holly-cow, that's CHEAP" and started buying there. Because they were NOVICES, they incorrectly valued OH properties vs say Seattle market, LA market, San Diego market, NY, NJ etc.. So, naturally, prices got bid up, with a LARGE proportion of buyers being out-state VALUING based on out-state market's, NOT what OH market fundamentals and sustainability is.
So in these areas where rent has gone from $450mnth too $1,250, has the median income also doubled? Tripled? Has the OH market fundamentals changed in matching proportion to RAISE that market fundamental to meet the out-state valuation?
It's a bit of a loaded question because I know the answer, and it's not one to pop-champaign over.
See, OH is a kind of "Ponzy" R.E. Market. As long as out-state $ keeps coming in, buying on out-state valuations, the market keep's looking profitable. But when the music stops..... And things have to step back to fundamentals.......
I strongly doubt most know median income for Columbus was just $31,462 in 2020. That from 2020 too 2021 the population growth was from 889k too 898k, only 1.02% increase. And in same time median HOUSEHOLD income grew from $54,902 too $58,575, which yes is a substantial increase of 6.69% ALTHOUGH how much did median home prices, and rent's go up in same period?????? yeah, a hell of a lot more right, a multiplier to this.
That is, by definition, a valuation BUBBLE. A substantial increase as induced from outside factors, not supported by in-market factors.
To put this in contrast I will add a market of my focus the last few years AND TODAY:
maple Grove MN - Median household income $114,479
When we look at rent sustainability we need to see income meeting or exceeding 3X.
That places "cap" on Columbus rent's viability at $1,610.81
Maple Grove $3,148.17
Median household price Columbus OH $270,058 = m.rent too m. price 0.6
Median household price Maple Grove MN $391,311 = m.rent too m.price 0.8, a 33% improved performance # over OH.
Is OH "cheaper" homes, YES. Does "cheaper" mean "better", HECK-NO, as the data clearly shows.
As I started, my issue with OH market is the 2 issues, (1) Promoting of it as "THE" great REI market and (2) prices have been elevated well beyond in-market fundamental's, a kind of "Ponzy" market of R.E., and sitting in a valuation bubble that when the out-state $-train shut's off, many will have a tough realization as things move back to in-market support for the #'s.
I travel the country analyzing and valuing market's, I have seen similar play out numerous times, but this anomaly in OH is the scariest I have seen in a long time. Market's throughout TX, TN, are doing and have been doing actions to elevate there base fundamental's, OH I just have not seen the same, to any measurable degree to take a substantial bite out of that disparity gap.
I have created 8 hours of video content, 1 of which is dedicated to explaining what makes up the Ohio REI market, you can see at ohiorem.com Price and affordability is just one of many aspects. Here's a summation of why Ohio is a ripe investment opportunity that only shows signs of continual growth.
1. Affordability (33% more affordable than the rent of the US)
2. Landlord friendly laws, no rent control or anything.
3. Steady stream of renters (with the expectation that your in a large city of 100k people +)
4. Tech behemoths setting up Shop & investing the equvilent 1/6th of Ohio's overall GDP.
Now point number 4 may be the largest reason to invest. Its along the same mantra that if Starbucks is coming to your neighborhood, your property value just went up. Well same is true with Google, Intel, Facebook, and Amazon.
- 2yBob S.Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votesOP
Quote from @Jim Reynante:
For me, the answer is Location.
I can own the worst home in the best neighborhood, and I know that it is liquid and I can sell it.
But if I own the best home in the worst neighborhood, I will have a much more difficult time trying to sell the property.
Thats what I thought until I started to work in the Cleveland markets 10 years ago, EVERYTHING sells. You and I may not live in that area, but those that do not have another choice, well. We were told we were nuts to buy the 81 unit in East Clev, well now turning down 3X on top of the 25% ish NET cap...
- 2yBob S.Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votesOP
Quote from @Jim K.:
Bob, has anyone ever ODed in one of your rentals? It's happened to me, twice. Would you recommend the experience to any new landlord just starting out? Or is this more of a niche sort of experience to go through as a landlord building a portfolio?
Oded, no but they blew up one my client's homes as they had a meth lab, yep you can google it. This happens. Bad tenants that were inherited. Things happen even in the better areas. I have had animals in a very nice house in Cleveland Hights nice area, wreck the place. **** happens everywhere.
All the best
- Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes2y
This comment makes no sense. Both are important. However, there are multiple opportunities to get what you deem a great price in areas that are barely rentable. People all over the world feel they are supposed to buy some 5k Baltimore row house online; they lose their entire investment, then blame it on the community for being savages. I just sold a home in a class E community. The entire block is now taken over by drug dealers. They sell drugs on stairs of any property there. You have to go through several thugs sitting in lawn chairs to get to your property. That location doesnt matter? Seriously? Say you are in Congress Heights and could get a trap house for 300k or Hagerstown trap house for 60k. In five years you could gain some cash flow (if you know what you are doing ) in Congress Heights and possibly have hundreds of thousands in appreciation. In Hagerstown, you may get a little better cash flow but it could be mass instability and your appreciation could be 20k in that same time frame. There is scenario after scenario which clearly, without question factors in the location in consideration for your investment. There are books dedicated to this subject. People wake up. I have owned properties that can barley be rented and and the majority of the people who would even consider living there are such slugs they they can go nowhere else. What the hell does your price mean if you cant find a damn renter who can make 3 steady rent payments? You are doing turnover renovations every few months. What does the price mean if you are replacing stolen appliances and AC condensers every year? Some of the unsophisticated responses in here is a direct correlation as to why there is a very high failure rate.
- Member since 2023 · 243 posts · 199 votes2y
Quote from @Bob S.:
Quote from @Jim K.:
Bob, has anyone ever ODed in one of your rentals? It's happened to me, twice. Would you recommend the experience to any new landlord just starting out? Or is this more of a niche sort of experience to go through as a landlord building a portfolio?
Oded, no but they blew up one my client's homes as they had a meth lab, yep you can google it. This happens. Bad tenants that were inherited. Things happen even in the better areas. I have had animals in a very nice house in Cleveland Hights nice area, wreck the place. **** happens everywhere.
All the best
This.
Its location and price but one weighs more depending on your desired outcome, what you can handle, and how you handle it. There are several, several variables.
You can buy a great deal but the city officials (i.e., inspector) are a joke, the roads are laughably bad, garbage collection misses the house every once in a while, your go-to contractors say "Sorry man, we don't deal in that area", the city tax rate is disproportionately high w/no credit, the adjacent home have pit bulls and the kids fling the fecal on the front porch for fun, basketball (a.k.a "yell ball") is played in the street until 3:00 am everyday so the tenant complains with a sleep deprived quivering voice and leaves, and the property value is "eh".
I know you're thinking "sheesh dude, speaking from experience?" ..yes he is.Is it about price or location then?
Well, it depends. As the homeowner, all these these situations can be handled or ignored. But the question is can you handle this? If so and the detailed numbers look good, move forward.
@Mark Cruse
I get what you're saying. But "people are people".
Frequent turnovers, renovations, stolen appliances, etc. happens in good neighborhoods too. Cat pee embedded in weird locations "because they're sooo cute and I'm not fixing him", Ever had that time where you fixed something big like a clogged mainline, toilet completely unhinged, etc. and it breaks again because the folks keep doing stupid stuff. That "I...just...fixed...this..." moment? Happens in the better neighborhoods. I still remember a post where someone put mosaic tile throughout the bathtub.Some homes in better neighborhoods may have more expensive repairs and housing codes. AC keeps getting stolen vs. "Gotta resurface that asphalt driveway due to 2 noticeable chips...violates code and its an eye sore".
My point?
Go for "price" primarily but change your perspective on "location" based on what you can handle and focus more on the street itself vs. someone's letter grade rating of a zip code. - Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes2y
@Todd Jones Iḿ a senior level investor doing this for many years. I´ḿ not sure of your level but there is no experienced investor that will tell you to go for price and ignore location. They will not tell you this because they have on the ground working knowledge and know it doesnt work that way. Newbies often fail because they believe this and are taking advice from the wrong people. No one said bad things cant happen in good neighborhoods. However, if a person is competent at this business, its little to no chance of them getting their condenser and appliances stolen over and over again in a Class B or A. Unless you have no ability to screen tenants there should be no plausible way you consistently do evictions every few months. I have done all classes with tons of experience at this so I have no reason to comment on something I have not directly observed. There are thousands of failed investors that believe price is everything who are broke or in debt because its very easy to fail this way. You honestly dont understand that some places are nearly unrentable, extremely unstable, excessively crime ridden with wide pools of potentially horrible renters? I dont know what to tell you because through basic research or just networking with people who know what they are talking about you will see the light here.
- Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes2y
- Member since 2023 · 243 posts · 199 votes2yWhoa. I didn’t say ignore location.
Quote from @Mark Cruse:
@Todd Jones Iḿ a senior level investor doing this for many years. I´ḿ not sure of your level but there is no experienced investor that will tell you to go for price and ignore location. They will not tell you this because they have on the ground working knowledge and know it doesnt work that way. Newbies often fail because they believe this and are taking advice from the wrong people. No one said bad things cant happen in good neighborhoods. However, if a person is competent at this business, its little to no chance of them getting their condenser and appliances stolen over and over again in a Class B or A. Unless you have no ability to screen tenants there should be no plausible way you consistently do evictions every few months. I have done all classes with tons of experience at this so I have no reason to comment on something I have not directly observed. There are thousands of failed investors that believe price is everything who are broke or in debt because it’s very easy to fail this way. You honestly dont understand that some places are nearly unrentable, extremely unstable, excessively crime ridden with wide pools of potentially horrible renters? I dont know what to tell you because through basic research or just networking with people who know what they are talking about you will see the light here.
I said do both price and location as did you. Check what I mentioned:
Go for "price" primarily but change your perspective on "location" based on what you can handle and focus more on the street itself vs. someone's letter grade rating of a zip code.So for location, pick what you can handle. If you can’t handle the examples you and I described in our posts (drug dealers in lawn chairs, kids throwing their pit bull’s feces onto your porch, etc), don’t invest on that house or that block.
I am against someone looking at ultra low prices on Zillow or Trulia in Detroit or Cleveland, not know anything about the block/street, and impulsively buying it anyway. What happens? They post the nightmares of their “can’t miss $35k investment” and then abandon it making it and the neighborhood look worse.
I am fully aware of streets in Cleveland and some suburbs that I’m not going to buy as I don’t want the headache. Yet, there are some areas oversimplified as “rough” where I say “oh, that street? That block is really good and quiet and has been for a while.”
These are houses in a permanent place. Can’t simply ignore its location.
- Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes2y
I think the main thing to say is that there IS a divide between D and C class, and that divide is lawlessness.
I think the second most important thing to say is that renovating and managing C- class, low-cost homes and buildings on the right side of but near the divide, is a niche, and not for everyone.
AS @Bob Steven said, " **** happens everywhere. " But a lot more of it is piled a lot higher and deeper in the high hood, and the gradient is not steady and constant from one price point to the next independent of the consideration of the C/D class divide, which is, again, lawlessness.
Todd, as you said, stolen appliances, cat pee, and irregular repairs happen everywhere. But as an example, I own a three-story building and one of the tenants on the second floor just called in on December 30 at 5:30 pm and complained that a cat or a squirrel just jumped through the acoustic-tile dropped ceiling in his bathroom, HE'S NOT SURE WHICH. And he's on the SECOND floor.I refuse to believe this happens "all the time" in 10-year-old A-class.
- Investor · Richmond, VA · Member since 2023 · 459 posts · 474 votes2y
I disagree. There are areas people don't want to live (but will if they must) and there are areas where I don't want to go to manage my rentals. For me its both location and price, but a good price in the wrong location is no deal for me.
- 2yJustin BrickmanBusiness MemberRealtor · San Antonio, TX · Member since 2021 · 502 posts · 274 votesPrice matters but location is more important when it comes to appreciation and cash flow.
Justin Brickman Realty4.9145 Reviews - 2yMackaylee BeachPro MemberReal Estate Agent · Kansas City, MO · Member since 2020 · 1k+ posts · 492 votes
While price is undoubtedly a significant factor, I must admit that location also holds great importance to me. Even though people reside in various places, the location can make all the difference. While price can determine what is affordable, location can greatly impact one's quality of life. A perfect location can provide easy access to amenities such as shopping centers, hospitals, schools, and parks. It can also offer better job opportunities, a safer environment, and a sense of community.
- Investor · Fresno, CA · Member since 2016 · 222 posts · 237 votes2y
For me it's location. I like to deal and work with people that are similar to me (we all do). And while I own some units in lower class neighborhoods, I would not want to live there myself. The tenant base is generally not fun to deal with directly and finding good management for that area is challenging.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Mark Cruse:
This comment makes no sense. Both are important. However, there are multiple opportunities to get what you deem a great price in areas that are barely rentable. People all over the world feel they are supposed to buy some 5k Baltimore row house online; they lose their entire investment, then blame it on the community for being savages. I just sold a home in a class E community. The entire block is now taken over by drug dealers. They sell drugs on stairs of any property there. You have to go through several thugs sitting in lawn chairs to get to your property. That location doesnt matter? Seriously? Say you are in Congress Heights and could get a trap house for 300k or Hagerstown trap house for 60k. In five years you could gain some cash flow (if you know what you are doing ) in Congress Heights and possibly have hundreds of thousands in appreciation. In Hagerstown, you may get a little better cash flow but it could be mass instability and your appreciation could be 20k in that same time frame. There is scenario after scenario which clearly, without question factors in the location in consideration for your investment. There are books dedicated to this subject. People wake up. I have owned properties that can barley be rented and and the majority of the people who would even consider living there are such slugs they they can go nowhere else. What the hell does your price mean if you cant find a damn renter who can make 3 steady rent payments? You are doing turnover renovations every few months. What does the price mean if you are replacing stolen appliances and AC condensers every year? Some of the unsophisticated responses in here is a direct correlation as to why there is a very high failure rate.
More to this point which is WAY understated.
Mark, I have read you talk much on various "hood" market's/properties. I think it's safe to assume you are a PRO at this, long seasoned and experienced. I as well. And in my experience, having been at that PRO of Pro's level in such, in a MAJOR market/city, I pretty much knew by 1st name all the other investors in the market at that same "PRO" status for such. And point is, it's NOT easy, it's NOT simple, and in my experience MOST who get in for the "cheap" properties to make "big cash-flow", they fail, fail HARD. Because there just $ focused, NOT operation focused, not service and tenant building focused.
Ya DON'T do well in sec8 just focusing on $. It's a PEOPLE business and my experience, Sec8 is KING of the people skill's for REI.
So general rule, just focusing on $, one's gonna probably have a very VERY hard, expensive, ugly learning curve, and probably fail-out and become yet another on the mound blaming the market, sec8 program, the tenant's, life, everything and anything except the true cause, there actions.
If forced to do just 1 and 1 alone between $ and location, it's location ALL DAY. Because higher class means less punishment potential for being poor at all the other things that TRULY matter most, HOW YOU OPERATE.
I'd say price AND location take a back seat to OPERATIONS. Because good operators, good operations, make things work in most any area and most any $ level. Do a sec8 wrong, your gonna pay the price. Do a luxury rental wrong, your gonna pay a price.
And THAT's the truth of what people think when there looking at these generalities; "oh, which is EASY, which can I do, pay almost no attention to, do next to nothing, and just cash fat checks"..... NONE, no real estate investing goes well on the "dumb program". It's WORK, it ALL requires work, EFFORT, intelligence, strategy, PEOPLE SKILLS.
I hate these gross over-simplifications of price vs location, what state is "good", it's all just ridiculous over-simplifications that are a million miles away from the reality of it all.
To have done what you've done Mark, be where your at, means MASTERY of operations and People skills. I bet one could throw you into ANY market, any property class, any monetization model, and you'd crush-it! Because those 2 foundational skills are the only real universal.
So anyone want's the "E-Z Button" it's focus on OPERATIONS and People Skills.
- Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes2y
Stop the presses. ALL, please read James' last post. Word for word this is how I see it but never floated it out so eloquently. This is how the game works. Just jumping on the price with no other skill sets and believing you have an easy, super cash flow wealth machine is what crumbles most. In many instances the investor didnt know what they were doing or felt they had some easy fat check. Once it crashes they re-asign their personal failure/misery and start blaming it all on what they deem horrible savages. I can make it work anywhere because I understand my assets and like James said, its operations. However, most do not possess this characteristic, especially if they are inexperienced believing they will be rich soon off cheap property. By far, be careful where you invest and know your community. Location can make or astronomically break you. I cant imagine anyone with real world success and working knowledge on this topic telling people its all PRICE. Not good.
Thanks James
- 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Rob K.:
In 1993 I bought a house for 235K in North San Diego County. Today it is worth about 2 million. If I had overpaid back in 1993 at 275K would it have mattered much? Nah....
That is 30 years +.
Most here are trying to quit their W2 in Feb 2024.
- Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes2y
Quote from @Mark Cruse:
Stop the presses. ALL, please read James' last post. Word for word this is how I see it but never floated it out so eloquently. This is how the game works. Just jumping on the price with no other skill sets and believing you have an easy, super cash flow wealth machine is what crumbles most. In many instances the investor didnt know what they were doing or felt they had some easy fat check. Once it crashes they re-asign their personal failure/misery and start blaming it all on what they deem horrible savages. I can make it work anywhere because I understand my assets and like James said, its operations. However, most do not possess this characteristic, especially if they are inexperienced believing they will be rich soon off cheap property. By far, be careful where you invest and know your community. Location can make or astronomically break you. I cant imagine anyone with real world success and working knowledge on this topic telling people its all PRICE. Not good.
Thanks James
Yes, I absolutely have to second that opinion all day long. I too have seen some spectacular fails, and, indeed, the flame-outs were pissing and moaning about the market, the tenants, and of course the local housing authorities all day long. The only thing I could add to James's comment is that developing the full stack of skills you will need to make it in low-cost rental properties is that it helps greatly if you grew poor.
A privileged upbringing creates a huge bar to entry to this real estate niche as far as I've seen. For my part, I grew up without a lot of money, but my family situation was really nothing like that of most of my tenants, and it really does hinder me in understanding my tenants' mindsets, and how and why they do things.
Thanks James and Mark - Investor · Member since 2020 · 337 posts · 213 votes2y
If you invest in lower income areas, you need to know who your tenant base is and will be. If you are unable to self manage, you need to have a PM in place who knows how to deal with that tenant base. If you have neither, you will FAIL.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Account Closed:
Just curious how much tax you would pay if you sold it today. That's a lot of capital gains.Quote from @Rob K.:
In 1993 I bought a house for 235K in North San Diego County. Today it is worth about 2 million. If I had overpaid back in 1993 at 275K would it have mattered much? Nah....
I would expect a "Real Estate Coach" to know the obvious answer of NONE....
And if ya think the next things is "well someday ya gotta pay those tax's" let me introduce you to my 4th generation real estate investors who are still kicking the can from the "old man's" 1031, generations later.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.