Should I give up on buy and hold?

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Should I give up on buy and hold?

Farakh Zaman
Investor · Ewa Beach, HI · Member since 2016 · 68 posts · 26 votes

So we've spent the last 7 months looking at deals daily.  We have run the calculator on this site to the point I don't even need to think to put in the numbers...but literally nothing has panned out.  5 cities, 600+ properties looked at, ~50 offers made using numbers that make sense (~10 at full asking) and literally nothing.  

What to do now?  I am all for "keep on trying" but something isn't right.  Am i being naive or are others having the same issue?  I go to meet ups or listen to podcasts and webinars and see all of these deals out there everyone is getting but not one has worked out using realistic numbers for us.  

Money is also not an issue for us as it is for some...at this point we have enough to pay cash for some of these places we offer on but obviously that doesn't make sense for an investment property...

At this point I am wanting to give up on the buy and hold option and find something else...thoughts?

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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
9y
Originally posted by @Farakh Zaman:

So we've spent the last 7 months looking at deals daily.  We have run the calculator on this site to the point I don't even need to think to put in the numbers...but literally nothing has panned out.  5 cities, 600+ properties looked at, ~50 offers made using numbers that make sense (~10 at full asking) and literally nothing.  

What to do now?  I am all for "keep on trying" but something isn't right.  Am i being naive or are others having the same issue?  I go to meet ups or listen to podcasts and webinars and see all of these deals out there everyone is getting but not one has worked out using realistic numbers for us.  

Money is also not an issue for us as it is for some...at this point we have enough to pay cash for some of these places we offer on but obviously that doesn't make sense for an investment property...

At this point I am wanting to give up on the buy and hold option and find something else...thoughts?

 It sounds to me like your expectations need an adjustment. 

What are your goals when it comes to owning rental property? Is it to quit your day job or to leverage additional capital to build long term wealth?

 You won't be raking in cash by buying a few rental properties. Instead you will benefit long term by building wealth and lowering your tax burden in the process. Think long term, think OPM

OPM (Other People's Money) 

You can obtain up to 10 30yr mortgages in your name. If you are married that's 10 for you & 10 for your wife. Assuming you both live in your own home that puts you as a couple at 19 residential mortgages. You will need to put down between 15-25%. The rest will be lent to you by the bank and the bank will be paid by your tenants.

Assuming you purchased 19 single family homes at 100k a piece that would be a capital output of $285,000 to own a portfolio valued at $1.9M. When you are ready to retire assuming zero appreciation & zero rental cash flow throughout the years you will still clear $1.6M+ more than what you paid.

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  • Carolyn Morales
    Investor · Jacksonville, FL · Member since 2015 · 504 posts · 217 votes
    9y

    How far away are you wanting to invest in buy and hold? Hawaii, I assume, is too exoensive, correct?

    1Reply
  • Farakh Zaman
    OP
    Investor · Ewa Beach, HI · Member since 2016 · 68 posts · 26 votes
    9y

    @Carolyn Morales Hawaii is like Los Angeles, it doesn't make sense ever...however we have been primarily looking in Ft Collins/Loveland area of CO, Denver, CO, Colorado Springs, CO, Pueblo, CO, Kansas City Metro (Missouri side), Springfield, MO, Satellite Beach, FL (up and down the space coast).  

    3Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    9y

    As a professional I can tell you I make 1 or 2 bids always get it in the most competitive market (west coast around San Francisco).  If you made 50 offers you are probably not doing it right. 

    No offense I do not think it is even worth your time. Suggest you come back later with better idea what it takes to win. Lose 50 times is a record.

    4Reply
  • Zach Quick
    Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
    9y
    Farakh Zaman Honestly, as a Midwesterner, why not really dive into Hawaii, even if that means you can't buy anything for a couple years. Unless something crazy happens it will always be a more desirable area than any of the places you mentioned long term. Figure out that market where you can buy at a discount and be semi local, and gain some appreciation or very high rent over time. Just my two cents.
    2Reply
  • Farakh Zaman
    OP
    Investor · Ewa Beach, HI · Member since 2016 · 68 posts · 26 votes
    9y

    @Sam Shueh while I appreciate your input, it actually is not helpful, nor address the issue I am having.  

    As I stated, the 50-ish offers I made are off of numbers that make financial sense.  This means they are usually lower than asking.  The 10 that were at asking, went at over asking in most instances (to the point where it makes absolutely no financial sense, example ask 300K, went for 335K) or in once instance was matched by an all cash offer of 400K (again makes no financial sense as an investor).  

    3Reply
  • Farakh Zaman
    OP
    Investor · Ewa Beach, HI · Member since 2016 · 68 posts · 26 votes
    9y

    @Zach Quick, the rents here, while high, do not cover a mortgage usually.  Asking price for a normal house here is about 700K+.  With taxes and other expenses rolled in it doesn't make a sound investment.  

    MF are over $1.25M for a fixer upper and being active military, it is hard to commit to a BRRR like that.

    4Reply
  • Jill F.
    Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
    9y

    @Farakh Zaman I'm from the space coast area and I spend time in the area each winter.

    I spent a little time looking at properties there last winter and found the market to be EXTREMELY competitive. We decided to focus our efforts in Akron where we live most of the year and we've been able to close on 21 units since August. Maybe try some different areas.

    5Reply
  • Farakh Zaman
    OP
    Investor · Ewa Beach, HI · Member since 2016 · 68 posts · 26 votes
    9y

    @Jill F. Thanks for that feedback, that's what I am looking for.  Being away from the mainland, it is difficult to figure out what markets work.  I would have never thought of Akron, but will look now that you have told me.  Any other areas you would suggest?

    1Reply
  • Travis Sperr
    Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes
    9y

    @Farakh Zaman speaking specifically to the CO markets, what sticks out to me is you are making offers. I can't remember the last property I purchased that I made an offer on. You need to purchase from wholesalers or direct from owners. Our market is competitive enough being here, I couldn't imagine doing it from a distance. 

    6Reply
  • Zach Quick
    Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
    9y
    Farakh Zaman don't you think that any locals in these markets are closing what makes sense to close. What kind of price range are you looking for? One house in KC or Toledo or Akron isn't going to change your life, but I bet if you had Hawaii property 5 years ago you would be a hell of a lot richer. Easy for me to say, but I bet #'s back me up. Need some west coasters to come through. @Minh Le
    1Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    9y
    Farakh Zaman I used to live in Estes park. The Collins front range area is pretty hot right now. If I were you I would switch strategy's. Money talks in a market like that. Try some all cash offers. The seller can get his money in a few days. That might give you some advantage over some of the competition maybe. Once you get the property you can take your time to finance it and get your cash back. Rinse and repeat. RR.
    2Reply
  • Farakh Zaman
    OP
    Investor · Ewa Beach, HI · Member since 2016 · 68 posts · 26 votes
    9y

    @Ralph R. I didn't think you could do that? Pay for a house and then get a mortgage for it. I know you can get a loan on the equity. But how do you get the money back out?

    0Reply
  • Michael R.
    Investor · Cary, IL · Member since 2014 · 124 posts · 95 votes
    9y

    @Farakh Zaman you essentially answered your own question with "i know you can get a loan on the equity". You pay all cash for the property, say for example $100k (this can be cash you already have, can borrow from a family member, etc.), and your rehab costs are $20k producing an after repair value of $150k. Place a tenant in there and you're off to the races. You've just taken your initial cash to purchase (equity), and added value by rehabbing (additional equity), and then you can do a cash out refi loan of up to 75% of that value (a check for $112k and change back to you). This is commonly known as the BRRRR method (buy, rehab, rent, refinance, repeat).

    Now onto your initial question, should you give up?  Absolutely not, especially not after just 7 months of searching.  This business is a long-term daily grind of putting in a tremendous amount of effort, especially when you're first starting out.  Broaden your target area, start a direct mail campaign, find wholesalers, go to that unoccupied extra mile somehow or another knowing that there is always a deal to be had.  Press on!

    11Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    9y
    Farakh Zaman You can get a loan on a property after you buy it. It's called cash out refinance. There may be some hoops to jump through such as a wait period and they won't give you all your money back but you should be able to get 75-80% back. An all cash offer will have more incentive for the seller to take your offer. Check with some lenders to find out how the refinance would work. RR
    2Reply
  • Chris Purcell
    Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes
    9y

    Hawaii sounds brutal

    1Reply
  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    9y

    @Farakh Zaman , reading your list, I'm wondering why Kansas City didn't work out. @Andrew Syrios  is out there, maybe he has some tips?

    Colorado is red hot right now, and rents have not kept up with purchase prices. Nothing makes sense here if it's already on the market. I agree that looking at other markets may be best. You didn't say Ohio. There are investors who are successful there. Indianapolis is another option.

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    4Reply
  • Aaron MoorePro Member
    Investor / Real Estate Agent · Colorado Springs, CO · Member since 2015 · 82 posts · 31 votes
    9y
    Farakh Zaman there are a lot of factors that go into the success of an offer, especially in a market as competitive as Colorado's Front Range. Maybe I'm making too many assumptions, but you said you "even wrote some offers at or above list price". In our market, depending on price point (under $300K in Colorado Springs), at or above list price is the bare minimum starting point if you want any chance at all for an MLS property. How much rehab you're willing to do is a big factor as well. If you want something turnkey, or close to it, you will be competing with a lot of owner occupants who don't care about value. If you are willing to do some rehab, that helps, but there are tons of active investors to compete with as well. I don't know what kind of return you are aiming for, but I've had several new/out of state investors that pick a number and want to offer accordingly (i.e., the 2% rule, which will never happen on a open-market property here. Even 1% on an SFR is rare), with no knowledge or expectation of whether that number is achievable in our market. If you're expectations are not that high, you just need to be more selective with your offers. Only pick properties where you have some upward cushion with your numbers so you can be competitive, have your agent talk to the listing agents beforehand to see what the seller's prime motivations are, and what the competitive landscape looks like, etc.. Last but not least, if you have he cash, use it. Cash will always be more competitive if structured properly. Cash does not mean you get a 5 or 10% discount in a competitive situation, but apples to apples it will give you an advantage. If you offer cash, the advantage comes from quick close (10 days or less), short or no inspection, no appraisal, little or no other contingencies. With no rehab you can refi out within 6-9 months, and with value-add rehab you can redo as soon as the repairs are complete (as long as they add sufficient value). Hope that helps clarify. Good luck!
    5Reply
  • Ozzy SmithPro Member
    Specialist · Dayton, OH · Member since 2014 · 352 posts · 265 votes
    9y

    I'm going to echo what @Mindy Jensen said.  I'm from Ohio but not originally.  I moved here just for the summer and that was 14 summers ago.  I stay because of the RE.  The cash flow is tremendous, the point of entry is really low, and we are in a big enough market to sustain but not to big to be unmanageable.  I truly believe you can't make more money anywhere else in the country as right here. 

    4Reply
  • Norberto Villanueva
    Real Estate Consultant · Colorado Springs, CO · Member since 2013 · 325 posts · 117 votes
    9y

    @Farakh Zaman - thanks for posting. The first question that comes to mind is, what are your goals and expectations for ROI?

    In the strong seller's market we're in, a "good deal" is one that provides enough income to cover all expenses with enough left over to provide the investor an 8%+ Return on Equity (ROE) https://www.thebalance.com/return-on-equity-in-rea.... 

    Yet with most investors, the expectation of a "10% cash on cash return" or better is a common denominator, when that beast is in hibernation, waiting for the next crash to occur so, they pass on what appear to be paltry returns, missing out on growing their wealth by 8%+ a year or better each time. And this is without taking current appreciation averaging 11% in Colorado Springs into account, which in some areas is upwards of 20% year over year, meaning they will likely pay $240k next year for the asset with a $200k ARV, projecting a "measly" 8% ROE today.

    As for giving up on buy and hold. For those that can, it is the most viable solution for building long term wealth, especially in a strong seller's market because, unless one can meet or beat the $10k a month marketing budgets the successful ones implement, there's just not enough meat on the bone to make wholesale and/or flip strategies work as consistently. 

    Hope this helps. All the best.

    3Reply
  • Jen L.
    Realtor · San Francisco Bay Area, CA · Member since 2016 · 123 posts · 48 votes
    9y

    @Farakh Zaman I don't know much about the CO market but I do know red hot market.  In the SF Bay Area, it's not uncommon to have people looking/making offers for 1+ years with no purchase.  And these are people buying primary homes and are desperate to get in.  They go to open houses every week and many can pay cash.   Sometimes, even cash buyers need to pay full price.  So, don't be discouraged.  This is just how red hot market works.  

    1Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    9y
    Originally posted by @Farakh Zaman:

    So we've spent the last 7 months looking at deals daily.  We have run the calculator on this site to the point I don't even need to think to put in the numbers...but literally nothing has panned out.  5 cities, 600+ properties looked at, ~50 offers made using numbers that make sense (~10 at full asking) and literally nothing.  

    What to do now?  I am all for "keep on trying" but something isn't right.  Am i being naive or are others having the same issue?  I go to meet ups or listen to podcasts and webinars and see all of these deals out there everyone is getting but not one has worked out using realistic numbers for us.  

    Money is also not an issue for us as it is for some...at this point we have enough to pay cash for some of these places we offer on but obviously that doesn't make sense for an investment property...

    At this point I am wanting to give up on the buy and hold option and find something else...thoughts?

     It sounds to me like your expectations need an adjustment. 

    What are your goals when it comes to owning rental property? Is it to quit your day job or to leverage additional capital to build long term wealth?

     You won't be raking in cash by buying a few rental properties. Instead you will benefit long term by building wealth and lowering your tax burden in the process. Think long term, think OPM

    OPM (Other People's Money) 

    You can obtain up to 10 30yr mortgages in your name. If you are married that's 10 for you & 10 for your wife. Assuming you both live in your own home that puts you as a couple at 19 residential mortgages. You will need to put down between 15-25%. The rest will be lent to you by the bank and the bank will be paid by your tenants.

    Assuming you purchased 19 single family homes at 100k a piece that would be a capital output of $285,000 to own a portfolio valued at $1.9M. When you are ready to retire assuming zero appreciation & zero rental cash flow throughout the years you will still clear $1.6M+ more than what you paid.

    12Reply
  • Greg Moritz
    Investor · Atlanta, GA · Member since 2016 · 51 posts · 28 votes
    9y

    You've received good advice about cash out refinancing above.  In addition, take a look at the delayed financing rule.  This allows you to not have a settlement period for a property that you pay cash for.  Pay cash and the next day (virtually) you can then get 75-85% of it back and have a mortgage on the property.  

    I make many all-cash offers and rely on this method.  All cash offers with a solid proof of funds show buyers that you are serious and there's less risk of the deal falling through. 

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    you can get cash flow on the big island why not look there owing rental in Hawaii were you have no hvac to worry about mitigates a lot of issues.   No heat no cooling.  (Non condo).   Look from Hilo out south west 

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    5Reply
  • Isi NauPro Member
    Real Estate Broker · Mililani, HI · Member since 2016 · 217 posts · 253 votes
    9y

    Aloha @Farakh Zaman

    I am not currently familiar with any markets outside of Hawaii.  If you have made offers here, I may be able to provide some insight, if a few more details are provided on the deals you've approached.

    In regards to buy and hold in general and in Hawaii, I agree with the points made by @Zach Quick and @James Wise

    It is tough to buy today and retire tomorrow (or next year, or few years).  Hawaii can be a challenging market to break in to, but if you can do it (it is possible), it is a great place to invest.  Patience is a big factor in that success.  Buy and HOLD is key.  AKA, buy and patience.  The monthly returns will be meager at first, but after one cycle of the market, you can be in a perfect position (i.e. sufficient capital) to make some key investment moves that will then allow your financial position to grow exponentially.

    Out of state cash flow can be very attractive because it is immediate.  $500 a month on a $60k property is tough to beat.  Retirement is only 10 properties away.  Or is it?  I'm not knocking low buy in, cash flow investing.  I'm sure lots of people have been successful at it.  But I am advocating investing in high buy in, high appreciation markets.  It is definitely possible.

    But if you are planning on leaving Hawaii in the near future, then maybe buying in your new state might be a good idea.  It sounds like you are living a great life financially.  No debt and a nice cash reserve built up.  All the best!

    0Reply
  • Shawn AckermanPro Member
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    9y

    @Farakh Zaman Sounds like you need to either change your market search or switch your strategy.  I'm from NY and invest in the Midwest as NYC make no sense for buy and hold investments.  Keep on looking my friend.  There is a market out there for you to plant your roots.  Always remember to persist and you will WIN!!!

    5Reply
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