Should I give up on buy and hold?
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?
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.
@Farakh Zaman I believe there was also a recent podcast or article here on BP about this very thing, out of state investing. 😄😄 probably worth a listen!
Shaun, do you happen to remember the number of the podcast or who was on it. Can't search it really well on the work computer. Will try looking on itunes when I get home.
FZ
Farakh Zaman I would consider moving to New York. Real Estate here is incredible.
Michael, I would love to move to NY, but the military kind of dictates where I live until I get out...maybe some day.
Simple answer. If it doesn't bring you joy, don't do it. I'm in the same boat as you but for different reasons. I started bigger pockets a few months back and got excited by hearing the podcasts. They make it seem so easy! Of course it isn't. Plus it's very frustrating. At the same time I started listening to The Minimalists podcast. And instead of me wanting MORE MORE MORE (Real estate, rentals, buy n holds etc.) I'm starting to see that perhaps LESS LESS LESS may be the answer to a happy life. So I'm at a bit of crossroads with what direction I want to take my life. You say you have plenty of money, and you live in Hawaii which is awesome! A cool way to get into the real estate game w minimal stress could be to Airbnb out a room in your house (or a tent in your backyard.) Meet interesting people from all over the world and make good money doing it! Just a thought. Good luck :)
Steven,
That is a very different take on this...interesting. Moving around alot does help us minimize, but I bet there we have a room worth of stuff we don't need. Will have to check out the podcast you mentioned. It's encouraging to see that I am not the only one in this boat...frustrating is definitely what it has been while the webinars make it look so easy...it is not. Thanks.
FZ
Here are my thoughts -
Time of ownership is the most important aspect of an appreciating and income producing investment - When I first started investing, monthly income wasn't a crucial part of my investing strategy. I was investing for the long term play. So, I bought marginal properties based on the cash flow calculators that are commonly used. One property didn't move the needle much- two, three, and even four properties didn't amount to much ----BUT as TIME went on, and rent prices increased -- as tenants payed down debt and properties appreciated --- as I took advantage of the tax benefits --- BIG things started happening... I sold some of my first purchases and took equity gain and moved to better neighborhoods -- Now I have quit a job that I had no intention of leaving when I first started investing... the growth took on a life of its own and now, looking back, I wouldn't be in the position I am in today had I not made those marginal purchases to get the ball rolling...
You mention that money isn't really a problem for you like it is for others - Maybe relax your numbers a bit to get started --- go out and do what is takes to acquire some property and let a few houses start carrying a bit of weight --- they may not do much in the beginning, but as TIME works its magic, you will be surprised by the outcome.
Good Luck
jeff
Jeff,
What you described is the dream...I have relaxed my numbers a bit as you said, but at what point is is it not worth doing RE and just put it in stocks? For me it looks to be in the 7-8% range...what are your thoughts?
FZ
I may be late to this discussion but I think you are on the right path. I have an engineering background and analytical skills but after being in this market for about 2 years, I have realized that relying on specific numbers doesnt always make sense - I will give you an example from a very recent transaction.
1) I follow a buy and hold strategy and was scouring through FSBO site and came across a duplex for sale for $69k. I was told that one side was already rented for $800/month while the other needed about 10-15k in repairs. There was one comp in the area within 1 year and nothing else, which was tripping up all the number crunchers. Whoever was trying to bid was going by the numbers to get the home at 70% ARV but no one saw the fact that the property would cashflow at $1600 a month. Even with around $38k out of pocket including closing costs, repair costs and HM holding costs for 1-2 months, it would fetch a net of $800 cash flow (conservative) every month from both units, which is a 25% CoC after PITI and property management. A decent return in my opinion but here is the kicker - the property finally sold for $48k through a wholesaler after being rejected by many investors - that gives even better CoC returns than I projected. Granted, these kinds of deals dont come often but they still happen in this crazy market. So, I stopped believing in going purely by numbers like buying at 70% ARV etc - there are other factors that need to be considered as well to get some deals going.
2) Since you mentioned that you have enough money to put cash down and the fact that you already attend REI seminars and meetups, why dont you advertise at those meetings that you are a private investor willing to loan money against a first lien on the property for 7-8% interest only for 2-5 year period ? I am sure a lot of people need that kind of money and you can get tons of connections to get you better leads. I am not sure about the Hawaii market but if you are interested in DFW market, please PM me and I am always looking for private investors as I cannot fund all the deals myself.
I am sure that with a slight change in your strategy, you will get on the right track. I wouldnt want to give up after all that effort. Good luck my friend !!!
Sonu,
Thanks for the detailed examples...I have not looked on FSBO sites..only MLS so far. I will start looking on there.
For your 2nd suggestion, I have not considered doing hard money lending, but as you stated, it may be the easiest path to get a decent return at this point of life and then use that additional money later to buy properties. Do you have any suggested readings or steps to loaning out money for this type of purpose? I'm sure there is something here on BP as well which I will start looking into.
Have you looked at properties that have ohanas and main houses that have been split up for rentals? With some creativity and a little bit of value add there's a lot of possibilities in hawaii, look at this property for example
https://honolulu.craigslist.org/mau/reo/6029650916...
The existing rents could definitely pay the mortgage, while offering steady appreciation and opportunity for a lot more rental units
So I just looked at this property and while you are correct that the rents pay the mortgage, once I put in the vacancy, repair, CAPEX and PM, this is what the picture starts to look like
This was using the standard numbers of 5% for vacancy/repair & 10% for CAPEX/PM. I know if I can bump the numbers lower in some cases, but not knowing more about the property this was the quick run on it...
For me these types of numbers don't work...and the problem has been that if I change my offer to a asking price that does work, then that has been rejected. So I keep looking...
Giving up or quitting is NOT an option in my book. A good investor changes strategy and approach when the market conditions change. In this highly competitive market condition, buy and hold single family market is very difficult in most areas and in areas where it is not, you may not want to be there.
Building capital right now is important and creating cash flow is certainly possible with the rightvplan and in the right place.
Will,
As you said, I will keep building up capital. I know at some point either the market will come crashing down again or at the very least a correction will make help the market cool off a bit to be able to get some reasonable properties. In the meanwhile I will keep looking and change up where I look.
FZ
@Farakh Zaman I've quit my job recently on our growing rental holdings. I live in the hot area of Atlanta and know something about your problem. I've met a few folks in my REIA who've made 200 offers too, no deals. Then I shared my strategy and now the 200 offer guy has 3 houses that are good performers.
Go to my profile, down on the right, download the file Bullet Proof rentals.
The fix for making offers and no deals is not clear when one has blinders on. The blinders come from "standard advice" that doesn't work in hot metro areas, following the crowd etc. The solution lies in: figure out what everyone is doing, then do the exact opposite. Avoid competition. If everyone is bidding on 1980's 3/2's then become an expert in 1960s 3/1s. I just read in a paid for training that the successful trainers sell off their 3/2 contracts as wholesales, they keep the tiny 2/1's that cost them only $25k, brick 2/1 in ok area cap rates like crazy because you are all in for only $25k to some low number disproportionate vs the lower rent you get. IE make lemonaid out of lemons. What ever the market is leaving for dead, learn how to make money with that dead asset type.
Or like we did, we figured out where everyone was buying, we bought everywhere ELSE. IE we moved up and down the freeways 45 min out of town to the next small town that had good jobs, decent but cheaper houses where few folks bid on the lower priced fixers. IE a fixer won't appraise for a FHA loan so it becomes a cash only deal. PERFECT!!! So we are very glad the hedge funds came to Atlanta forcing us to get out of our lazy comfort zone and learn how to think, re-position our business, learn to be constantly (every 12 mo) jumping to a new deal type or geographic area.
I suspect your areas, like Atlanta is constantly changing. Yet I see or hear of almost no one talking about figuring out what now does NOT work, and what is the gap in the market or new area to jump into. My Bullet Proof paper gives some tips as to how we make those jumps, but not nearly enough. Its not the purpose of that paper. But a new paper is needed on how to jump to new strategies and how to tell when its time. Definately when full price offers are getting ignored in my business model of high cap rate deals only, means I have to move on. I actually move much much sooner, like when 85% offers get ignored and other indicators.
Curt,
Thank you for the detailed response. You are where my wife and I want to be by the time we leave the military in 8 years or so. I downloaded your paper to review and will reach out via PM on any questions I come up with if that is ok with you.
FZ
There have been many responses, but I'll add my two cents.There are deals everywhere if you know HOW to look for them and what to do with them when they appear. On a buy and hold, the price is secondary. Terms rule. Is seller financing available? If it is, you can craft a deal with the seller that makes sense to both parties. For example, I just penned a contract on a three family in Trenton, NJ. I am purchasing the property for $110K which is just about market value based on the rents and cap rate for the area. BUT, I am putting only $10K down (less than 10%) and amortizing a loan at 2% which will be paid off in about 12 years. Why would the seller agree to 2%? He has agreed because he wants out of the property in the worst way. The interest rate is not important to him. What is important is getting that gorilla off his back.
I am closing on another deal with a purchase price of $75K. It needs about $12K in rehab. I am borrowing $90K from a private investor for three years at 5.5%. The ARV is $140K so the LTV is about 65%. I will have a positive cash flow of about $400/month. It is a win-win for all concerned. I am not saying this to brag, but to impress upon you that you must think creatively.
If you do not understand creative financing, I suggest you read some books on it, read the forums on BP, join your local REIA and get educated.
I wish you the best of luck!
Ohio is a great place to invest with wonderful cap rates but cash on cash works best we are having no trouble finding deals returning in excess of 20 per cent prevail and you will to more then willing to assist if needed
The simple answer to your question is - it truly doesn't matter what my ROI is in real estate - I will never go back to the stock market - Monopoly (Real Estate) is the only game I will play. There are soooo many factors that influence your true ROI in real estate that I think it is really difficult for a person (especially me) to get a true accurate ROI - Cash flow is only one small part -- appreciation, debt reduction, tax benefits etc all add up in a way that makes real estate seem like the superhero investment and the stock market is the evil villain ---
What if you could invest in a stock that pays a 1% monthly dividend, while appreciating steadily.... and on top of that, you can buy $100,000 in retail stock for $20,000 cash and an $80,000 loan --- AND someone else will agree to pay the loan back for you--- BUT, you don't have to buy at retail, you can frequently buy at a 20-30% discount from retail... although you make money every year on the stock, your tax return shows a loss---- and you can repeatedly buy stock on these terms indefinitely. When you sell the stock, to buy another, you don't ever have to pay tax on your gain...
Well... you can - Its called Real Estate
Honestly, I don't really care what my ROI is - I haven't analyzed a purchase in years - I shoot for 1% of value in monthly rent, but if I don't get it, I'm happy if I'm in the ballpark. I have a long term plan and my goal is to acquire properties I love in areas I love... The sooner I acquire, the better ---
We are an active duty family in Jacksonville - it's a great area to buy in. We bought in Key West when we were down there, and also in Virginia. We are just researching JAX right now to get ready to buy our next investment property. I have a good agent here, (and banker) - we bought remotely through her if you need any help, and I'm good to help out if you need anything else in this area.
Sarah
Try it!
Don't give up! Just change markets. CO and FL are too hot... great if you're a seller but lousy for buyers. I don't see any cashflow in those markets and rents aren't keeping up with prices. If you're looking for cashflow, you might want to try OH or TN. Since you're on the islands, you may want to look at Hilo/East Big Island too. The population in Hilo is growing very fast and my neighbor is making nice cashflow on her Hilo and Volcano rentals (both long-term rentals, not vacation rentals). But property management is more expensive in HI so maybe not. In OH or TN you'll pay 8-10% property management fee which is much more reasonable for cash-flow investors. If appreciation is more your goal vs. cashflow, I've heard Atlanta and North Carolina (Charlotte area I think) are both attracting new employers/jobs which is always a good for appreciation. (I'm a cash-flow investor though so haven't researched those markets further, just hearing positive feedback from appreciation-oriented investors.)
We personally had lousy luck in our first market (total bust after many offers) and our team wasn't working well together either (our property manager thought our realtor wasn't doing his due diligence and was showing us terrible properties vs. our realtor thought our property manager was a prima donna who only liked Class A properties ... they certainly weren't partnering to bring us leads). We finally had a mentor recommend we try other markets - and voila we acquired 10 cash-flowing properties in 12 months! Also, while I have purchased MLS listed properties, our best properties were never MLS listed - our property manager and realtor referred other investors to us - a real win/win!
My recommendation is 1) pick new markets that will cash-flow (even when looking at MLS listed properties) and 2) focus on developing your team in your new market and let them do the work for you!
Perhaps it might help to shift your marketing strategy.
Choose a single market and ask for recommendations for a real estate agent. Call every single recommendation and figure out which 20% of agents are doing 80% of the deals.
Do the same due diligence for wholesalers in the area - find out who is the real deal and give them your criteria.
If you think about it there are investors in your target market that manage to find buy and hold deals every week. Leveraging people that are on the ground day-to-day is a good strategy to beat those investors to the deal.
@Farakh Zaman I understand your frustration. I know we can help. PM me.
No. You should not give up on buy and hold.
You should never give up on buy/hold investing, ever.
I've been looking for almost a year now. We JUST got our first property under contract TODAY! We live in UT and the property is in Michigan.
Florida has GREAT options. As does Michigan, and Arizona. The Utah market is RIDICULOUSLY expensive right now so that's why we've looked out of state.
Keep at it, and something WILL come along!
@FarakhZaman
Would you consider the north NJ or Atlanta market?
There are so many good markets, if you want to invest and have the ability, you can! I started investing while I still lived overseas and that is hard - I worked with agents who did not really know how to help me as an investor. I did not do amazing on the rental income but picked markets that appreciated a lot over the years. Then I decided to go all in and concentrate on Philadelphia. Started out focused on my own investments but friends and family and then friend of friends of family started asking for help so my business expanded because in markets like this, there is lots of inventory, low risk, excellent ROI and fantastic ARV when done right. All you need is money to make some good money here. And don't ignore smaller markets outside of major cities!
there is an option called Delayed financing, you can buy in cash and then you have 6 months to get a regular mortgage (it is not a cash out refi). I know it is an option for your primary residence, but I am not sure if it can be done for investment properties, anyone knows about it?