Getting the itch to get back into the game, which direction?

Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes

7y

@Tom Makinen it's not the worst time to buy a property if it is cash flow positive. If you get a solid investment, its cash flow positive, there is a chance for appreciation, and you get debt pay down to boot... Sounds like a good time to buy a property.

Every year I wish I bought more last year. :)

Irish Jones Realty4.947 Reviews

View Page

3 Reply

Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

7y

Tom, it doesn’t say where you’re located. If the places you mentioned are all out of state I’d cross off any properties that are cheap, old or subject to high maintenance. (Snow, wood siding, big yards, etc...)

Out of the options you listed I would say 3-4 bedroom, less than 20 year old, tile roofed, stucco sided, desert landscaped home. Phoenix/Vegas. (Nevada leading with no income tax and slightly lower property taxes)

The old homes and studio/1 bedrooms aren’t appealing to me for turnover and maintenance reasons. Texas is a hot market property taxes are very high.

These houses are going to act more like value stocks. They’ll probably be cashflow neutral but you’re expecting in 30 years when it’s paid off it has doubled twice. (4.8% per year). So you put down 25% and end up with 16x return resulting in a 9% pretty safe, pretty much tax free return.) and then the cashflow kicks in.

If you need the money you refinance< if you don’t you leave it to family/friends tax free.

2 Reply

Tom Makinen

OP

Member since 2019 · 226 posts · 115 votes

7y

I live in the Bay area. While I can afford a place here, but I don't want to commit so much of my liquid asset here. One of the reason I am being conservative is that I want to wait for the next downturn and then jump on a property or two here, so I don't want to over leverage myself.

I think in Phoenix and Vegas, I would have to spend 300-400K on a multi family. It's in the budget, but I have to think hard to see if that's worth it. I am more comfortable with 200K to be honest. Actually I should say I am perfectly comfortable with the mortgage, but it would pain me to cash out my stocks to put the $100K down.

Some areas have Texas have duplexes for less than 200K, heck some are like brand new and built for rentals!

0 Reply

Steve RozenbergPro Member

Specialist · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes

7y

@Tom Makinen

I think that the best thing you can do is focus on the end goal of why you are investing. Then once you know the end of the rainbow type goal and can put some numbers to that. Then you work it backwards and you create the strategy to match and get you to the goal. Once you know specifically what that looks like then you find the area that can help you achieve that strategy. Start at the end and work it backwards.

We manage about 1,000 homes in Texas and most of our owners are out of state and out of country. The biggest thing I tell them before they ask me to help them find and buy a property and then manage it is they need to know what they are looking for first and what is a good deal based on their goals before I can help them find that good deal. If they dont know then I will never be able to find it and it will waste a lot of peoples time running around at everything that looks like a deal. And just because it cashflows or has equity does not mean it is a good deal for you based on your specific goals in life.

Buying a property in a certain location is the same as trying to buy a stock in a certain location. You buy a stock based on numbers and dividends... same is true with real estate. You should buy it based on numbers and returns that match your strategy. Not based on an area.

I know all this because I did this all exactly opposite and bought a bunch of bad investment properties at first. Mainly because I did not know what a good deal was and was not based on my goals, because I never created them.

Best advice I can give no matter where you buy, is focus on the goal and end result and then create the strategy. It will or should make your investing career much more successful if you know your "Why" before you focus on your "How"

4 Reply

Marc Winter

Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes

7y

What I hear you saying is you have no affinity for real estate as compared to other investments other than to diversify.

I'd put more money into REIT's or get involved in syndication. Sounds like property ownership/management is not in your portfolio's ambition.

2 Reply

Tom Makinen

OP

Member since 2019 · 226 posts · 115 votes

7y

Up to a point yes. I don’t want or desire a massive portfolio where I have to spend a lot of time on it. At the same time I don’t want to retire without owning any investment properties either. I am happy to get a couple to diversify.

REIT still moves a lot depending on the stock market, that's why I am Leary of them. I sometimes prefer the crowdfunding businesses over them. I especially like hotels and big scale apartments if I can find them. They are 25k a pop, so it is kind of scary

0 Reply

Tom Makinen

OP

Member since 2019 · 226 posts · 115 votes

7y

I should also add that I am in my late 30s. If I can start buying a few investments now, I hope it will pay off itself before I retire. That way I still have an income stream to pay into it in the bad times.

0 Reply

Neil Henderson

Specialist · Carolina Beach, NC · Member since 2016 · 390 posts · 496 votes

7y

@Tom Makinen Careful with Las Vegas. Very difficult to impossible to buy a single family home that will cash flow and all the small Multifamily is in D class neighborhoods.

Rents are increasing here but the only people really making money off the increased rents are the large Multifamily operators.

2 Reply

Account Closed

Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes

7y

@Tom Makinen came to this from your car thread post lol.

I like strategy #1. Repair due to age is something that you can make a generally successful attempt to quantify during due diligence. I also think those nonvolatile markets, if you pick one with healthy rental demand, you've got a much lower chance of that market taking a turn when the economy does. They're rather static during downturns compared to some of the cities mentioned in options 1b and 3.

If you're ever curious about Indiana reach out to me, I'll throw in my 2c.

1 Reply

Tom Makinen

OP

Member since 2019 · 226 posts · 115 votes

7y

@Neil Henderson i agree, i am not seeing the value that people are always pumping up about in Vegas or Phoenix. I am seeing better value in Orlando or Tampa.

8 - Buffalo/Indiana/Detroit

7 - Tampa/St Pete/Ocala/Jacksonville

6 - Orlando / Texas (smaller cities)

5 - Phoenix / Vegas / Miami / Texas (big cities)

4 - Austin

3 - Denver

2 - Seattle / SD

1 - Bay Area / LA /NYC

@Account Closed Thanks for the input. I will msg you about Indiana. I am not sure if Indiana and Buffalo will fare better at the next downtown compare to Seattle/Austin. The jobs are simply different between the two. Now from a dollar perspective, the big cities will always lose more due to the price even if they both drop 20%. Indiana and Buffalo just have too many housing for the amount of jobs/population available, I don't know if it will ever experience those big appreciation like you can with the big cities.

1 Reply

Angelica M Garzon

Rental Property Investor · Miami, FL · Member since 2018 · 110 posts · 113 votes

7y

Hey Tom!

From your post I can tell you're very educated in investing and just want some ideas to diversify your portfolio with a safe strategy.

If you have enough cash and time I would suggest you try to buy a small- medium multifamily property cash in a cheap city, remodel and rent out for max rents. It's important you focus on c+, b- neighborhoods as those will likely be recession proof and you won't have to worry about vacancy. Aim for towns with at least 75,000 in population.

Honestly, I love commercial real estate. Your #2 option is ideal for your end goal of passive secure ROI. With commercial real estate you're working with business owners, for the most part if chosen correctly they'll show accountability. There are many things that can happen in 3-5 years, you'll have plenty of time to prepare for the contract renewal and market your property to the niche audience and obtain a quality tenant if the existing ones decide not to renew.

Another option you didn't mention are turnkey properties. Turnkey property management companies offer many benefits. If the property checks out and has a 8+% ROI you're close to the returns of the stock market, own an appreciating asset and diversify your portfolio. Since, these companies handle every aspect of your property management you'll have a very passive role and receive monthly payouts.

Good Luck!

1 Reply

Tom Makinen

OP

Member since 2019 · 226 posts · 115 votes

7y

@Angelica M Garzon I agree financially the multifamily might be the best option. Obviously tenant issues in these market will always lead to some extra heartburn and annoyance.

I located a commercial unit that is on a NNN lease with 3 years remaining on the lease and 2 optional 5 year extension at about 7% return. It checks a lot of boxes, but these single tenant small office space do tend to sit for quite a bit. That's why I am hesitant to jump in on that deal. If they leave, I am stuck paying for it. I can afford it, but I don't want to have this headache. I dealt with that in 2008, it's the reason why I left.

Turnkey property at 8% ROI in a reasonable city, I am in. Without flying everywhere to check it out and negotiate, I am honestly not seeing many properties that fits that profile. Most at 8%+ is either in an old building or in a crappy neighborhood. I don't see many true turnkey properties at 8% that don't need a lot of work in 5 years.

I am not interested in a partnership, prefer to do 2-3 on my own before diversifying some more with other dumb stuff.

0 Reply

Ross Denman

Real Estate Consultant · Whitestown, IN · Member since 2014 · 547 posts · 933 votes

7y

@Tom Makinen I'm an investor and the business developer for a property management company in Indianapolis. We have a lot of OOS investors in Indianapolis. My favorite niche for investors like you is to purchase 20 year old homes or newer, with conventional financing, and priced at the 1% rule or better. They are more difficult to find and they move very quickly, but we've closed several this year already. They are usually family homes with very little turnover (maybe 3 tenants in 10-15 years), in decent neighborhoods, and decent school systems. Usually middle class families getting their children through their education... this is probably the most stable tenant demographic that you can have. They are not cash flow heavy, but they crank out 3-4% ROI in equity every year and the rent rates increase about 2.5-3.5% annually. Leveraged 4 or 5 to 1 (20% or 25% down) the COC ROI on the equity growth is usually 12%-20% annually.

If you cash flow at much all, your IRR for the first 5-7 years usually comes to 20%+ annually... that's doubling your investment in 5 years and probably tripling it in 7 or 8 years. If you hold them through the 30 year period, they each should rent for $2,000+/mo and produce an NOI of over $1,000+/mo (50% rule.) The assets should also double in price... the means a 8x-10x return on equity over 30 years (2.5% compounded annually) from a leveraged position. This means a $20k investment being to a $200+k asset producing $12+k NOI annually in 30 years... 5 of these couple probably provide a small retirement for many of us. My goal is to own 10-20.

Most of my clients employing this strategy are only holding 5-10 years and transitioning to a cash flow model instead of a growth model, but they are easy homes to own and manage with relatively low risk in comparison to other types of home.

In terms of stocks, you're using leverage to purchase an low volatility stock that produces low monthly dividends and is usually more valuable each year. Personally, I'm a fan of selling covered calls against dividend stocks. For smaller amounts of money, it produces a similar ROI (around 15-25%) as real estate, but I still prefer owning a Real asset. I think it's a great way to diversify that has less reliance on the economy and politics, but can still be heavily impacted by regulation (taxes, lending rates, local regulations, etc.) That's why so many people like the midwest... so many of the states with larger cities have regulations that are less business/contract friendly and more resident/tenant friendly, which can complicate the consistency in your cash flow. Having a bad tenant who takes 6 months to get out of the property is something I don't have to deal with in Indianapolis. Not being able to increase rents to match market rates are not a problem here either. It's a pretty easy state to be a landlord in as long as you follow the local rules.

2 Reply

James Carlson

Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes

7y

@Tom Makinen

Sorry to hear about your losses before in RE. I can't speak to other markets, but I will say that we have had some success (both my wife and I personally, and with clients we work with) doing a furnished medium-term rental by buying a small studio or 1br in Denver, furnishing it, and renting it to the traveling nurse crowd. (That's a catch-all term that could include business people, new grads doing an internship, etc.) Right now we're seeing about 20-30% higher rents for the furnished units. If you buy in the right place, you shouldn't have too much trouble getting it rented. (We've had about two weeks total vacancy in the last two and a half years.)

I wish you luck.

0 Reply

Alyssa Dyer

Rental Property Investor · Oklahoma City, OK · Member since 2017 · 1k+ posts · 694 votes

7y

#4 - SFH's make sense in OKC, vacancy is only at 5%. You can get a C class property for 60-80k and cash flow a couple hundred a month after debt service and all operating expenses. It's not an exciting market, but it's very stable.

2 Reply

Tom Makinen

OP

Member since 2019 · 226 posts · 115 votes

7y

@Ross Denman Definitely a good strategy. I will keep an eye on those SFH in Indiana.

@James Carlson I am looking at one right now, but the ROI seems a little low on this condo. Conservatively, I am only getting about 3%. I would have to get a place inside the heart of the city, but the ROI might not be much better given they are another 50-100K more than the one I am seeing.

@Alyssa Dyer I am peeking at OKC, I expanded my search into that area.

0 Reply

Sanjeev Advani

Investor · Bakersfield, CA · Member since 2015 · 483 posts · 234 votes

7y

Hi @Tom Makinen

Glad to hear that you are starting to get back into the game. I do agree that you are getting in at a pretty high point but with the volatility in the market, it can be hard to want to keep those investments.

To go through your questions:

1) These would be good to generate the positive cash flow, but looking at the overall market in those areas, it doesnt seem to be attracting any appreciation style amenities (i.e. jobs, etc.). If the cash flow is great but you lose on your investment when you sell, what is the net return over time?

1b) I would recommend Bakersfield (although I am slightly biased). If you have a few minutes to go through some of my previous posts you will see that Bakersfield is set to grow. Fast. We just had the Hard Rock sign a contract to open a new hotel on Indian land right in the area, and we have been attracting the likes of Amazon, Target, Walmart, Etc. for the distribution side of the equation.

2) Small commercial, in my opinion, is going to be a little rough in the future. I do like the medical aspect because they shouldnt necessarily be hit by the retail slow down, and they will still need offices in a recession. My only problem here would be vacancy, and rates of return. For example, if you have a vacancy and the market takes a dump, how quickly do you think you will be able to fill that vacancy at a rate that will make sense for you. I think there will be a lot of commercial space that goes vacant on the next downturn and vying for the few businesses left that can take that space can be difficult.

3) I like the go big idea if you are looking at a value add play because you can still ride the wave. Is it a little more of a gamble? Yes. Most likely. However, with big risk comes big returns.

3b) A small old home would be a similar value add play that I think would be good for some quick cash but I wouldnt hold it for too long.

4) If you are looking for SFH, I would also have to recommend Bakersfield. If you are willing to take a lower return to be in a good neighborhood with good schools you can sit on it and let it appreciate. This should still be a cash flowing property or break even at the least with investment financing after expenses.

My two cents, with the big markets being over their previous peaks, and Bakersfield in particular repositioning strategy right now, I think that coming here could be a great option because we havent reached our previous peaks yet (IMO due to the fact that we are diversifying away from being solely oil and ag and going towards distribution). The market itself is very affordable, and let's face it, most people cant afford to live in LA. At some point, people are going to start moving towards the smaller cities to still have the overall city amenities, but be able to afford to save more than $2/month. We are already seeing that transition start. Finally, with all the new amenities coming to town there is more to do than before and only more coming which can be a big draw.

If that big market drops, it will drop hard and hurt a lot, however, if we see a drop in Bakersfield, IMO we shouldnt have that big of a drop due to the fact that we havent been able to appreciate at the rate of the rest of the state, and at the same time I think the growth of the city will offset a lot of the downside that there could be.

If you would want to chat further please feel free to PM me as well

Best of luck!

Sunny

0 Reply

Alyssa Dyer

Rental Property Investor · Oklahoma City, OK · Member since 2017 · 1k+ posts · 694 votes

7y

@Tom Makinen good call!

0 Reply

Tom Makinen

OP

Member since 2019 · 226 posts · 115 votes

7y

@Sanjeev Advani Great info and I agree with a lot of things you say. I agree Bakersfield would be a place I want to invest in if I stay in California. The issue with investing in a single family home in Bakersfield is that I am not sure if I will get any positive cash flow from it, which would be useful to ride any downturn. Correct me if I am wrong, but the good part of town is the southwestern part, which carries a price of about $200K for a SFH. If I get lucky, I might get $1500 per month. At those numbers, my cash flow would be barely positive after accounting for a small reserve. Ideally, I want my rent price to be about 1% of the property price. It will make me sleep happier.

0 Reply

James Wise

Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes

7y

Originally posted by @Tom Makinen:

I had rental properties before, it wasn't very successful and I sold everything. Fast forward to now, probably the worst time to buy investment property. I understand that, but for some reason I still have an itch to get 2-3 just to hold. I am not looking to get rich off of them, but I do need to diversify as I have 95% of my assets in stocks. The other day when Donald spoke, I saw a nasty 12% drop in my portfolio. I think it is time to diversify a little more when I see something. I have the money to get on something if I see it, but then I could also sit if I have to as I have other investments that make pretty good returns.

Anyway I am a conservative to middle of the road investor, I just want to move my stock holding from 95% to 75% as I still prefer stocks over equity. Here is my question for you guys. I can think of several strategies, what is your thought on it?

#1 Invest in an older duplex in places like Buffalo, Indiana where they are dirt cheap, but have to deal with the potential crash in economy, repair due to the age of the homes, but these would generate positive cash to start with

#1b Maybe spend more to move to markets like Vegas, Bakersfield, Fresno where there are still money, but I have to put up more to start.

#2 Get a small commercial medical office or something, I can get one that will generate positive cash flow for 3-5 years, but it's scary to think about what can happen after. Big risk for less work short term

#3 Go big and get a one bedroom or studio in hot cities like Seattle, Denver, Austin, NYC, Boston. It will be bloody expensive and dangerous.

#3b Get a small old home in those hot cities, it will be even more expensive but it doesn't have HOA

#4 Find a city where a SFH makes sense, ideally avoid the condos unless I see something that makes sense. The drawback would be vacancy obviously.

Thanks for the time

BTW I do have some real estate holding on the side via REITs and some crowdfunding stuff. They probably have just as good of a return as any properties I will be able to buy.

Love me some Midwestern duplexes man...........Cash Flow!

0 Reply

Tom Makinen

OP

Member since 2019 · 226 posts · 115 votes

7y

Yeah Indiana seems to have even better numbers than Buffalo. $1300-1500 in rent for $100K-$120K. You can't beat that. Appreciation will be small, but it's so cheap.

On the SFH front, I think Atlanta, Houston and Orlando area are what I am looking into now. $150K-175K houses with about $1200-1400 in rent. Obviously I am worried about vacancy as they have so much housing available that it makes it tough to find good tenants. OKC have even better numbers, but their weak rental demand and relatively flat appreciation worries me. I would love to get one in state with Bakersfield, but at $200K with only $1200-$1500 in rent, I am very cautious as I promise myself not to get a property that is top of the market since the vacancy rate is so high (I had a luxury condo before).

I located condos in Seattle and Denver, but condos have limited appreciation and there are a lot of extra fees that makes Seattle less attractive. Their market is also showing some alarming decline too. The cost of entry to Denver is tough to swallow too.

I ruled commercial unit out of my running, too much risk for not enough return.

0 Reply

Tim Bradley

Rental Property Investor · Orlando, FL · Member since 2019 · 66 posts · 180 votes

7y

I live in Orlando and own SFH's in neighboring towns. Technically Orlando is huge so when people say Orlando know that there is a saying "Orlando is an hr away from Orlando." And that's driving 70Mph the whole time. Downtown is a tough spot to pick up something in the 150-175 range but not impossible. You're just moving into the C neighborhoods. I have homes in Windermere, Summerville and Deltona. There is a ton of growth spreading out in all directions from DT Orlando. Something like 4-5 of the top fastest growing cities in america are in central Florida. I just picked up a brand new house for 180K in summerville which will rent for 1500 minimum and cash flow over 400. The deals are there for sure. I have never had an issue with vacancy in the 5yrs I have had rentals. One of my houses is on its 5th yr straight with same tenant.

0 Reply

Alyssa Dyer

Rental Property Investor · Oklahoma City, OK · Member since 2017 · 1k+ posts · 694 votes

7y

@Tom Makinen rental demand might be lower in OKC for A class properties in Edmond, but it's still there in Yukon, Mustang and Moore. For B and C class properties we only see around 5% vacancy.

0 Reply

Aaron Gordy

Real Estate Broker · Austin, TX · Member since 2012 · 1k+ posts · 1k+ votes

7y

@Tom Makinen I think that Austin Texas is the best market in the US. The reason is that we haven't seen a big drop in values since the S&L Crisis many many decades ago that was accompanied by an oil crisis. That affected the entire state of Texas and we weren't immune from it. But if you study the demographics of the city, prices of properties, population growth, income growth over a long period of time then you will see that Austin is amazing. The things that are occurring right now such as Google, Apple, Oracle are just a continuation of many smart educated folks moving here along with an amazing university providing the workforce for those tech giants and other industries in the city that are flourishing. Many folks say that the sxsw started it. Dude, it goes back even further than that....much further back. My main bets are in Austin.

2 Reply

Tom Makinen

OP

Member since 2019 · 226 posts · 115 votes

7y

@Tim Bradley How's the Metrowest area of Orlando, they have houses that are around 170K range.

There are a lot of people pushing Kississmee and the area around there to make airbnb, but I am not sure if i want to go through that hassle.

@Aaron Gordy Austin is nice, but I think it is getting pretty pricey.

It's funny I show my wife a couple homes, she doesn't really want to deal with the C class building due to the repairs and sometimes the tenants. The cash flow is nice, but she doesn't want to deal with it. She said can you get something that doesn't have chainlink fences on it or nearby.

Also my bank offers extremely good rate, problem is that one bank would only do CA Properties and the other one that can do everywhere requires 30% down, but the sub 4% you can't beat.

0 Reply

Getting the itch to get back into the game, which direction?

Getting the itch to get back into the game, which direction?

Most Popular Reply

27 Replies