Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes
Many of us choose a market and focus on a relatively small area like a laser. What are the significant attributes that you have considered which makes your market a winner going forward.
How do these attributes play into your exit strategy.
Some markets may be better for buy and hold while others may be more conducive to fix and flip strategies.
Where do you invest? What is your strategy and why is your market the best for you to achieve your goals?
Austin is tops on almost every list. I realize that in certain areas of town the prices already reflect this enthusiasm, but locals have an advantage because they can scout deals quicker than out-of-towners buying in to the Austin craze.
East of downtown has a lot of city money pouring into it and is being gentrified due to Austin's extremely bad traffic problem. What was once a less desirable area of town is quickly turning into a great place to invest. We have a few deals going there that should deliver 40% unlevered. With financing the project-level returns should be 3-4X that number.
I buy all sorts of ways. We buy value-add deals and sell and rentals with nice financing in good rental areas. We build new houses in a few spots. I also buy apartment complexes and have been exploring development deals recently due to the lack of fully-developed lots that meet our criteria to build.
We buy some properties for cash flow and some for appreciation. I think a healthy mix along with a healthy mix of other assets is good for one's portfolio. Our securities have delivered very nice lift recently. Over the last 8 years this has delivered us 21.5% (arithmetic mean) returns overall. I am sure others have done better. The last few years have brought our number down and I find that as our portfolio grows I have a harder time keeping the equity operating optimally without making large and risky bets.
Brian why do you think Austin will boom or a better question might be what factors are present in Austin that may give it an edge over other markets?
It appears that you focus on the east of downtown . What about this specific part of your market attracted you?
Have prices declined making investment more profitable or are you buying distressed properties and fixing them up?
How does your market effect your busniss plan?
Are you Primarily focused on Rental Income or do you plan to hold and make profits from capital appreciation?
Austin is tops on almost every list. I realize that in certain areas of town the prices already reflect this enthusiasm, but locals have an advantage because they can scout deals quicker than out-of-towners buying in to the Austin craze.
East of downtown has a lot of city money pouring into it and is being gentrified due to Austin's extremely bad traffic problem. What was once a less desirable area of town is quickly turning into a great place to invest. We have a few deals going there that should deliver 40% unlevered. With financing the project-level returns should be 3-4X that number.
I buy all sorts of ways. We buy value-add deals and sell and rentals with nice financing in good rental areas. We build new houses in a few spots. I also buy apartment complexes and have been exploring development deals recently due to the lack of fully-developed lots that meet our criteria to build.
We buy some properties for cash flow and some for appreciation. I think a healthy mix along with a healthy mix of other assets is good for one's portfolio. Our securities have delivered very nice lift recently. Over the last 8 years this has delivered us 21.5% (arithmetic mean) returns overall. I am sure others have done better. The last few years have brought our number down and I find that as our portfolio grows I have a harder time keeping the equity operating optimally without making large and risky bets.
I took the percentage for each year (annually...so 25%, 22%, 28%, etc.) and divided by 8. I'm too lazy to do anything more fancy. It includes everything...including some mild appreciation.
The market I shop at is both convienant and has the best produce and full service. I am not certain it's the best for everyone however for me it's great. And they always have fresh flowers to take home.
On the otherhand my girlfriend loves shopping at the markets where you have sto bag your own groceries. She does that because she hadn't experience the right market.
Every once in a while we go to the warehouse market and buy crap in huge quantities we will never use. it's full of oversized carts pushing their way threw a maze of isles stuffed full of people
My market has always been an appreciation play. Forecasts for commercial properties include total returns because rental rates are low for the prices. They are forecasting 10% total return.
The fear is that if interest rates increase the cap will increase and values will drop. Interest rates and caps are historically tied and very close.
Appreciation for a 20 year ownership of a property I own is over 7% compounded yearly. Add rental income and that is pretty good.
This property is a longer term holding and will continue to be for at least 10 yrs and maybe 20. I will sell when I choose to do something different with the equity, like spend it.
Other markets for me will need to be cash flowing and not in my area. This is tough on the (like Buffet says) practical side.
I took the percentage for each year (annually...so 25%, 22%, 28%, etc.) and divided by 8. I'm too lazy to do anything more fancy. It includes everything...including some mild appreciation.
For those wondering, in this case "arithmetic mean" = "average"... :)
Where do you invest? What is your strategy and why is your market the best for you to achieve your goals?
Atlanta...North Atlanta to be specific.
I invest here because I live here. There might be better markets but this is mine, I know it, I live in it and I love it. :-)
Seriously. I am a rehabber and there is an abundance of foreclosures that can be bought for .50 on the dollar that need a lot of work and can be resold quickly. This year I will be acquiring some rental properties and for that the job opportunities, population growth and rent to purchase ratio work very well in my market.
It comes down to the fact that Austin is growing faster than any other top 25 city in the US.
Dallas is my market, and here is one advantage it has. You can find properties that will rent for 2% and even approaching 3% per month of their cost. And some decent (not war zones) areas and properties, too.
Bryan, you say that Over the last 8 years this has delivered us 21.5% (arithmetic mean) returns overall. It appears that these returns reflect your overall operation. do you have a break down of the kind of return you have experienced. value added deals for instance. I assume by this you purchase a property perhaps in need of repair and vacant, fix it up and rent it and then sell it to another investor. You do this in good rental areas. what is the return you have seen from this type of investment? I assume the return from your development deals have increased your overall return.
Jon: thanks for the link. regarding those properties that rent for 2 to 3 % of cost. what is the cost of those properties and exclusive of maintenance and property management what is the tax and insurance picture in this market.
My market (North Dakota) is boring. There isn't any great deals and there are very few rehabbing opportunities to create a little sweat equity. Its basically a buy and hold mentality if you can find a property that cash flows. Oil is making everything boom and its making this fairly new investor very impatient!
Basically the only thing I have going is a couple SFHs. Not great returns but they are very safe investments. There is 1/4 the normal amount of properties on the market. Great time to own property, bad time to try to find something. It only makes me wish I had more!
Jon, i am not familiar with mobile homes do they have similar maintenance costs to small single family Properties. What do you believe your maintenance, vacancy and property management cost will be on this property? How would you characterize the neighborhood? It appears that you have 23.7% return before considering these additional costs.
Every market is so different and has its own sets of issues. I have been a buy/hold/rent investor. For example, I currently own properties in TX (Austin suburbs), FL, AZ and NV. I had been buying it FL, AZ and NV because they have been hit so hard I believe they have no place to go but up. If you look at the replacement costs of these properties, it will only be a matter of time for market dynamics to play out.
I use to own in CA too but sold before the bust and am just now thinking of coming back in. Different markets have different dynamics though, for example, FL has very high insurance costs. I pay 3x the insurance rate in FL from what I pay in NV. NV has the lowest insurance rates of all for me, but investing in Las Vegas has other economic risks. Plus I plan to be buying a new AC unit every 10 yrs probably. TX and FL have very high property taxes (about 3% of property value) where NV and AZ have much more lower property taxes. CA has prop 13 protecting your property taxes from going up much. None of mine are in snow country so I don't have winter problems and related repairs. Interestingly, FL is the only state where their insurance polices don't cover dog bites, who would have thought? Of course tenants never have dogs and always carry renters insurance anyway!!!!!
Obviously I am an out of area landlord and that compounds the problems. I am looking for some new areas/states now. I think there are many variables here to the initial question. For me, I have found my best market so far to be Phoenix for my buy/hold/rent strategy, but I think there are better ones, I have just yet to find them. I was in Phoenix before it boomed and came back in after the bust.
Michael, mobile home maintenance costs are slightly higher than traditional built homes. Some things break more often, but some things are easier, such as easy access to Pex plumbing under the homes. Overall management and maintenance costs may be 20% higher. Part of this is that I have shorter occupancies than traditional. 1-2 years so far, but I've only been doing these for 3 years.
Neighborhoods are country subdivisions. Some are not great, but some are describable and in sought after school districts. I try to limit my buying to these good areas, now.
Zachary, Can you elaborate on the return you expect from the SFH,
How much did you pay, what is the rental income and what are taxes insurance, maintenance , vacancy, and property management estimates. How would you characterize the neighborhood?
What I neglected to say about Dallas, along with the good cash flow, is it has population and job growth. During a recession, DFW still grows at near 100,000 people a year, and in a good economy, it grows at 150,000 plus. A positive macro-trend is in place.
Bruce, I am an out of state buy hold and rent investor as well. It is interesting that a significant number of out of state investors I meet In my Current Market (Dayton OH) are form California. Can you elaborate on they properties you have evaluated in Phoenix. I believe that those markets that have experienced the most significant bust and continue to sustain increases in population will have a greater chance of experiencing above average appreciation. What is the rent to cost ratio you expect and how do taxes and other expenses impact your expected ROI.
Zachary, Can you elaborate on the return you expect from the SFH,
How much did you pay, what is the rental income and what are taxes insurance, maintenance , vacancy, and property management estimates. How would you characterize the neighborhood?
I paid roughly $150k for each and they generate about $1700/mo in rent with taxes being about $150/mo and insurance being about $70/mo which puts me at a positive cash flow of about $650/mo. Couple that with about $200/mo in principal reduction and it ends up being an ok investment of roughly 10k. There is zero vacancy which makes me think my rents are low. It never takes me more than a couple of hours to rent out a place.
Appreciation, which actually has been huge compared to the norm ($20k/property in the last year) has been a nice little cherry on top.
I haven't had to fix a thing at any of the properties yet. The reserves are building up for that. I also have one property on a 15 year loan which is what Im going to use for collateral for bigger, multifamily purchases in the future.
Its a nice, secure environment but I want some more action! I want a couple of rehabs or maybe a foreclosure of two. Alas, foreclosures go for market value but I am currently looking at rehabbing an old office building for apartments. That one is taking a good amount of vision and work, though.
Thanks for you detailed reply Zachary. I would not characterize your market as boring it sounds like a solid investment environment. Your strategy appears to be working leveraging your investment and mitigating risk by offering competitive rents in an escalating market with NO vacancy and minimal maintenance. I expect that diligent research to find distressed properties or distressed situations will make your good credit and solid cash flow a winner for your market. I would be interested in how your efforts in rehabbing the old office building turn out.
I was buying for 55 to 60 and getting around 850-875 a month for rents. Prop taxes were around 800 and insurance was about 600. Mgmt and expenses were around 150 a month. But again I was buying these also banking on appreciation. They have already gone up over 10% in the last year. Now, I can't find these same deals 12 months later very easily in Phoenix.
Bruce, Taxes and Insurance look good but what are you including in your Mgmt expenses. It appears that you are including maintenance and vacancy and perhaps a property manager. The rent appears to be on the low side for a $55,000 to $60,000 property, Less than 2% , how would you characterize the neighborhood and most likely they are newer properties is that right? Has your market on the whole gone up based on comps or have you improved the property in some way to account for the 10%
increase?
Michael, I sent you a PM. Yes I included mgmt. and repairs. Homes are newer 1996 and above. 10% is based on comps. I needed to do little to improve the properties I bought. Again, my strategy is based on appreciation too, otherwise I would look more for that 2%. I have different strategies in different markets....I buy in Phoenix based on my opinion that the market will be going up. And it has. I am finding it tougher to find deals in that market this year over last. A lot of money from all over, including foreign, is flooding that market now.