Analysis Paralysis on Buy & Holds...What is a good deal?

6 Replies

Hi, I've read a ton on this site about buy and holds and how you can't just rely on the numbers or the 2% rule and so on.

At this point, I have analysis paralysis on this subject. Just what is a good deal?

I've heard:

-$30K homes are bad because of depreciation and low quality tenants

-Media price homes have better tenants but because of the price, cashflow could be thinner

I'm at a loss on how to recognize a good buy and hold deal.

Can you perhaps share an example of a buy and hold you have that's a good deal? As far as grade neighborhood, cap rate, cashflow etc.?

Any help would be great. Thanks!

My perspective follows (and I am a greenhorn).

When I see some of the seasoned folks on this board say they bought their "45th property", I quickly look to see if they mention a purchase price and I often see it is in the below 50K value. Nothing wrong with it, but that strategy wont work for me, i.e. buying several properties at that price point and managing them, and their tenants, and being impacted by their tenants lack of job stability, etc.

I can probably stomach one sizable issue, than deal with many smaller issues together. My two rentals are at the 0.5% rule, and the 1% rule each. I am content with that. The tenants get a steady paycheck as they are upper middle-class and employed by corporations. My property management company makes a steady debit from my tenants bank accounts and wires it into my LLC bank account.

Making ends meet for a family that is at or below middle-class is not easy. I have utilized many tradespeople for my home renovation and have seen how these folks really struggle to make ends meet. One good painter finished his painting job at my house late at night. I gave him a check for the money I owed him for the job. Guess what he did right after he left my house - he went to a cash advance place, and used my check to get an advance, because he needed that money that night. He couldn't wait for the bank to open tomorrow morning and encash the check.  

If the painter had to go to an advanced check place that evening instead of waiting until 9:00 am the next day, there is a problem there such as drugs or alcohol, etc. What else could he need the money for that late that couldn't wait until the next morning.

Originally posted by @Brian Huber :

Hi, I've read a ton on this site about buy and holds and how you can't just rely on the numbers or the 2% rule and so on.

At this point, I have analysis paralysis on this subject. Just what is a good deal?

I've heard:

-$30K homes are bad because of depreciation and low quality tenants

-Media price homes have better tenants but because of the price, cashflow could be thinner

I'm at a loss on how to recognize a good buy and hold deal.

Can you perhaps share an example of a buy and hold you have that's a good deal? As far as grade neighborhood, cap rate, cashflow etc.?

Any help would be great. Thanks!

 I don't see the 2% or even 1% rule in the area I invest very much (north Atlanta).  But it all depends on your goals.  What kind of cash flow are you looking for each month? How many properties do you aspire to hold?  Long-term plan?

At this early point of my RE investing career, I gravitate towards what I know, and that's single family homes in the $120-150k renting for $1100-1300/mon. Maybe one day I'll get into distressed properties and hope to learn more as I go. I use a PM and am not involved with tenants, screening, etc. Very hands off as I have a 9-5. I'm comfortable with $250-400/month/door. Cap Rates are just below 7%. Some people won't touch CAP rates this low, but for me, that's what I see in the area that I know and understand.

What's the long-term growth of the city and neighborhoods? Are there people and corporations moving there?  I'm not suggesting a socio-economic dissertation, but just some broad understanding of the area.

Also, use greatschools.org to see what schools are in the area.  Very important.  

Hope this helps -

Zach

@Brian Huber @Zach Adams

I like Zach's reply, and agree. Trust the fundamentals. Start with where a good place to live is - where would someone want to raise their kid? School district is the number 1 criteria for me right now. I like minimum of $400 between the note and rental rate. There's no real cap rate math behind that - for me its a number where I know I can cover everything comfortably - so its my target. I self manage so my costs are a bit lower. In the buy and hold game its as important your property is attractive, easily maintained and well located - as it is what you pay for it. 

Know the area you plan to put that 30k. If you know the area, you will know if that 30k is well spent or not. 

I remember reading some advice about only purchasing properties that you could see yourself comfortably living in. Something to consider.

I have to work hard to find an rehab properties in my market that meet the 1% rule.

With that being said, I am fairly happy with them.

Don't run from them, just make sure they have good bones when you buy an always build up a reserve for Those costlier cap ex items.

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