Real Estate Investor · Somerset, KY · Member since 2011 · 211 posts · 64 votes
I am an investor myself that owns multiunits and have had them for years. In this market if I was gonna buy, it would be SFR's b/c of the cheap prices. So my question is simply this:
**Why would an investor pay $30-50K per unit to own an apt building when they can buy houses for $10K in rental mgt areas that will rent for the same price per month ($500-600) that the apts would?
Here is my thoughts:
Apts cost more to own, tax's and insurance are higher, people take better care of houses, tenants stay longer in houses, you can pay cash and get more houses and not have to get loans, pay interest etc, if you want to sell you have multiple exits with houses and more people can afford them so more buyers, and houses cost less to repair when you get an estimate b/c its not a big commercial building and you dont get gouged. I am sure there are more benifits, just going off the top of my head. What are your thoughts??
Real Estate Investor · Milwaukee, WI · Member since 2008 · 1k+ posts · 671 votes
15y
At my price range and with my screening it is not people not paying, it is damage and breaking the rules.
Do I worry about rents, no. I invest in a very small area where only a few companies own property. It is basically a monopoly. I am the little guy. They set the price and the rent keeps going up. If you want to live downtown you have to rent from one of these companies or me. They own all big buildings and I offer smaller buildings that are updated. These big buildings are nasty inside. It has been very hard to break into this market because these companies buy up everything. They buy with the mentality that if they can break even and pay it off in 15 years then it is a buy. It is very hard to compete with that.
Real Estate Investor · Somerset, KY · Member since 2011 · 211 posts · 64 votes
15y
As far as the rent collection in these lower priced areas, the prescreening process is done the same etc. I know a group that is looking for 100 more of these type properties by the end of the year b/c the area offers such great cash flow. They typically get 3br's as a gorup agreement and love getting them at these prices b/c of the high rate of return they offer.
When I stated on the 1st part of the post that a lot of investors pay $50K for a house to get $500mo it was b/c I know several investors that will buy that way and they call it the 10% rule. They should get 10% of the purchase price for the rent per month and that will cover any payments, ins, tax's etc. This was a few years ago so that may have been the safe zone then and may have changed since then. I do see several investors that pay $30K+ per unit for apts in larger buildings in larger cities and I just dont see the logic b/c you can have 3X that many houses bringing in $1500 and have multiple exits with houses.
Real Estate Investor · Somerset, KY · Member since 2011 · 211 posts · 64 votes
15y
Mr_Investor, not sure how to put what you said in box like you guys do on the forum but wanted to reply to
"This. If you're paying that much per door you're basically paying for a money pit big time."
Many of these $10K houses I have seen are in great shape, have been well taken care of, and are rent ready properties. Some even have newwer mechanics and have been updated throughout the years. Not trying to ruffle any feathers at all just to be clear but wondered if you have owned any $10K houses? I highly agree with your statement on rental mgt. b/c to own something where you dont live that's the best solution and it makes it a lot less stressful and time consuming.
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
15y
Originally posted by Jared Kemper:
When I stated on the 1st part of the post that a lot of investors pay $50K for a house to get $500mo it was b/c I know several investors that will buy that way and they call it the 10% rule. They should get 10% of the purchase price for the rent per month and that will cover any payments, ins, tax's etc.
Real Estate Investor · Somerset, KY · Member since 2011 · 211 posts · 64 votes
15y
Max I,
Yeah, I guess if figures that way to see the per month amount but here is how it was explained to me:
Pay $50K for property X 10% = $5000 over 10 months renting at 1% of the purchase price. The 10 months ($5000) will cover payments w/ excess proceeds for profit, repairs, etc and the 2 remaining months of the year ($1000) will cover tax's and Ins for the year. These guyes have a lot of leverage and thats their buying criteria but I never thought it was good for me b/c the risk seemed to high.
Real Estate Investor · Walled Lake, MI · Member since 2010 · 121 posts · 66 votes
15y
Jared, again I would be careful with these $10k houses. I had one come across my desk the other day and the house looked great! 3 Bedrrom, 1200sqft, new mechanicals, new roof, clean throughout, being offered at $12,500. I wouldn't touch it though because it is in the wrong area of the city. High crime, many burnt up or boarded houses in the area, and generally speaking the area was declining.
I'm sure I could pick this house up for the $12,500 and rent it for $600-$700, but there are going to be issues. Furthermore, if the area continues to deteriorate it might get to a point where you need to decrease your rent to get tenants in, and that just opens the door for less desireable tenants. In essence it's a downward spiral.
To me the location of the property is the first thing you need to consider...the numbers come next...
Real Estate Investor · Somerset, KY · Member since 2011 · 211 posts · 64 votes
15y
Todd, I highly agree. Some of the areas I deal with are just outside the bourded and burnt out areas where the proeprties are still well cared for mostly. I do see that as a major convcern so my agents dont bring me anything on streets like that b/c they know I wont take them. They actually make sure they are not just the next street over and are a bit outside of that for that reason so, good point there. A person has to be careful. I even have my handyman scope the area and home as well and meet the agent so the agent isnt just looking for a quick sale and I get took b/c it happens.
Real Estate Investor · Walled Lake, MI · Member since 2010 · 121 posts · 66 votes
15y
Jared, it sounds like we have similar strategies. We're doing the same thing finding houses lower pirced but good stable neighborhoods. The houses we're buying are solid, we're finding excellent tenants, and the cashflow is great.
Real Estate Investor · Somerset, KY · Member since 2011 · 211 posts · 64 votes
15y
Todd, yes it seems we do have similar strategies. I will be glad when I can start keeping some of these rather than pass on the deals to someone else. Glad someone else has the same opinion.
Real Estate Investor · Walled Lake, MI · Member since 2010 · 121 posts · 66 votes
15y
Yes Jared, you need to keep some for yourself. We're keeping every 4th or 5th property we buy...I'd keep more, but don't have the capital at this time to do that. Nevertheless there are so many deals out there that we're not passing on any of the good ones, and we're setting up the properties for other investors. It works out well for everyone involved...
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
15y
I have not heard much about vacancy. 10% for ten months and allowing the other two months for taxes, expenses and profits....guessif it only take a day to clean it up and you have a waiting list who can move in. How are you addressing that?
To the original question, that's what I was saying that the house wouldbe such a dump that the utility company wouldn't even connect it for fear of a fire.
Real Estate Investor · Walled Lake, MI · Member since 2010 · 121 posts · 66 votes
15y
Financexaminer,
To me vacancy is not a set number. You can look at an area's average statistics and assume that's what your property will perform at. However, remember this is an average number which means some units will perform better and some will perform worse. You need to ask yourself why some perform better?
I fully believe the answer lies in how you manage the property. It starts with the property itself and its location. Next, what amenities are you offereing in your properties to lure tenants in? For us, one of the big things we're starting to do is make the homes very energy efficient. In Michigan the winters are pretty cold and the idea of lower heating bills is very appealing to our prospective tenants.
Next, how do you select your tenants...do you go through an appropriate screening process? Do you utilize programs like section 8? And then once the tenant moves in how do you manage the property. Do you treat them like tenants, or do you treat them like your clients? We treat our tenants like they were clients. Little things go a long way, and that can make all the difference on the vacancy rate on your properties.
Next, how are you filling your vacancies? Do you wait until the unit goes vacant to begin marketing, or do you always have a list of potential tenants that you're marketing for...we're always marketing.
So to me, I don't look at the averages. I look at the whole system and how we can take advantage of different aspects of what we're doing to minimize the vacancy rate for each particular property. If you do this, your properties will perform better than the averages as well.