About to close on first rentals - current rent climate?

Real Estate Agent · Chattanooga, TN · Member since 2020 · 35 posts · 27 votes

My wife and I have decided to reinvest some funds into rental properties (as many are starting to do now) and I’m about to close on our first two turnkey rentals (in Baltimore, MD and Hummelstown, PA) We’re thankful to have one year rent guarantees on these properties but are exploring the option of purchasing properties from other providers without that guarantee. What is the general climate with rents coming in currently with COVID-19 for the more seasoned investors? I would greatly appreciate your input on this as well as any advice to protect ourselves when purchasing rentals during this time.

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Farrukh Ali

Rental Property Investor · Pasadena, CA · Member since 2019 · 8 posts · 2 votes

Ran some preliminary numbers:

School district: 1/1/1

Age of house: 93 years

Average rent for 3 bedrooms within a mile radius for last 12 months from rentometer: $1266.

The numbers are very uncompelling. Looks you are paying a very high premium for a turn key property. Your Cash on cash return might be negative for a few years.

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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
6y
Study the market. In my area, rentals are doing great! Sales are great! Rental properties are in high demand! Rent prices are going up!
That can all change tomorrow. Know your market, buy smart so you can handle a downturn, and enjoy the ride!
The DIY Landlord Book4.7248 Reviews
Website View Page
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Alex Deacon
Investor · Pittsburgh, PA · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Vu Nguyen rents here in Pittsburgh have been Solid. We are about 5% down due to some tenants not paying. I cant speak for other parts of the state or the country.
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Ozzy SirimsiBusiness Member
Real Estate Agent · Baltimore, MD · Member since 2016 · 1k+ posts · 782 votes
6y
To be honest, I would be very careful in Baltimore.
After one year, you might find yourself in a situation that you dont want to be in.
I would suggest to put the information here, or message one of the seasoned investors to get their opinion.
I seen out of state people paying way over price on houses to get turnkey properties
Good Luck!!!
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Percy Matsunaga
Flipper/Rehabber · Sacramento, CA · Member since 2016 · 282 posts · 85 votes
6y
@Vu Nguyen
Here in California my tenant has been paying thru the several months that we have been on stay at home.
I think if you get them on a lease contract for a year you can pretty much bank on that income.
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Vu Nguyen
OP
Real Estate Agent · Chattanooga, TN · Member since 2020 · 35 posts · 27 votes
6y
@Nathan G. Thanks for the input! I will def continue to study prospective markets.
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Vu Nguyen
OP
Real Estate Agent · Chattanooga, TN · Member since 2020 · 35 posts · 27 votes
6y
@Alex Deacon. Thanks for the update. Glad to hear that the market in Pittsburg is doing well. I will def need to research your market more.
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Vu Nguyen
OP
Real Estate Agent · Chattanooga, TN · Member since 2020 · 35 posts · 27 votes
6y
@Ozzy Sirimsi thanks for the input! Here is the listing of the Baltimore home we are purchasing.
https://www.crturnkey.com/property/4127-eierman-ave-baltimore-md-21206/
Since you are a realtor in the area, I would love to hear your thoughts.
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Vu Nguyen
OP
Real Estate Agent · Chattanooga, TN · Member since 2020 · 35 posts · 27 votes
6y
@Percy Matsunaga that’s good advice. Thanks!
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Ozzy SirimsiBusiness Member
Real Estate Agent · Baltimore, MD · Member since 2016 · 1k+ posts · 782 votes
6y
@Vu Nguyen
So you are paying 150k on Eirman
I would not pay that amount that is for sure
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Vu Nguyen
OP
Real Estate Agent · Chattanooga, TN · Member since 2020 · 35 posts · 27 votes
6y
@Ozzy Sirimsi. I definitely understand that I’m paying a premium to have a renovated property with a company with in house management. This seems to be a good option for me being out of state and having a full time W2 job. What would you suggest as alternatives to investing in turnkey properties that would allow for passive investing? Connecting with a realtor and property manager in the area the old fashioned way? I know this is a tried and true method when done correctly but it would require a much bigger time commitment I would think?
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David NutakorPro Member
Rental Property Investor · Palmdale, CA · Member since 2016 · 122 posts · 88 votes
6y
@Ozzy Sirimsi, does it make any difference if you are getting a mortgage to buy an investment property? The bank may not fund the loan if the property is being sold more than its appraised value. So, maybe $150k is the current market value of the property.
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Ozzy SirimsiBusiness Member
Real Estate Agent · Baltimore, MD · Member since 2016 · 1k+ posts · 782 votes
6y
@David Nutakor
Yes and no.
If appraisal was the only thing that mattered, we would not have 2008 crisis, and people would not lose money.
Right now, housing stock is low and prices are high.
Also, if you decide to sell, people should show interest in that location for that price, and they need to qualify to buy that house etc etc...
So yes appraisal matters, but it does not tell the whole story
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Percy Matsunaga
Flipper/Rehabber · Sacramento, CA · Member since 2016 · 282 posts · 85 votes
6y
@ Vu Nyugen
I agree with Ozzy. There got to be a better way for you to get started in RE rather than to pay 150K.
I think somethings being patient is better so the right deal comes in play.
Run the #’s and make sure it makes sense financially since you are out of state.

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JC Cole
Baltimore, MD · Member since 2019 · 14 posts · 18 votes
6y
@Vu Nguyen this is what @Ozzy Sirimsi was talking about with outside investors coming to Baltimore. Sure the house is renovated, but to pay $150k in that area for a 3:1, just because it’s turnkey and managed already, definitely better deals out there. What do the other houses on the block look like? What are the comps in the area?
There are 3:2s in the City and in the county, better areas, for less than that.

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Farrukh Ali
Rental Property Investor · Pasadena, CA · Member since 2019 · 8 posts · 2 votes
6y
Ran some preliminary numbers:
School district: 1/1/1
Age of house: 93 years
Average rent for 3 bedrooms within a mile radius for last 12 months from rentometer: $1266.
The numbers are very uncompelling. Looks you are paying a very high premium for a turn key property. Your Cash on cash return might be negative for a few years.
2 Reply
Vu Nguyen
OP
Real Estate Agent · Chattanooga, TN · Member since 2020 · 35 posts · 27 votes
6y
@Farrukh Ali, @JC Cole, @Percy Matsunaga thanks for all the input. Do you have recommendations for companies I can work with that provide a similar service that turnkey providers offer with better returns? I understand that I need to run my own numbers and hope to connect with realtors and property managers down the line myself. I use Deal Check and it gives me a cap rate of 7.8% on this property (I won’t list all the other numbers). Looks like I should do this myself right off the bat. It seems the turnkey model is widely shunned on BP.
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Farrukh Ali
Rental Property Investor · Pasadena, CA · Member since 2019 · 8 posts · 2 votes
6y
One the ways to get high return on investment is through value buying at lower price and making improvements (you can start with cosmetic repairs). This is something you can't get from a turnkey property as the seller is getting that value instead.
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JC Cole
Baltimore, MD · Member since 2019 · 14 posts · 18 votes
6y
@Vu Nguyen I’d connect with one of the realtors on BP, some who know Baltimore have already chimed in on this thread, speak to them about your goals and what you’re looking for while doing some research yourself on the city and potential properties by crunching some numbers.

If you’re looking for management, there are plenty of property managers who could place renters in there and manage it for you.

Just takes a bit more work than a turnkey and @Farrukh Ali outlined this in his comment. I don’t think BPers are outright against turnkey, it’s just whether it makes sense or not compared to other deals and opportunities

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Account Closed
Baltimore, MD · Member since 2014 · 88 posts · 8 votes
6y
@Vu NguyenI totally agree with what everyone said above. That price is very high for a house in that neighborhood especially with the basement not being finished. Even if the basement was finished, it's still a high price. To give you an example, below are a few houses probably within 5 minutes of that house in a slightly better neighborhood for less money. Some property managers may even have a crew perform the renovation for you, for a fee of course. Check out this post for property managers in Baltimore, https://www.biggerpockets.com/member-blogs/3225/42370-property-mangers-in-baltimore . In the past, I heard that Michelle Yang, mentioned on that post, does renovations for the landlord she does property management for.
https://www.homesnap.com/MD/Baltimore/3620-Elmley-Avenue
https://www.homesnap.com/MD/Baltimore/3238-Cliftmont-Avenue

https://www.homesnap.com/MD/Baltimore/3417-Dudley-Avenue
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Vu Nguyen
OP
Real Estate Agent · Chattanooga, TN · Member since 2020 · 35 posts · 27 votes
6y
@JC Cole thank you very much for the advice. This method makes more sense to me. I will definitely take advantage of the networking that BP offers.
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Vu Nguyen
OP
Real Estate Agent · Chattanooga, TN · Member since 2020 · 35 posts · 27 votes
6y
@Tiesha Mobley thank you very much for taking the time to send me these references! It’s very helpful to see these and it gives me a clearer path to where I need to direct my attention. I will definitely look into these. Thanks!
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Michael Noto
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
6y
These questions are very market specific. Contact people here on BP directly who operate in the areas you are thinking of investing in. For instance things are going strong here in CT, but unless you are thinking of investing here what does that matter?
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Tim JacobPro Member
Real Estate Agent · Baltimore, MD · Member since 2016 · 520 posts · 379 votes
6y
I think another option is buying in a good location a house that is outdated and simply rent it that way. In the Baltimore area you can buy a house hit the 1% rule not have ridiculous extra expenses and get a quality pm to manage it. If your agent is eventually your pm you have incentivized the agent/pm to do well on the buy side by commision and on the lease side by becoming the pm.
What doesnt work is getting an agent that doesn't know anything about buy and hold investing and they dont fill you in on realistic expense averages in the area you are looking because they have no property management experience or very little. Or your idea of offsetting this is getting a pm to work with that agent in tandem for free in hopes of eventually getting your business on 1 house which will total a whopping 100- 200 per month for them. There are syndicators who get this free analysis ftom a pm. The difference is the syndicator is providing the pm company with thousands and thousands of monthly work. There is another option where you pay a pm to help you find the right property like the agent as well as paying them to manage it once it is ready to lease.
Trying to project manage from distance is hard and yes some pms can upgrade your property. I'd keep the upgrades simple. Vinyl flooring and painting. Doing that for a whole home with a finished basement can still cost 10k. If you add appliances and new kitchen your bumping the budget that much more. For a first investment I don't recommend this from distance. There is too much that can go wrong and you will have to trust too many people. I'd get a decent investors agent and do 1 outdated property in a good neighborhood that is in otherwise good shape at first that you dont pay an arm and a leg for. If it goes well do another.
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Account Closed
Baltimore, MD · Member since 2014 · 88 posts · 8 votes
6y
You're welcome @Vu Nguyen! Reach out if you have any other questions.
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Alan C.
Investor · Baltimore, MD · Member since 2015 · 155 posts · 166 votes
6y
That's a rough area. A friend of mine has had steady tenants since about 2003, but is ready to sell and get off of that street.
I haven't run the comps, but I can't believe that any property on that block will appraise for $150K. I would be very careful about any company that is selling you this deal at that price. As has been said, for $150K, you can get a much better property in a much better area. Depending on your cash and down payment situation, you might find even 2 houses at $75K each for much better returns.
And by the way, cap rates are not normally used for 1-4 family residential properties. You can use cash-on-cash returns, but that is not the same number as cap rate.
If I were you, I'd try to get out of this deal and connect with local investors in whatever area you want to own rentals. Spend some time getting to know the market before you invest. And it is helpful to invest in your own area if the numbers make sense. I understand that in many coastal cities (not Baltimore), the housing prices preclude getting a good income from rentals, but I'd still try to stick close to home unless I had trusted friends and family that could keep in eye on any long-distance rentals.
In my opinion, many of the turnkey+management companies take advantage of people in your position of having a full-time job and money to invest. There's nothing wrong with making a profit, but I think they know that their buyers don't often do the full do diligence necessary to properly vet a deal.
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