Buying homes for cash

133 Replies

Originally posted by @Sandra Regnell :

@Kiel Martin I have a friend that bought 10 homes in Youngstown, OH for $15k each cash. Section 8. They rent for $500/mo after taxes insurance and property management. He did buy them a few years ago so they might be more expensive now. Definitely a depressed area, at least it was at that time.

What did he spend on renovations?

@Drew Sygit ... I am so glad you posted this. It is the neighbood and the people that I focus on. For the last 2 years, I have been looking at baltimore from the deep eyes of oppurtunity, and all I see is the faces of the city. All my life I saw Baltimore as a place to go and not how I see it now. It has been at my feet my entire life, and now I finaly see it in a whole new light. Baltimore is filled with potential and filled with people who are are trying to live and sruvive. I will be onsite at the every day until the house is ready for tentants. This gives me the ability to not have a rental payment myself or a mortage. Saving me $1,800 in rental fees myself. I do my work remotely, so this is why I can be at the property everyday before being rented. Now after being rented, I will have to cross that road when it comes. Since you mentioned the property management concerns, that will have to be a bridge that I have to spend more thought on. Another piece of priceless information. Much appreciated

@Moises B. , you do not sound Jaded at all. I expected to pay a total of $70 per house as a finsh product as a worst case scenario. But with current events, I have not reculated with the new prices of materials due to Covid. So this brings another point to head that I need to be think about. Thanks for being that to light

@Raju V. , now thank, and I mean thank you. I will start re-adjustiung my numbers to get a new worst case scenario, mid, and best. And I will see which one I fall under. This will cause me to be more cautious when I get bids that are too tempting. And thank Raju..... Have you regreted owning your 12 units? 

Originally posted by @Kiel Martin :

@JD Martin , team is already develop. Like I said, it is baltimore, and its own enity. And the ghetto is not a fear of mine nor will it be a concern of mine. Like I said, I am not following the traditional ways that is wrriten. When I opened my HVAC business, I opened it unconventionally and was able to close it debt free with my unconvnentional ways. Convincing me about Class C&D and about $15k-40k types of houses is not going to sway me. Nor is telling me baltimore is the highest crime city. I live here and fear is does not motivate me to not accomplish. I spend time understanding and making things work instead of talking about why it will not work. 

This is a plan, not a wish, and the plan is develope, along with a management company in place. Baltimore changes block by block and certain zipcodes work why certain do not. And there is tons of houses on both list, which each will be anaylzed and tentants screened. No difference than any other business here. Thanks for the adivce, but that is why I have a business plan, which will be adabpted when needed. It was created from experience and research. Now it is time to execute. And like any scale, it is adjustable. As of now, those are the targets, and I was concerned about the closing cost having a set minimum rate which surpassed 3%, which some one here was nice of enough to answer.

I do not use other people's numbers to tell me what works. I use my experience, good people, action, history, momentum, and a strong foundation to make business decisions, always ahave. There are reasons for my choices. And if I had a nickle for every time someone told me how failure was my destination....... well brother, i would have over 100million nickles. 

Everyone thank you for all your advice. 

 Kiel, lots of people with decades of experience are all giving you the same advice. They're not doing that because you're stealing their deals. PLEASE don't think that you know more than them when you've never bought a house and don't even know what your cash to close requirements are are.

My two cents added to everyone else though is that the cash flow on these properties get eaten up and more by the maint, vacancy and turnover costs. I've had a 70k house downtown and a few 60k condos. My cash flow looked great on paper and I was smarter than everyone else, until it got wiped out every few months with maint, etc. Now I own 300k+ houses and cash flow is actually better on an annual basis because people living in a nice house generally take care of it. They also leave you alone because they're trying to live a normal life, and a normal life doesn't involve a weekly chat with the landlord.

I wish I would have heard what people are telling you when I started out........

@Kiel Martin

Buying all-cash reduces risk tremendously especially if we have a correction in the near future. I have been in RE for over 15 years. Many of my properties are paid for or have very little debt. When you close on such a low-priced property you will have little cost versus those taking on a loan. Most of the expense is because of lender and their fees, attorney fees, etc. I would call a local title company and just ask them. 

The beautiful thing about real estate is there are riches to be made in all different asset classes. If you buy in low income and can be hands-on you can be successful. 

But one word on caution. Being successful in one business does not guarantee you will be in another. And what looks good on paper and the returns that's possible is not always the cause in the real world. 

Best of luck 

@Joshua Myers , I have no idea why you insisted on writing the first paragraph. 30 years in the work force and 30 years doing my own thing, I never comment on people's behaviors without knowing them. "Not doing that, because you're stealing their deals", no idea why this was brought up. "Do not think you know more than them"..... is that what you see or just a general comment? If I was asking "Will my plan work", then you would have a case. I think there is a serious disconnect with most people when it comes to "Do not answer questions that you were never asked"

I listen to thoughs who help, not those who responses are answers to questions that were never asked. Right now, I am building a list of people who responded with helpful information. Those who talked about why it would not work, will not be on my list. Life is too short for all of that. And I have stopped responding to the ones who just had to have the last word. 

With all of that being said, your 2nd paragraph is already in my mission statement. Everyone has a theshold with what they are willing to tolerate. We are all adults here, and I would expect some better responses from those adults. The ones who gave me the advice that did help, notice they were percise, straight to the point, and nothing else to say. Those indiviuals got great thank-you responses, and after this post fades, I will be going back and read every post to make sure I weed out the ones who cannot respond without telling why "It will not work". 

Sorry to disappoint, but serious folks have zero tolerance for non-productive interactions 

@Kiel Martin

I think @Linda S advice is spot on,  My partner and I are doing a combination of a few of these strategies. My 2 cents is no matter what way brings you in to real estate.. stick with real estate. Learn, pay attention to what's working and not, pivot when needed and keep people in your circle that will teach you ( what to do and not to do). Doesn't matter how good you are or think you are find others to aspire after and "throw down the rope" to others. 

This has strayed in many directions from the original post so I figured I'd just try to be helpful in general. RE changed my life for the better and I hope you hit your goals as well.

These are some lessons learned from my 10 doors/2 years investing/10 years rehabbing properties in your price range.

-Attorney, I have had multiple times where our 28 page operating agreement drafted by an attorney has been a blessing. We have a great partnership but without a guide/clearly defined roles, lines could blur. 

-For these lower cost/d class properties multifamily has been our key to success. It's amazing how a 4 unit's cash flow can carry any vacancies/turnovers/unexpected costs. 

-Be Relentless, not ruthless. I spent Superbowl with a Roto-Rooter kid as ***t exploded from the bottom of a stack in the basement of a duplex. Renovations will cost more than expected, take longer than you want, and until you've owned/operated rentals for a long time you'll still be learning, even then surprises will still have you feeling like a newbie. Let your new tenants in your new property know up front that they are your first tenant in this property, it's unlikely you fixed every single thing possible. You haven't lived there so things will come up from day and day out use and you'll fix them when they do. 

- Encourage communication (from the start) with your tenants. If they're scared to tell you of a leak, a bug they saw or some other problem at the property because your going to get mad or charge them then the problem gets worse (more expensive). 

-Sharpen your tenant screening skills, then sharpen them again.

- always take care of your tenants, but especially the good ones. Give people a place they're not ashamed to live in. I don't say "my property", I say "your residence".  This is a cash flow game and tenants paying rent is your cash flow.  I will help my tenants raise their credit scores, teach them financial literacy basics and ideally help them move on to home ownership. ( I grew up in poverty and already do this with my spare time through a non profit..) A $50 upgrade or used ac unit for a tenants kids bedroom because they can't afford it and you know the kids are sleeping in the living room where it's cooler.. can go a long way in tenant relations/retention while not necessarily breaking your bank. (Before this post catches hell, this is a business not a non-profit.. That example is EXTREMELY situational. Make sure your comfortable with your ability to separate emotion from the business. Doesn't matter what area of life, some people are Takers and will take advantage of anything.)

-This is a cash flow game and tenants paying rent is your cash flow). As someone earlier said, "you can't get a mortgage on these properties" while that's not necessarily true and also not your "game plan anyways" keep your mind open. Things change, always do. I didn't want debt/leverage at first, now I can't wait to do what I've been doing but 10x with appropriate leverage as my skills/network and goals grow.

-Lastly, Be Creative. Opportunity is everywhere. I rent out a vacant divided duplex basement as extra storage to one of the tenants. We include utilities/wifi/laundry in another property and do very well. Hire neighbors for yard work. Build relationships/be courteous to neighbors. Neighbors can see trends you can't see.. 

Best of luck on your Journey!! Keep getting educated and building relationships! 

-Sterling

@Luciano A. , Referring to your very last paragraph. This is understood very well by me. Running my own business 4 seperate time in the last 30 years, man you learn a lot what not to do. And if I had someone telling not to do those things and I did not do them, it would have never been a real lesson. One of the things that changed me deeply was how I saw failure. When I started embracing failure as a necessarity to succeeding in whatever i did, man what a difference. I was happy with every failure after that because every failure was a task out of the way. And I am the type of guy who uses action as a learning lesson. When the failure happens, i locate someone if I do not understand it. The best way is to jump into it. This is why I have been building side skills in the process. And have a solid salary was a 10-year venture to have steady capital. I ran my own HVAC for a decade because it was not a trade I understood and wanted to know how to replace a $10,000 to $15,000 system if I needed to. I am an x-electrician, and x-construction worker. It is amzing what you can become in a 30year period. And I will be moving into every home that I wil be preping for rentals. This has been a dream in the works for a long time, and now it about to happen. 

Running other businesses, each was unique and had to be learned from the ground up. Those was a Computer hardware & software build& repair, a Construction Company, a HVAC company, and IT training company for Networking engineers. So I agree with every thing you said. And for the record, thanks for looking out. I have a personal common-reference to what you are saying, so it hits deep at home and to the heart. Hopefully you and I will be talking in the near future. :)

@Sterling S. First paragraph, well said and I will pay it forward. I love the adive in your first paragraph, because that is 100% my mentally towards this business, which is to jump into, and pivot as need be to redirect the destination to my desired content. Thank you very much for you response....it was very motivational 

@Sterling S. , ok, thank you for seeing what my mission was based on the responses. This is being helpful, and you went the extra mile, and that I cannot possible explain to you my appreciation. This is a message that I will never forget. Seeing the tentants as people and not numbers is who I am deeply and all of your advice hits home, and I mean that as sincerely as it can be. Once again, it shows that paying for bigger pockets was a smart decision and I am going to be very happy here

Thanks Kiel, 

I guess it'll be 2 years this March sorry for the exaggeration. I started with the intent of mobile homes because that's all the money I originally had to work with but I found a partner with a SD Roth IRA. I do the work, then we divide up the equity gain. The first four unit was 35,000 + 20,000 in renovations. It grosses $3,980/mo. Second was a duplex paid $26,500 plus $8, 000 in renovations. But because that one was in pretty decent shape we put a temporary tenant in half of it for $850 ($100 above market rent) while we fixed up the other half and then they moved out and we fixed up their side now we have two long-term tenants. We bought that on December 31st so we got some depreciation for last year and moving that tenant in changed it from cost basis to maintenance. (Haven't filed taxes and my CPA hasn't signed off yet but to my understanding that's how that should go this year) Either way that temporary tenant helped pay for some of the rehab + they also agreed (in the lease/contract) to forfeit their deposit when they moved out to their next location (traveling workers). The rents on the duplex are $750 per side with all utilities paid by tenants.

Last year I bought my primary residence for $20,000. Put about $40,000 into it, now the comps are around $140k. I will be leveraging that ASAP.

lastly I chased a four unit for the last year, The widow of the owner have given it back to the trust which was a bank asset manager. Because it was vacant it fell out of zoning. I got educated on how to get it rezoned back as a four unit and made the listing agent aware of all of the hurdles that a potential buyer would face. And we acquired that four unit for $15,000. We were granted zoning without having to go through too much work and now the renovation on that property starts. It is an older building obviously but we are going to put a lot of money into fixing it up ($80-$100k) it's a little over 4,000 square feet so we will be changing it from four one bedrooms to a 3/2, 2/2, 2/1,1/1. Also again we're looking at switching strategies and potentially STR one or two of the units because of its close proximity to a massive health care complex and college. Also at the level of renovation / location this will be a property prime for leveraging/pulling capital out to use again.

Off market, if it's your local market get good at tracking down owners.. I don't have access to funds to compete with out-of-state buyers locals with massive leverage etc. My niche is multi-family that is distressed.. I look for a 4-year return on capital invested.. because I'm not counting on appreciation and some properties are unlikely to be able to be leveraged on their own outside of a business line of credit against the portfolio then cash flow is the key for me. It's not easy in any way shape or form but it's 100% worth it. PM me if you want to chat. This is my passion like many others on BP. You definitely made a good investment going PRO on here..

Originally posted by @Kiel Martin :

@Joshua Myers, I have no idea why you insisted on writing the first paragraph. 30 years in the work force and 30 years doing my own thing, I never comment on people's behaviors without knowing them. "Not doing that, because you're stealing their deals", no idea why this was brought up. "Do not think you know more than them"..... is that what you see or just a general comment? If I was asking "Will my plan work", then you would have a case. I think there is a serious disconnect with most people when it comes to "Do not answer questions that you were never asked"

I listen to thoughs who help, not those who responses are answers to questions that were never asked. Right now, I am building a list of people who responded with helpful information. Those who talked about why it would not work, will not be on my list. Life is too short for all of that. And I have stopped responding to the ones who just had to have the last word. 

With all of that being said, your 2nd paragraph is already in my mission statement. Everyone has a theshold with what they are willing to tolerate. We are all adults here, and I would expect some better responses from those adults. The ones who gave me the advice that did help, notice they were percise, straight to the point, and nothing else to say. Those indiviuals got great thank-you responses, and after this post fades, I will be going back and read every post to make sure I weed out the ones who cannot respond without telling why "It will not work". 

Sorry to disappoint, but serious folks have zero tolerance for non-productive interactions 

No worries, I really wish you the best. Just trying to keep you from pain. People with long and productive careers are giving you advice with no expectation of anything in return. I sincerely hope that telling them to only answer the specific things that you asked and to keep the rest of their thoughts to themselves turns out to be a good strategy in the long term.

Originally posted by @Kiel Martin :

@Raju V., now thank, and I mean thank you. I will start re-adjustiung my numbers to get a new worst case scenario, mid, and best. And I will see which one I fall under. This will cause me to be more cautious when I get bids that are too tempting. And thank Raju..... Have you regreted owning your 12 units? 

I don't regret owning them, but I do own other units that are considered Class A, B, and C. So I am well diversified. My Baltimore units are more of a gentrification play. I would just buy 1 unit and see how it goes, if you like it and things are going well then you can buy more. I do have some good tenants in most of my units. I just wanted you to prepared for the worse, but hopefully things will work out. 

Do you know how to fight, have guns or homeboys to back you up? Good luck. 

Originally posted by @Joshua Myers :

 I sincerely hope that telling them to only answer the specific things that you asked and to keep the rest of their thoughts to themselves turns out to be a good strategy in the long term.

 Classic ..... :-) He doesn't get this, only wants to hear what he wants to hear....