Buying homes for cash
Member since 2021 · 54 posts · 50 votes
Buying homes for cash
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
5yOriginally posted by @Kiel Martin:
@Nick Cresci, thank you.... the minimum cost comment is what I needed to know. And talking to a title company in my area is also what I needed to know.
@JD Martin, I will be doing my business in baltimore and I will not be following the standards of buying houses with a mortage. I see no reason to carry a mortage where they are thoussands of houses which can produce a positive cash flow without holding a liablity on top of that with a mortage. This is a unique busines plan designed by me specifically carter to my income. I buy, I hold, i rent out, have a property management company handle renters, and move on to the next. I got 20 years to do this before I retire and this is my starting year. The plan will be revisted after holding 5 houses. I will not be relying on renters to purchase my properties, they will be free and clear before having tentant step foot in the property. Baltimore is it own entity as far as cities go, and my business plan is far from the normal teachings which realestate is taught. Aslo, thank you for responding, very helpful and appreciated.
I started out buying cash houses. I bought my first 4 or 5 houses all cash. But that was when $40k bought you a dump that could be turned into something nice.
I don't want to discourage you from getting started but I'm here to blow holes in your business plan:
1. Any house you find in Baltimore for $15-40k is going to be in a ghetto or destroyed and is going to cost a ton of money to get rent-ready, even for C-D class tenants.
2. You are never going to find a property manager that is going to deal with C-D class tenants, and if you did they would want a significant amount of your gross to do it. Managing C class housing and below is not for the faint of heart and it is a boatload of work.
3. You don't have to worry about getting mortgages because no one is going to give you a mortgage on anything you find in this price class. You will never refinance out of these properties either most likely. You will have a very narrow exit plan because you will struggle to find anyone to take these houses off of you when you get sick of working for free.
If you go the route you are suggesting I predict you will either find nothing to buy (if you look in decent areas) or, worse, will end up buying crack houses in war zones that will bankrupt you. Baltimore is one of the highest crime cities in the US and it's no accident they have buckets full of houses for $1000.
Skyline Properties
133 Replies
- Member since 2021 · 54 posts · 50 votes5y
@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
- Member since 2021 · 54 posts · 50 votes5y
@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?
- Member since 2021 · 54 posts · 50 votes5y
@Sandra Regnell, very helpful, thank you for this
- Rental Property Investor · Columbus, OH · Member since 2014 · 148 posts · 177 votes5y
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........
- Developer · Houston TX · Member since 2018 · 423 posts · 400 votes5y
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
- Member since 2021 · 54 posts · 50 votes5y
@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 - Rental Property Investor · Dayton, OH · Member since 2019 · 16 posts · 15 votes5y
@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
- Member since 2021 · 54 posts · 50 votes5y
@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. :) - Member since 2021 · 54 posts · 50 votes5y
@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
- Member since 2021 · 54 posts · 50 votes5y
@Sterling S., ok I have to ask.....how the hell did you get 10 doors in 2 years. I have to know this, because this is much more aggressive that I have ever imagine. Could you share how this is possible. I would really love to know
- Member since 2021 · 54 posts · 50 votes5y
@Sterling S., just read your multifamily, I was thinking about buying those but was not 100% sure. Did you have a price cap on the 4-unit strusture that you would not go over?
- Member since 2021 · 54 posts · 50 votes5y
@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
- Rental Property Investor · Dayton, OH · Member since 2019 · 16 posts · 15 votes5y
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.
- Rental Property Investor · Dayton, OH · Member since 2019 · 16 posts · 15 votes5y
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..
- Rental Property Investor · Columbus, OH · Member since 2014 · 148 posts · 177 votes5y
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 interactionsNo 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.
- Member since 2021 · 54 posts · 50 votes5y
@Sterling S., great story, just out of this world fanstatic. thanks for sharing this
- Member since 2021 · 54 posts · 50 votes5y
@Joshua Myers, oh trust me, your words were more than helpful in the other paragraphs. Must appreciated.
- Investor · Severna Park, MD · Member since 2016 · 32 posts · 39 votes5y
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.
- Member since 2021 · 54 posts · 50 votes5y
@Raju V., ok, this is helpful and very much understood. Much appreciated
- Dover, NH · Member since 2021 · 18 posts · 2 votes5y
@John Underwood hi John, would you mind sharing a bit more about owning a property with your Roth? I’d like to explore this route. Thank you!
- 5yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
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....
- Member since 2021 · 54 posts · 50 votes5y
@Bruce Woodruff, yes bruce, we hear you. Keep them coming. I am done engaging.
- Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes5y
@Luciano A. I have acquired property for cash and through financing. If you are focusing on class D properties, neither one reduces risks over the other. People keep saying this but out of my entire portfolio, only one person stopped paying through the pandemic. For most I associate with this has not be a substantial problem. Even if more did default, I have options because I didn't liquidate my cash to get them and the mortgages may be only $200. If you know what you are doing and how to buy, you apply a low degree of financing to the property and still have decent cash flow at the same time. So many feel they have done something amazing by dropping 30k on a row house but don't even consider the yield. They may be be getting 5% (or much less) on that money but are so excited to see hundreds coming in it never occurs to them. So they dumped all their cash in an asset that probably wont be rented all the time. After accounting for time, maintenance, vacancy, turnover and chaos for a sub par return, they don't realize they could get more in a mutual fund with less headache. In financing, I can consistently buy property after property with other people's money; get a great return for the little bit I have invested, then have my tenants paying down my financing, building my equity. Those who dropped 100k of their own money on 5 properties may now be all tapped out and getting weak returns. Doing it the other way, I can get fat returns and acquire 20 properties in the same time frame while still having tons of liquid cash available. Look, I have done it both ways and it just depends on the deal, but declaring one was is much safer or superior to the other is not always accurate. Many prove that wrong daily! It all depends on the deal and your ability to chose the right one!
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