@Bruce Woodruff , yes bruce, we hear you. Keep them coming. I am done engaging.
@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!
@Kiel Martin I just looked at a HUD from a Baltimore county home I purchased in 2020. Title and escrow fees were 1500 which includes title insurance. That doesn't include the lenders policy since you aren't financing. There is a 2% transfer tax in Baltimore city I believe so you will want to take that onto your closing costs. Also miscellaneous recording fees, homeowners insurance and 1 year property tax, although if you are paying cash you may not need to pay that year up front, that's typically a requirement of the lender. So think for a 50k house you are probably in the neighborhood of say $2500 not including property taxes and insurance. Hope that helps.
I don't disagree with you as I too have financing for deals but having paid off properties has its benefits. You can never get foreclosed on by a bank on a paid-off property. But as you pointed out it depends on the deal and the returns. So I am not advocating buy-in all-cash is the only way to reduce risk but putting 5% down is much risker than putting 20-30%.
I hear people talking about buying a property with a $150 positive cash flow. I think that is riskier than buying a $30k cash property. If the market has a correction and you are over-leveraged then those 20 properties you bought can be more of a liability in the bank's eye than the person who bought 5 in all cash. I feel we are near the top but I don't have a crystal ball so I just think buying more conservatively will allow investors to ride the wave a lot easier. I know residential loans are structured differently but commercial loans can be called in before their maturity if the bank feels your property is a risk on their books.
@Kiel Martin original post was not asking if he should buy in cash or get financing. People jumped on him saying he is buying in the ghetto and giving their opinion because most of us don't see $30k deals in our current market. They advised him to use that money to put on a house in a better area. But I feel if you can perfect D class management of properties you can be very successful.
I am not saying buying all cash is the only way to go. We each have our own risk tolerance. When I was first starting out I was willing to do 100% financing if I could get it but now I prefer a 60-65% LTV. I get better terms from banks because they see me as being less of a risk. If the market turns and prices do come down I have enough equity to ride the wave. I said earlier I prefer 60-65% but I am doing a deal worth $11M and I'm trying to leverage a loan so that I can bring just 25%. Using leverage is a great tool but many don't use it correctly. The good times won't always be rolling in the good times.
you would get better value and cash on cash return and lower risk in better neighborhood if you would put 25% down and get a bigger property. Check with investor friendly brokerage Leader1, ask for Kevin Roller.
@Kiel Martin Maryland transfer taxes and closing costs will be higher. Connect with local attorney or title company and expect at ghat price range your sellers may not be able to contribute much. Good luck @kiel
Interesting that most of these comments are from individuals who do not invest in Baltimore City. I currently invest in Baltimore city and if you don't know the city, you will lose your shirt. The issue with Baltimore city is that there are a lot of vacant units because out of state people would just buy properties, not fix them, or became slum lords and then lost the properties. There is a lot of redevelopment happening throughout the city as well as legislation preventing people from purchasing certain properties and not going anything with them. There are also programs in place to entice investors and homeowners to purchase the properties and fix them up.
Baltimore is block to block and most of the homes are very old rowhomes so if you purchase a property for $40,000, it will likely require at least $100,000 in repairs. Additionally, most properties listed that low right now are auctions that end up closing for double the list price. here are some examples.
So I recommend you remove your preconceptions and learn the city. You have to know which are the best neighborhoods that will give you cashflow versus the neighborhoods that will give you appreciation or both. you will need to determine your strategy for getting the properties and what you plan to do with them. do you want to flip or hold. there are some areas in Baltimore, not by the inner harbor, that will rent for over $2000 per month and those properties could cost between $75,000 and $200,000 depending on the amount of work that is needed.
And I think you should rethink that cash strategy. If you find a property that you finance with a hard money loan, rehab it and then refinance it to get all your money back then you have no cash left in the deal and can get cashflow with an infinite return. I think you should listen to more webinars and podcasts that talk about these strategies. use your cash to get the property loan and then refinance to get your money back. rinse and repeat.
Originally posted by @Kiel Martin :
@Bruce Woodruff , there are prices like that i baltimore, but there are caveats to them. If I wanted to do section 8, this could be an issue with deing with baltimore's section 8 representatives. Also, you are putting up a lot of capital and baltimore changes block by block. Comps are not something that I use, I use the concept of "Can I get a tentant to live here" with having a low vacancy. This is by using people who understands the zipcode differences, and this is a big deal to me. No point of buying a $25k house, put $15k+ in the house and cannot rent it or sell it.
So there is trust in people that I will be using and with my previous businesses that i have own, the risk is there when trusting others. So as I start this, I have to manage my risk toward those I choice to trust, because every thinks they know, and I for one know that i do not know, which keeps me learning.
The fact that you said you don't use comps tells me that you're not ready to tackle Baltimore. And honestly, Baltimore doesn't need any more "investors" trying to make a quick buck. and I don't know anywhere that you can buy a place for $25k and put in $15k and think you rent it or sell it.