We like many investors LOVE flipping deals for the BIG checks or wholesaling deals for the FAST checks but I can honestly tell you the deals that I most get PUMPED about right now are Buy & Hold deals! Most gurus don't talk about them much and most investors look to it as the last thing to do with their money but I can honestly tell you that if you plan on being around real estate beyond this current BOOM cycle, you should consider the merits of having more rental units. The good ole days of tenants, toilets and taxes have become obsolete for savvy investors who now leverage systems, property managers and good home warranty's with deductibles to be paid by the renter for most repairs to minimize the management headaches!
Ideally you want what we call a Bread & Butter property located in a solid community where rents (For Houston) range from $1000 to $1300 a month with pretty good schools and close proximity to the freeways, downtown and the working epicenters around the city. Sometimes you come across deals that are in great condition, require only lipstick and a little foundation work (all houses in Houston at some point need it) and are ready to go like this one. We paid more than what we would normally pay but the house is nicer than most we buy...
ALL IN on this deal will be about $88k or so and we expect rent to be $1275 per month with about $45k in equity... a nice base hit that deal that will appreciate handsomely over the next 7-10 years (our projected hold period) and will provide a stable cash flow over that time frame! The average person could easily buy 6-10 properties similar to this in most markets in the US and build a substantial wealth generator for themselves without being a guru, quitting your job or having to figure out some complex strategy for doing real estate!
Have a great day closing profitable deals guys & gals...
Tyron in Houston!
Many people are buying rental properties every day. They may not be the funnest type of investing because its slow to grow but they provide income for years and years.
I have a few TURN-KEY deals ready to go right now!!
You're speaking to the choir @Tyron McDaniel :-)
I have been doing this for about 9 years or so now and have done nothing but buy and hold. Before I started, I used to listen to a ton of podcasts out there. And one of the things that always came up on one of the shows was what their biggest regret was. Common theme of that answer tended to be "My biggest regret was ever selling anything".
So I've taken that to heart and now have 64 rentals. Most of which are right in that sweet spot of that deal you took down in your post above. I'm in that 140k to 160k ARV that I was getting at about 70% ALL IN.
That being said, the one thing I think you may be a bit off on is how easy you make it sound to pick up deals like that. It is extremely location dependent. From Jan 2015 thru the end of 2016 I was able to pick up 31 of my 64 houses. I was buying 1 house a month or more. Then, starting in January of this year, everything just dried up. The sub 100k listings completely disappeared. You were basically seeing listings for 100k to 120k or more that needed 20k to 30k in rehab and were only worth 150k to 160k. 85% LTV was about the best I was seeing.
I got lucky with one just last month and got it for about 75% LTV all in so had to come out of pocket a bit just to get that one. And I was thankful I got it.
But the people in my areas and the ones I know that are a few counties further out are all feeling the same pinch. Just nothing out there. Could you pull off one deal a year right now? Probably so. But even that is pushing it right now.
It'll be interesting to see what this winter brings. Before this year, Nov thru Feb were always great months. Now I don't know if that will be true anymore.
So while I wholeheartedly agree with your post on buy and hold, I have to say that I think the ease at which most people will be able to find deals like that is far more overstated in your post than maybe you realize - at least in terms of people in other locations.
@Mike H. Are you financing all of your deals? Such a large amount of growth in such a short amount of time is quite the accomplishment. Well done!
@Alecia Ashby I'm assuming when you ask if I'm financing all of my deals, the alternative is if I'm paying all cash?
The answer, unfortunately, is that yes, I am financing every single one of my purchases. And there have been some drawbacks/obstacles (i.e. lack of cash) to the growth as you'd expect. But ultimately, I have created a ton of wealth (at least in my mind) and as time goes on, that wealth can grow to be generational type wealth that I would never have been able to create any other way but thru real estate.
Believe it or not, my initial "pie in the sky"/dream goal was to get 1 house a year over 10 years. I now have 64 houses. Who knew someone like me could do something like that? :-)
But the inventory shortage has finally hit my areas too in terms of the low end stuff (150k to 160k houses that I was able to buy for 80k to 95k and put in 15k to 25k) completely disappearing. While I bought 40 houses from 2014 to 2016, I have only been able to pick up one house this entire year. Part of that was that I really just wanted to stabilize the portfolio and to stop burning through all my rental income and then some to grow. But a bigger part was really the new price points.
At the end of the day, if you aren't doing buy and hold, you're just getting a job. The only way to build true wealth is thru buy and hold and taking advantage of all the ways you make money on real estate.
1) Equity capture when you buy
2) Rental income
3) Principal paydown
The thing I like most with buy and hold is that it pays you some money today and it pays you even more money tomorrow.
- Rents go up.
- Principal paydown amount goes up as loan amount goes down.
- Appreciation goes up (i.e. 3% of 150k is 4,500. in 10 years at 200k, 3% of 200k is 6k).
You don't get that buying stocks.
@Mike H. I'm a newly aspiring REI looking for my first deal and I would like to ask you some questions if you have the time. Are you finding these homes off market or on MLS? Are you targeting SFH or MFH? I've been looking on MLS and I'm not finding a lot worth pursuing as you stated. Most opportunities that I'm seeing are in more smaller towns which are outside my drive-able range (unless I take a half day). Are you using a property manager at this stage or are you self managing?How are you finding your rehab costs in your area to average?
All my stuff over the 9 or so years has been thru mls except one. My realtor got me a deal on a house last year from someone whose relative had passed and they wanted to sell it fast no contingencies.
But I've gotten them via hud sales, auction.com, homepath, hubzu, etc.
I am in smaller towns and I do believe thats a big factor these days. You may want to consider dealing with the drive. Better to grab a handful of deals and pickup some equity by dealing with the drive for a little bit.
Then in 5 or 6 years, you can turn around and sell them and move that equity into rentals closer to you.
I've got some about 35 mins away. Long term, thats the plan for those. But for now, I'll keep gaining equity as they appreciate and my loans get paid down. The more I gain there, the easier it will be to buy down a deal here by me later on.
In terms of Property Management, I still self manage. Turnover is a bit of a headache sometimes. But I don't do any of the repair work myself so that really makes property management easy. Ultimately, you're assessing houses that become vacant and hiring someone to fix the things you want done. And then hiring a cleaning person to hit it. Painting. And done.
As repairs come up where tenants are there, I don't go to the houses to look. I ask what the problem is and send out the right contractor to deal with it (i.e. electrician, plumber, carpenter, etc).
Thats why picking up some houses further out isn't as big a deal as you'd think. I'd say you could go 45 mins out and it wouldn't be terrible. If you're in naperville, you definitely have some areas around there that might have some opportunities. Dekalb is one I even looked at a few years back because of the college there. But you're not that far from places like romeoville, aurora, oswego, etc. Even certain areas in Joliet maybe if they're in the plainfield school district.
I don't know those numbers very well these days but I'd be surprised if you couldn't find a decent niche in there. I would stay away from the cash flow only houses though. Find ones in decent areas with decent schools that will appreciate and rents will go up over the long run. Thats where you generate the most potential for wealth in my mind anyway.
I think of Buy/holds vs. flips as the tortoise and the hare... everyone looks at the flippers because it's shiny, the numbers are ideally big, and it's exciting because it's fast-- wow, you made X in 3 months?! .... but who really wins?! the slow and steady buy/hold IMO! I guess it all depends on your strategy, location, etc... but I'm all about buy/holds!!!!
We're closing on our next property on the 13th, paying $17K and it should be appraising for around 60K when it's all done! It's fun to see the equity grow! We look for solid base hits, sometimes you get home runs, but to win the game you need to get on base, glad you use the analogy too! The house you picked looks nice, it has good curb appeal and will be a steady player in your lineup! Congrats!!!
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