Investor · Vienna, VA · Member since 2015 · 25 posts · 4 votes
Hi folks I have the opportunity to pick up a couple turnkey rehabs - two 3BR units in a building side by side. They are near the intersection of Denison Street and Gwynns Falls Pkwy. Any opinions on that area for both rental and resale appeal? I am a buy and hold rental investor in Baltimore City but I dont know the local neighborhoods that well as I live out of town. I rent my units section 8 - but I like to buy in areas that have a reasonable percentage of owner-occupiers and that will have resale appeal some day to owner-occupiers as well.
This is a C- neighborhood. Certainly not a resale area. If your turnkey is lead free, rented for $1000 month and your purchase price is less than $50,000 it is OK. Anything more and you are overpaying. You can certainly do better in terms of location and price.
I'm definitely not an expert in the area, but I drive through it pretty frequently on my way to work. It's pretty busy, and the road quality isn't great (seems to be the case for a large part of Baltimore City). However, it doesn't look too run-down, implying that there are some owner-occupiers keeping the properties looking OK. To be clear, it's definitely a low-income neighborhood, but perhaps not too neglected.
And then for my own edification...what is a turnkey rehab? Those two words seem like they are the opposite to me. Turnkey = ready to rent or sell. Rehab = needs to be fixed. Right?
@Lisa S. - What I mean is that these 2 props are being rehabbed by a builder who will then sell them to investors as turnkey rentals. I have bought all my rentals in Baltimore this way so far since I work full time in IT and dont have the time to do the rehabs myself.
@Jeffrey Goers It has been a while since i looked there closely but I like Gwynns falls Pkwy. I would not be as excited about Dennison. As I recall headed NW or SW of that intersection it goes downhill. Headed SE or NE of that intersection it get pretty decent.
Be aware of the "Greater Fool Theory" and be careful of real estate that is packaged this way - the seller is going to do well - I am sure - especially if you intend to pay cash for these properties.
We run a little Investors School in Baltimore - teach negotiating and investing making offers as well as tenant management -
Baltimore is also known as Small-ta-more - word gets around quickly if someone is taken advantage -
We have BLACK LIST on the bulletin board at our facilities - we put names on that list who have taken advantage of our members - title companies - lawyers - contractors and so called investors and wholesalers -
Be careful with whom you do business with in the little big town of Baltimore
I can't publish this list here - but be glad to read it to you -
If you need some Pro-Bono advice - let me know
That neighborhood you mentioned - values vary from block to block - not sure if houses will appreciate much there -
Hi @Ned Carey thanks for the info. @Account Closed thanks also for the info - and I would certainly be interested in hearing about who to avoid in Baltimore city. I assume this forum has a way to private message - I will try and figure it out an send you a note.
This is a C- neighborhood. Certainly not a resale area. If your turnkey is lead free, rented for $1000 month and your purchase price is less than $50,000 it is OK. Anything more and you are overpaying. You can certainly do better in terms of location and price.
You absolutely can. But you are missing the point. It's purchase price and location that matter in Baltimore. The cost of the finished product plays into it but it is down the line in terms of importance. The turnkey companies, for the most part, buy cheap properties in relatively bad neighborhoods. They buy a house for $10,000 to $20,000 and put $40,000 into it to make it nice. They try to sell it to an Investor for $80,000-$90,000 (if not more) based on what a tenant is paying (say $1200 month). The point is that house, even in its present rehabbed condition, in that neighborhood would only sell retail to a homeowner for $50,000-$60,000 based on other houses that have sold nearby. Why do you think there has been a dramatic rise in turnkey providers the last few years? They follow the above scenario and make the numbers appealing to out of area buyers. I am hesitant to say they take advantage of Buyers because the rental numbers can work, but the Sellers are pocketing profits on properties that they could not sell to anyone but an Investor.
P.S: I just did a gut rehab in 21213 and I am lead free and done at $58,000 with new CAC.
@Rich Baer Hey Rich I agree with your thoughts regarding purchasing 'turn key' homes to rent. It certainly can work but seems like there is always a stronger value add for those who have the capability to either a) find a reliable GC who is aligned with your mission and can get the work needed completed fairly and quickly, or b) get your hands a little dirty.
A partner and I were in 21213 last Monday looking at an auction property. It ended up selling well over what we could pay but there are a few parts of 21213 that I am very curious in for buy and hold. Regarding your gut rehab in this area I would love to hear the details on the work you accomplished for $58k and the economics of your deal (if you are willing to share)!
I bought a house on Chesterfield Avenue that was in disrepair for $16,000. I put $40,000 into the rehab including making the house lead free. Getting ready to rent now for $1125 per month. The neighbors are very happy too. Feel free to PM me or call me for further details or if you want additional insights.
@Rich Baer and @Travis Lauchman thanks for the feedback. You have me wondering now. These units would be in the 85K range fully finished, inspected, and with a section 8 lease in place in the 1300 to 1400 range. It certainly works for positive cash flow at that price, but if I could only sell the place retail for 60K then I have lost the equity I put into the deal.
@Jeffrey Goers You are not buying the property to resell for equity.. You are buying for Cash Flow or Return on investment. Say you buy for $75k and are netting $1,000 after all expenses. That is a 16% return.. Now let's say you get a mortgage for 4% putting down $10k. You are now getting positive cash flow and a return in the 20% to 30% on your $10k investment you have into the property.
@rich
@Rich Baer I have several Rentals in the same area $1,125 seems a bit low unless it's only a 2 bedroom. Are you renting section 8 or market rent? Also are you fully lead Free? or just the interiors?
@Jeffrey Goers Most of these rehabs are not Full Gut rehabs. They are fixing any systems that are not operating and putting a nice front/finish on anything you can see. Doing this cost me about $30,000. But I am a contractor so I'm not paying the G.C. markup. (Usually 25-30%) but to answer your question yes. I can do a gut rehab for $40k- $45k assuming nothing structural on a 3 bedroom rowhouse.
There are several difficult parts to breaking into the Baltimore rental market.
1. Finding a property that is a good price.
2. Rehabbing the property
3. Finding a good tenant
4. Managing the property.
While I would never buy from a "Turn Key" rental company they are adding value by taking care of the 3 most difficult steps in the process, So I can't knock them for making a profit by doing it. In most areas of the country a real estate investor can not buy a rental property and get a 10% return on your investment anymore. Many out of state investors are happy making a 10% return. I personally won't buy anything in the city unless my return is 20% but I do all the value add myself.
All my properties are lead free inside and out. As far as rent goes, $1125 is not low. These are lower income people in that area. I offer them an above average home at a fair rental price. I could try to rent it for $1400 but it would strap my tenant and make it more difficult to rent. Also the tenants want to stay. The market rent for a good tenant who can afford to pay over the long term in this area is $1100 plus or minus $100.
Agree with @Rich Baer on all points. Both my units are lead-free, wouldn't have it any other way in Baltimore City. I would also think of if you're going to use BRRR on these properties. I've done it twice now and the last one was by the skin of my teeth that it went through because of the marginal neighborhood. I plan on holding onto these properties forever but I wanted to leverage them to (1) obtain more rentals and (2) do that leverage in a way that if for some crazy reason I do need to offload them in the future they can sell to an investor for 55K or less and I break even as a worst cast scenario. My first rental I GC'd the whole rehab myself and it was basically a full gut, though the walls were plaster so we didn't demo them, we trenched everything and made huge holes everywhere and then laminated over it. But everything in the house was new. It was a huge learning experience and yes, I went over budget but I because I bought the house so cheaply I could "afford" that lesson, so to speak.
It can be done where you can be all in for under 55 or 60K and renting at $1200 and up.
They buy a house for $10,000 to $20,000 and put $40,000 into it to make it nice. They try to sell it to an Investor for $80,000-$90,000 (if not more) based on what a tenant is paying (say $1200 month). The point is that house, even in its present rehabbed condition, in that neighborhood would only sell retail to a homeowner for $50,000-$60,000 based on other houses that have sold nearby. Why do you think there has been a dramatic rise in turnkey providers the last few years? They follow the above scenario and make the numbers appealing to out of area buyers. I am hesitant to say they take advantage of Buyers because the rental numbers can work, but the Sellers are pocketing profits on properties that they could not sell to anyone but an Investor.
Exactly. This comes from the turnkey theories that you are buying a cashflow. So if I am able to pull $900/month cashflow from a property after management and other expenses, I should (at at 10% CAP rate) be willing to pay 90K for it depending on the rating of the neighborhood. Yet I have a house in a similar neighborhood, pulling $900/mo in rent that would never sell locally for more than $50K.But the out of town investor doesn't know that. They just know to buy a cashflow of $900/mo they would have to spend 90-120K in their local market.
Not saying OPs partner is taking advantage (I don't know them or the numbers of this actual deal); just saying do your homework as much as possible - especially when buying out of town.
Thanks for all the feedback. I ended up passing on these 2 properties. After looking at the area a 2nd time I was not comfortable with the number of boardups in the area. Also there were several huge trees right alongside the property (leaning towards it) that looked like a huge future expense if one of them falls.
Jeff...dont know if you know this or not so I will share that if you plan to rent section 8 you cannot have a boardup on one or both sides of your property
@Jeffrey Goers Hi Jeffrey. I took a Baltimore REIA course and the presenter spoke about successfully renting to section 8 tenants. Her advice was that it's important to have tip top paperwork when it comes to doing business with section 8 tenants. This is something I've been considering. What has been your experience so far?