New to REI & new to Portland - Looking for strategy input.
Hello all. I will be relocating to Portland in April, and would like to start my real estate investment portfolio. The more research I do, the more questions arise. I'd like to introduce myself and tap into your knowledge base...sorry for the wall of text.
About me: Late 30's, respectable salary (125k) in a very secure field, no major capital reserves that I plan on tapping into, FHA 203(k) likely, maximum total mortgage 450k, prefer buy & hold for an extended time, prefer properties in the Portland area (for now), I have a construction background and plan on doing as much contractor work as financially responsible, and I intend to stay in Portland for the foreseeable future.
As far as I can tell, Portland is not the ideal place to make hoards of cash in real estate at the moment. However, I plan on being here for quite some time and would prefer to be hands-on with my property(ies). I'd love to create a solid portfolio of cash-flowing rentals that I can hold for 20-30 years.
Being that a 203(k) is my funding source and I will be required to live in one unit for one year I initially thought to purchase a larger property zoned at least r3 that has an existing structure and is in the low-mid 200's. Using the rehab loan clean up the existing structure, and utilizing a portion of the foundation, add a modular or steel duplex over a basement thereby achieving 4 units and hopefully all in under 450k. If zoning allows more units, I would add smaller detached modular / steel units as fast as cash flow allows. However, I recently found out that 3+ units in Portland are subject to commercial building code which can be much more expensive than residential.
The pros I see are only one property to finance/develop/maintain/manage and the potential for healthy cash-flow. The con is that it's a massive undertaking, I have zero experience in this field, and I will likely max out my budget on this property and won't be able to buy another until enough equity is built.
The other idea I had was to purchase smaller properties that are sub 100k and build a smaller (1200-1400sf) SFR modular or steel building and an ADU, or build over a basement (if zoning allows MF) and ideally all in at around 150k. Live in one unit for a year, rent the other, and repeat the whole process every year.
Pros: Very low initial outlay, and a very manageable scale. Cons: more properties to maintain/manage, land prices will only to continue to go up as eligible properties become more and more scarce and I will have to move once a year.
The third option would be to buy a preexisting 4 unit, but they don't appear to be priced anywhere near 450k.
Being that I have not arrived in Portland yet and haven't been able to drill down solid numbers in order to put pencil to paper, my projections may be way off.
I'm not scared to work and I love a challenge. I like to think outside the box (for better or worse), and look for clever solutions to unique problems. With that said, I want to develop a solid strategy to ensure my investment is as wise and secure as possible.
Any guidance you can provide would be greatly appreciated!
Hey Travis,
Welcome (almost) to Portland. I’ve got a lot of gripes about my city, but at the same time I love her!! It’s definitely a complicated relationship :)
It seems like you’ve done some research on strategy, but I’ve got to tell you (and your post made it sound like you probably know this) that your pricing is way off. The ideas of converting space into more useable space is right on, but your budget doesn’t match. Sorry man!
As an example, there is a duplex on the market that is unfinished and still needs work in a rougher neighborhood for $345,000. Each side is 500 sq. ft. and the whole floor is angled and buckling. That’s our pricing reality.There is hope though! Your budget is good for other properties in Portland. I think you'd be better off looking for a SFR with an eye to convert a basement or add an exterior ADU to create equity and income. You can create long term value, equity, and cash-flow in Portland, it's just not easy.
I’d spend your time until you move doing what you already are: researching codes and conceots, networking, and learning about the industry.
Mathew
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Broker OR (#201206758)
- Keller Williams Realty Portland Central
Thanks Matthew, I appreciate the quick response and honesty!
Like I said, looking at listings I was not impressed with the high numbers that's why I was leaning towards new construction. However, my searches are not turning up results like the duplex you mentioned...unless I'm missing something really important here that I don't know about.
I mean, this one seems reasonable, no?
Personally, I’d avoid that listing because of its proximity to the max line at that end of town. There are parts of east Portland/Gresham that are fine, but I’m not a fan of that area.
I don’t want to post a link to the tiny-duplex listing I mentioned because I don’t want it to look like I’m attacking anyone or belittling another agent/owner/listing. It’s there though.
If you filter down to under 400k there are some duplexes that would work. There’s one on N. Vancouver that looks promising (I haven’t actually been by it). When you get to town you will be able to find property to buy and force equity. There are opportunities here!
If you’re talking new construction, the trouble you may run into is our restrictive building codes and exorbitant prices for permits/fees. It’s definitely not impossible, but it’s daunting.
Rather than trying to lift a duplex and add a basement, or build ground up, I'd focus on finding a duplex, updating it, and maximizing rents. Or adding an ADU to a SFR. Those will both get you equity, cash, and experience in our market!
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Broker OR (#201206758)
- Keller Williams Realty Portland Central
Travis,
Don't get discouraged, there are deals out there. I have run across 4 plexes and 3 plexes for under $400k from wholesalers. Until you get here and network and can look yourself it's going to be hard. I agree with Matthew, that area in Gresham is pretty rough. I also like the idea of a SFR and adding an ADU.
Travis,
Why is your budget capped at 450k? If it's cash, I'd recommend saving up a but more before jumping in. Otherwise, I don't see why you wouldn't be qualified for a lot more if you're looking at 3-4 unit building. FHA loan limits increase per unit, and they count rental income towards your DTI ratio.
I HIGHLY recommend NOT doing all the building additions and such that you were mentioning ad your first deal. Instead, if you're very handy in construction work, I'd find a bombed out 4 plex and rehab each unit as time and money allows. If you do all the work yourself, you can do a full remodel for about 5k per unit.
Id also highly recommend not investing in Portland as a landlord. They are hammering landlords more and more lately. Instead, go out to suburbs or secondary suburbs. Within the last 12 months, I've picked up a 4 plex for 329k and 8 plex for 640k in suburbs where I'm still getting $950 for 1 beds and $1,100 for 2 beds. Deals are out there but way harder to find than "normal markets".
I'm opinionated I know, only because of felt a lot of pain and a lot of gain through the process of doing exactly what you intend to, including rehabbing 10+ units by myself. I'm happy to share much more over the phone including contacts I've built. Message me if you'd like.
Welcome to the area and good luck!
Jason
Thanks everyone for the great replies.
Matthew & Daniel - I think you're right, the SFR & ADU may be much more manageable in the beginning. I need to get out there and hit the street so I can get a better feel for the area.
Jason - I set my limit at 450k so in the event that I have 0% occupancy in any/all units, I can still float the mortgage without tapping myself out. I'm not an investor and don't want to take big risk, especially with my first deal. I'm trying to be conservative while still setting myself up for potential earnings. Additionally, like you mentioned, I'd like to be able to float the mortgage myself in the event I find a trashed 4-plex and rehab the units myself at a pace in which my full time job allows.
When you say suburbs or secondary suburbs, you mean outside of the Portland city limits, correct? Is there any direction I should be focusing on? What areas are "up and coming"?
Thanks again to everyone, I appreciate all the assistance. I will continue to do my research until I get out there.
Great responses from Daniel and Jason!
Jason, nice work picking those properties up looking towards the suburbs! In response to Travis’s question about which direction, what are you seeing as the future pushes in our area? I think they’ll be some growth in east Portland but am much more excited about Oregon City (as Milwaukie continues to boom, not to mention the revitalization of downtown and the-hopefully-future Willamette Falls project). I’m also more inclined towards Tigard, Tualatin, Wilsonville than I am Beaverton, Aloha, Hillsboro, North Plains. Vancouver has got great potential. What say you?
I agree with Daniel, don’t get discouraged!! There’s lots of potential in our area! Look for a win to develop a track record and go from there. I’m not a baseball guy, but I’m going to try an analogy anyway! You’re going to win a lot more with singles and doubles than if you swing for the fences at every at-bat, right?
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Broker OR (#201206758)
- Keller Williams Realty Portland Central
Hello @Travis Jones,
I am always excited to see more investors moving to Portland! Although I do agree that looking for a SFR may be your best option if you want to be in inner Portland I would suggest looking towards Gresham, Tigard, Tualatin, Troutdale, Happy Valley, and Clackamas for small multi families that will fit within your budget.
Although I agree with Mathew and Daniel that Gresham can be rough I think it does have great long term investment potential. There are a lot of renters in the area and with it being on the lower price range of the Portland Metro it will likely appreciate. Gresham is closer in proximity to Downtown Portland than Beaverton, it is close to the Columbia River Gorge, and reasonably close to Mt Hood. There are a lot of reasons that I think Gresham has a lot of potential.
If you are looking for a more A neighborhood then Milwaukie, Happy, Valley, and parts of Tigard/Tualatin would be your best bet.
Jacob Wathen
Travis, good that you are conservative. Its good to plan for the worst. I am personally conservative by nature, but I would think it's VERY conservative to set my price limit for a worst case scenario of continual 100% vacancy and floating the mortgage from your paycheck. I'd go with a good emergency fund for that and make sure the mortgage and expenses were paid even at 25% vacancy. That's pretty safe.
To answer your question Travis and Matthew about "suburbs", I probably used that term too liberally. Last 2 properties I bought that were in the generalPortland area was Forest Grove (suburb of the suburb I suppose). I have no desire to be a landlord in Portland due to anti-landlord legislature, outrageous tax hikes, and the trend I which both are going. Really though, I am not as driven by guessing which area is more up-and-coming. That's like splitting hairs to me for buy and hold. I make way more money by purchasing a dollar for 75 cents wherever that deal is and making sure it cash flows as opposed to guessing the hot spot that appreciates 12% next year vs 8% average (as an example). I would care about that a lot if I were pur basing land to develop and sell.
I'm not overly fond of the Portland market in general at the moment for buy and hold cash flow properties unless you find a steal of a deal. I feel like we are at the tail end of the market cycle. Last two properties I bought were in Lebanon, OR. I'm focusing on deleveraging right now, mostly for my own personal reasons and lifestyle simplification.
Welcome to the Portland area. It is an amazing place to live! @Jason Powell and @Mathew Wray have given you some really good advice and would echo the same.
I believe the best Portland Area suburb to invest in for the next 20 years is Vancouver, WA (Clark County broadly). Vancouver will reach parity with Portland and the tax incentives and high quality schools are impossible to ignore. Jobs are coming in waves...starting with the small to medium sized businesses moving across the boarder.
Feel free to reach out to me directly as I would love to help you out on a personal level.
Without having read every word of every post above, some quick thoughts:
You may want to reconsider that R3 zoning. The residential infill project is changing what can be built on individual tax lots this year. Google "map app portland" to find how zoning will change for any particular address. The RIP will not apply in any multi dwelling zones so you may be able to do more in R5 with the RIP overlay than in R3. (R1 or commercial zoning, different story.)
Second, even though all my properties are in Portland proper, I will probably be looking outside of Portland in the future. The political climate is becoming increasingly anti landlord, and I do not want to entrust my assets to the personal whims of any city counsellor. Places I would be looking for are in Milwaukie, Oregon City, Clackamas, Tigard, West Linn, and Beaverton. Google "housing state of emergency," "relocation assistance," and "security deposit reform" along with "Chloe" tacked onto any of those searches. (I'm not putting her last name here because I'm sure she has flying monkeys scouring the internet, looking for their next victim.)
Also, Beaverton is much closer to downtown Portland than is Gresham. Map it out on google and you will see. I'm surprised that more people don't move to Beaverton because the schools are better than Portland and it is literally a 10 minute drive to downtown Portland without traffic.
Anyway, look up the Residential Infill Project and its effects on our zoning. Then look up "Better Housing by Design," the city's multi-dwelling zone sister project to the RIP.
I'm not a fan of either of these projects because they literally halve the allowable FAR in both the single and multi dwelling zones, which is the opposite of what Portland leaders should be doing as 100 people immigrate to the city each day.