Fellows in Louisville, KY. Do you invest in the West End?

Yes?

No?

Why?

Any advice?

We are about to close on our first SFH, located on Hale Avenue, and I would like to get a sense about the general thinking regarding that area of the city.

Do you invest in the West End?

NO!

Why?

Because in this city there are much much better places to invest. The west end has little to no room for appreciation, rent increases or exit strategy. Just a bad area. You have to buy CHEAP CHEAP to make it worth your time. You can make money in the west end but I would rather make money in areas with fewer headaches. Just me...

Any advice?

Stay away from the west end and buy in other areas. If you want lower price homes I would look in the 40214 area. Good prices, nice pockets of good areas and less headache. I am buying in this area now. I am finding deals like 2-3 bedroom 1 bath homes for $15k - $20k and renting them for $700 - $750. 

Thanks @Jason James  I really appreciate your input. I agree with you mostly, the reason I'm asking is because I want to compare my ideas with others. What do you think about 40215 and the surroundings of Churchill Downs?

@Pavel Reyes Valdes  No problem...

I buy in that area as well but again you have to be very picky... Some of the streets are really really nice for the area but others are all bad! I have a few properties in that area and they rent for $600 - $650 for 2 bedrooms. Most of the nicer areas are where home owners have lived for years. All in all good rental area but there are a lot of rentals in the area so you have to keep that in mind. Hope that helps. 

I don't, at the moment but I am planning on buying in certain areas in the west end or areas like Jason mentioned as part of my REI strategy. From what I gather after talking to several people at KREIA is there are great deals with great cash flow to be made but the main thing is buy in the right area because there are some areas that you do not want to be in, screen well.

I like the numbers Jason mentioned, not as good as some I have heard in the west end, but close enough to be good if the area is better.

All in all I can see a lot of value in buying lower end homes for the right price and right location if they are managed well it can be very profitable. I have talked to several people getting over 2% rents that own ranging from 30 to 100 units in the area.

Lower end high rent homes are more for the cash flow, they may not appreciate but the cash flow is great and should be considered in the long term and contrasted with your goals. Even if they don't see a lot of appreciation your initial investment should be safe if you keep the house in decent shape. So 5 years from now a house I bought and fixed for 40k may only be worth 42k but what about the extra cash flow over the 5 year period.

A house that appreciates at a much higher rate probably won't cash flow as well.

Where I am at now personally, cash flow is the name of the game. Later I will start moving into ok cash flow with greater appreciation once my cash flow needs are met.

@Michael J.   I have a similar approach regarding some areas in the West End, although I'm not an expert. We are buying a house for 30k. It's a 3BR 1Bath with new roof and new furnace and AC. It is in decent shape with a huge lot on the side that could be turned into a new construction for rental property. I know that you have to be careful and do a good analysis before going in. Our main goal right now is cash flow and this property was rented before for $750 with Section 8. 

Originally posted by @Pavel Reyes Valdes :

@Michael J.   I have a similar approach regarding some areas in the West End, although I'm not an expert. We are buying a house for 30k. It's a 3BR 1Bath with new roof and new furnace and AC. It is in decent shape with a huge lot on the side that could be turned into a new construction for rental property. I know that you have to be careful and do a good analysis before going in. Our main goal right now is cash flow and this property was rented before for $750 with Section 8. 

Hmm...is it CURRENTLY rented Sec 8 for $750?  Just because it was in the past doesn't really mean anything.  You've got to do your own research and make sure the property you're buying TODAY will rent for what you want/need to rent it for.  You should never buy a property based on the previous owners best month/year!

I'd stay away from the west end - you can get good cashflow, but you better not have anything else to do with your time. Instead of buying a SFR for $30K all cash, why not leverage a 3+ unit multi in a much better area and still net a solid cashflow while paying down a loan?

@Michael Seeker  "but you better not have anything else to do with your time."

What you said is my exact point... Well said. 

What @Jason James  said, there are areas of the city that can appreciate better, and if you want to sell a portfolio eventually, that area will not generate interest that other areas of the city will. That area is very tempting for investors since you can get properties for $5k, $10K and up good for cash flow, but the difficulties in maintenance, repairs and rent collection would not be enough for me to invest there. You can spend a little more and go closer to UofL or for that matter there are pockets in the city all over that if you spend a little more, you can get a higher rent and possible appreciation.  

Hi @Michael Seeker  thanks for all your comments.

I forgot to say, we are not buying all cash. Seller is financing the deal. We are putting 7k down and she is carriying the note on a 20 year term with 5 year baloon at 5.5 interest. We think we can refinance in a year or two, because I presented the deal to a local bank and they were willing to loan the money, but their terms were less appealing that the seller's and requested a higher downpayment. 

All your ideas are really valuable and I'm certainly taking that into consideration for our strategy. I expect to post our progress here.

@Pavel Reyes Valdes  not sure which bank you went to, River City Bank offers 2 loan products, one for flips and one for buy and hold, they do work with investors. If you haven't reached out to them yet you should check them out. 

Originally posted by @Pavel Reyes Valdes :

Seller is financing the deal.

Well, just be prepared to do the same to unload the property at some point...as others mentioned, you'll be looking at selling in the $5-$15K range or selling on terms if/when you decide to unload it.  Even with a buy-and-hold property you should consider your exit options.

@Michael Seeker  "Even with a buy-and-hold property you should consider your exit options."

As I mentioned above... Once again well said Michael..

You "WILL" one day want to unload the headache properties. I think its ok to build a good cash flow portfolio of lower priced homes and use them as a stepping stone but you "MUST" have an exit plan. Even if that exit plan is to buy more lower priced homes and hire a PM. You just have to always think a few steps ahead. 

As I said before, you all have good points and I really appreciate your opinions. @Steve Osowicz  River City was the bank I talked to regarding the financing, but they wanted the whole interest and amortization paid back in 5 years instead of the regular 15 years they usually do, because of our lack of experience. That would bring my monthly payments to the roof with no cash flow and no money for other potential expenses. 

@Michael Seeker  one of my exit estrategies would be seller financing to other investor or a retail buyer. That way I can still have income from the property during the amortization period and all other headaches would be on the buyer's side. Honestly, I don't see the market taking such a huge depreciation.

Another big thing I picked up is paying all cash or have really good terms to maximize cash flow, more cash flow means you can allocate more towards hiring out common tasks and repairs. Along with a good management system and it will help minimize the time you have to spend managing the properties.

My current units are much newer nice middle class units and the same applies no matter where they are but I think it is more imperative to have a good system going and high enough rents to hire out most tasks and still have nice cash flow for lower end units.

A lot of LL get burned out with only a handful of units because they do most of the work themselves, in the grand scheme of things, looking long term, I would rather hire out most tasks and work on running a better business. Anyone can only personally put up with so many dirty house trash outs or clogged toilets before they start burning out.

So if you did a full am over 5 years, your payment (without taxes and insurance) would be around $488.

If you sold with owner financing for 45k 7k down you would have nothing left n the deal.  If you sold with a 10 year am at 9.99% you would collect $501.96, buyer would be responsible for all expenses and still probably paying less then rent.

After paying a servicer you would be short ~$5 a month for the first 5 years then have 60 payments at the back end with almost $0 invested. 501.96 x 60 pmts = $31,117.60 (Less $18.50 a month for servicing).  

Note you would still likely have some cash in the deal due to costs of originating the loan and marketing the house.