My dilemma: Invest locally, San Francisco / Bay, or out of state?

57 Replies

Here's my dilemma.  I took out $200k from one of my properties and have to use it to generate more income.  I've gotten some feedback and opinions from others.  Just wanted to post it here to see what some of the professionals think.  Should I put $200k down on 16 - Midwest units which (hypothetically) may return $4000 ($250 x 16 - which is reasonable using 50% rule and real returns from users on BP) monthly cash flow immediately and hopefully continues to perform. Even if it only performed half as good $2000 monthly income, I'd even be able to accept that as the $200k is costing me $1100 month to borrow. Or, use that $200k on a SF / Bay property and get 0 or minimal monthly income, but know what the property will appreciate and in a few years and when rents go up, should return some monthly cash flow. The SF property definitely not going to return around $4000 a month anytime soon. What are your thoughts? I really appreciate what everyone has said.

@Tou V. Every one's situation is different and the decision needs to be based on what the individuals requirements is. It looks like cash flow is very important to you and you need the cash flow as soon as you buy. 

I have a question about your numbers though. You are saying 200K can buy you 16rentals. So are you talking about buying the properties for 50K or less. So you are looking at properties are 50K cost and rental price of 750 or so you have 250 cash flow after expenses and mortgage payment. Is that right? I am not sure you have read some of the posts and articles about the capex you need for these properties?. If you take out 10% vacancy, 10% repairs, 10% property management, and then property taxes and insurance. you are already at 50% expenses. You need to account for Capex after the 50%. And based on many posts if you account for 100 to 150 dollars for capex if you plan to own these rentals long term. So really how are you getting 250 dollars for profit. You need to realize that the capex is not a % of rental income. So if you buy a property in the same town for 100k and 50K your capex will be relatively same but your rents will be lower for 50K property.

I am no expert but living in the bay area it is hard to find properties locally so I have looked at some turn key options and so far I have not found any on the 50K to 80Krange that make me want to take the leap. I think there were properties available for 50K range in decent neighborhood's a couple of years ago but I don't see them now. 

I am not against investing out of state but I would stay away from lower class properties and buy A/B properties where you have a chance of appreciation that is equal to inflation. To me there is no point in buying a property that will have 0% appreciation. This means you are buying a depreciating asset (not keeping up with inflation in rent/or property value). If it was for your personal home it is a different matter.

I am no expert and pretty new myself but that is just how I see things. Good luck no matter what you choose.

@Tou V. I believe that the discussion of first tier market vs fly over markets is directed incorrectly to appreciation vs cash flow. My feeling is more of a question of barrier to entry into the REI market. All investors should be looking for both appreciation and cash flow.  If a person picks one or the other, I believe that there is a level of sophistication that is lacking in their strategy.  The amount of appreciation or cash flow maybe different for each investor and the weighting might be different, but I would hope that everybody is looking for both.  Pretty much every book you pick up on REI will highlight this point.

Obviously, the financial barrier is much higher in the Bay Area vs a mid west city.  However, the potential for appreciation is also much higher.  One the other hand, the barriers to getting clear and factual details about potential properties for purchase or the daily operations of the rentals is much harder to get from a property located in a different state.  You have to trust and lean heavily on the support team that you find/create.  I am sure that there are great established teams that can support an investor, but I always follow the saying; "trust but verify".  It is just harder to verify if I have to get on a plane to see my property vs get in my car.

No matter what anybody says, the BA is an "end goal" market.  Meaning people want to invest here, but because the barrier is so high not everybody can enter easily.  But once you are in the door, there are definite ways to get great appreciation and great cash flow.  Look for my posts about my purchases in Mountain View and Oakland to get some more details.  I have posted real purchase, refi and rent numbers.  But the cash flow part takes time and effort, it is not something that comes the month after you sign the contract.  In the fly over areas, you might get great cash flow from the get go, but you will never get the great appreciation.  

The lowest barrier of entry for your situation might be to focus on your home town or cities nearby. I know of a fellow BP member who has been successfully doing flips in Stockton, from the BA, in his spare time. You are in that city, there is no reason you could not do flips more profitably and more quickly. If you wanted to, you could do buy and hold there with similar acquisition costs and rental rates as many of the cities hundreds or even thousands of miles away, but save yourself the "turnkey" or management fees. Build up your cash further and then make the move for a BA buy and hold if that is something that you still want to do.

Don't get caught up in the hype of what "everybody else" is doing.  That could mean going to the BA or going out of state.  I suggest you focus on your "unfair advantage", which might be the fact that you are from Stockton and you have $200k available to you...

Good luck to you!

-Arlen

Originally posted by @Radhika M. :

@Tou V. Every one's situation is different and the decision needs to be based on what the individuals requirements is. It looks like cash flow is very important to you and you need the cash flow as soon as you buy. 

I have a question about your numbers though. You are saying 200K can buy you 16rentals. So are you talking about buying the properties for 50K or less. So you are looking at properties are 50K cost and rental price of 750 or so you have 250 cash flow after expenses and mortgage payment. Is that right? I am not sure you have read some of the posts and articles about the capex you need for these properties?. If you take out 10% vacancy, 10% repairs, 10% property management, and then property taxes and insurance. you are already at 50% expenses. You need to account for Capex after the 50%. And based on many posts if you account for 100 to 150 dollars for capex if you plan to own these rentals long term. So really how are you getting 250 dollars for profit. You need to realize that the capex is not a % of rental income. So if you buy a property in the same town for 100k and 50K your capex will be relatively same but your rents will be lower for 50K property.

I am no expert but living in the bay area it is hard to find properties locally so I have looked at some turn key options and so far I have not found any on the 50K to 80Krange that make me want to take the leap. I think there were properties available for 50K range in decent neighborhood's a couple of years ago but I don't see them now. 

I am not against investing out of state but I would stay away from lower class properties and buy A/B properties where you have a chance of appreciation that is equal to inflation. To me there is no point in buying a property that will have 0% appreciation. This means you are buying a depreciating asset (not keeping up with inflation in rent/or property value). If it was for your personal home it is a different matter.

I am no expert and pretty new myself but that is just how I see things. Good luck no matter what you choose.

 

@Radhika M.

Okay, that surely puts a damper on the parade. From the few investors and TK operators I've talked with they made it seem like CapEx could be taken out of the 10% for repairs. If CapEx is taken after all those charges / fees, then I'm screwed. How do they even make money? Most calculations I've seen, even from investors who has owned some TK looks like this:

Purchase price $50,000

Down = $12,500 (25%)

Mortgage = $37500 @ 5% = $201 month

Rent = $850 month

---------------------

Taxex =       $70

Insurance = $60

PM =           $85

Vacancy =   $85

Repairs  =   $85

Mortgage = $201

Total expense = $586

NOI = $264

But if you're saying I have to put in CapEx, let's estimate 10%.  Then NOI = $179.  Ouch!!

Yes, CapEx could be more or less (roof, AC, water heater, etc.....), but that's cutting it slim.  Any TK care to elaborate?  I know some use 5% Vacancy, but 10% seems safer, and taxes / insurance will be whatever city the property is located in.  Kind of a bummer...... 

Originally posted by @Arlen Chou :

@Tou V. I believe that the discussion of first tier market vs fly over markets is directed incorrectly to appreciation vs cash flow. My feeling is more of a question of barrier to entry into the REI market. All investors should be looking for both appreciation and cash flow.  If a person picks one or the other, I believe that there is a level of sophistication that is lacking in their strategy.  The amount of appreciation or cash flow maybe different for each investor and the weighting might be different, but I would hope that everybody is looking for both.  Pretty much every book you pick up on REI will highlight this point.

Obviously, the financial barrier is much higher in the Bay Area vs a mid west city.  However, the potential for appreciation is also much higher.  One the other hand, the barriers to getting clear and factual details about potential properties for purchase or the daily operations of the rentals is much harder to get from a property located in a different state.  You have to trust and lean heavily on the support team that you find/create.  I am sure that there are great established teams that can support an investor, but I always follow the saying; "trust but verify".  It is just harder to verify if I have to get on a plane to see my property vs get in my car.

No matter what anybody says, the BA is an "end goal" market.  Meaning people want to invest here, but because the barrier is so high not everybody can enter easily.  But once you are in the door, there are definite ways to get great appreciation and great cash flow.  Look for my posts about my purchases in Mountain View and Oakland to get some more details.  I have posted real purchase, refi and rent numbers.  But the cash flow part takes time and effort, it is not something that comes the month after you sign the contract.  In the fly over areas, you might get great cash flow from the get go, but you will never get the great appreciation.  

The lowest barrier of entry for your situation might be to focus on your home town or cities nearby. I know of a fellow BP member who has been successfully doing flips in Stockton, from the BA, in his spare time. You are in that city, there is no reason you could not do flips more profitably and more quickly. If you wanted to, you could do buy and hold there with similar acquisition costs and rental rates as many of the cities hundreds or even thousands of miles away, but save yourself the "turnkey" or management fees. Build up your cash further and then make the move for a BA buy and hold if that is something that you still want to do.

Don't get caught up in the hype of what "everybody else" is doing.  That could mean going to the BA or going out of state.  I suggest you focus on your "unfair advantage", which might be the fact that you are from Stockton and you have $200k available to you...

Good luck to you!

-Arlen

Arlen, thanks for the comments. I'm actively looking for deals in the Central Valley every week. The numbers just don't add up and I'd prefer not to do flips or rehabs. I'm a buy and hold type. Get some cash flow now, while not selling until retirement. I'll admit I don't have many connections so most of the properties I see are on the MLS. Based on my calculations, these MLS listings just don't pencil out. Some decent triplex are $180k and rents for $1950 total. Duplex are also $180k and rents for $1500 total. A rentable home costs $170k and rents for $1300-1400. I've seen some 8 unit apartments for $425k and rents for total $4000 monthly. I'd basically be breaking even each month, while hoping properties continues to appreciate to 2006 levels or more. These same triplex sold for $450k in 2006, until the crash.

Originally posted by @Derrick Craig :

@Tou V. I always suggest invest locally if you possibly can!!

Most people don't have $200k in cash lying around and most are not as experienced investors as you are.

 

@Derrick Craig

Definitely not experienced. If I was, wouldn't have these questions. That's why I'm looking for advice from people who have been there and done it. Everyone has their points of views and I'm looking to get as much input as possible. As for the 200k, that's my whole life savings. Which is why I need to make good decisions as to buy some TK for cash flow or pickup what I can here. As noted, I don't have the contacts or resources to find properties at 50% off locally, so everything I see is on the MLS.

Tou,

I would recommend you look in chicago and buy high yield income properties gut rehabbed that produce north of 18% yield cash on cash with government guaranteed leased. $50k houses with market rate tenants in the long run don't pencil out well for cash flow purposes. My 2-flats for example generate $1k per month after all expenses and reserves putting down 25%. So $200k would buy 5 buildings or 10 units that makes $4k+ per month in positive cash flow gut rehabbed and 90% HUD guaranteed leases. The buildings come with one year rental and maintenance guarantees and are highly upgraded for rentals (granite, hardwood flooring, custom paint and tile etc). Something to think about as a comparison.

Originally posted by @Derrick Craig :

@Tou V. I always suggest invest locally if you possibly can!!

Most people don't have $200k in cash lying around and most are not as experienced investors as you are.

You're a TK provider.  I was expecting more insight from you.  Are my calculations wrong about TK?  I really do like TK and almost ready to jump in, but others have made interesting comments about how it's not so rosy as it sounds.  Please elaborate.  Just think of me as a potential customer. 

@Tou V. in the example you gave about you 85 dollars per month for repairs. So for 1 year you are talking about 1020 dollars for year. So do you really think this will cover repairs, Capex and making the unit ready when the tenant leaves? I think that is highly optimistic over the long term. Ask the turnkey providers how much replacing a heater will cost, How much fixing a plumbing issue on average costs and some common capex items and repairs so you know if really that number makes sense. I have actually seen some turnkey providers use 5% for repairs and no mention of capex.

I somehow missed you were in Stockton. I think Arlen has a good point about trying things locally since you are close to one of the lower cost areas in California.

@Tou V.

Here is a Stockon Apt. 12 unit @ $650 

588k NOI 52K senior government tenants.

New roof, plumbing, windows, electrical and plus one unit for retail unrented for extra flow.

http://www.loopnet.com/Listing/19307476/530-N-San-...

Updated over 2 years ago

Maybe rent that 13th unit 2000sqft as storage. There is a Bekins around the corner.

Matt nice property

I would suggest spreading your money around

( 2 or 3 different properties versus 1 huge property )

After you obtain more real estate experience then possibly look into 1031 exchange.

Originally posted by @Matt R. :

@Tou V.

Here is a Stockon Apt. 12 unit @ $650 

588k NOI 52K senior government tenants.

New roof, plumbing, windows, electrical and plus one unit for retail unrented for extra flow.

http://www.loopnet.com/Listing/19307476/530-N-San-...

@Matt R

I did see this one and it's a specialized unit catering to senior veterans. The area is not the best, but rentable. There's not enough parking and it's right next to a rather busy auto repair shop. They're also very optimistic about NOI. Didn't have any PM, CapEX, or maintenance included in the expense. That's 25-30% off their listed NOI right there. The tax provided is also based on the current owner. If new owner buys for $588k, expect close to $6500 in yearly taxes. Yes, they did do a bunch of repairs, but that doesn't mean there won't be any maintenance or repairs in the future if buyer keeps it long term.

Originally posted by @Radhika M. :

@Tou V. "in the example you gave about you 85 dollars per month for repairs. So for 1 year you are talking about 1020 dollars for year. So do you really think this will cover repairs, Capex and making the unit ready when the tenant leaves? I think that is highly optimistic over the long term. Ask the turnkey providers how much replacing a heater will cost, How much fixing a plumbing issue on average costs and some common capex items and repairs so you know if really that number makes sense. I have actually seen some turnkey providers use 5% for repairs and no mention of capex.

I somehow missed you were in Stockton. I think Arlen has a good point about trying things locally since you are close to one of the lower cost areas in California."

@Radhika M.

I agree it is optimistic, but also depends on what condition the property is when initially bought. If all major components were replaced / repaired properly, then buyer should be good for a while without incurring major CapEX. I have an idea on how much repairs cost. At $1020 yearly it would take 5-7 years to cover a roof replacement, 1 year to cover a water heater, and 3-4 years to cover heater / AC. Plumbing are $150+ per call, well any repairs are $100+ and escalates rather quickly. I'd assume the general idea is a roof should last 20+ years, heater / AC and water heater around 15 years. Thus if you saved $1020 for 15 years, you should have $15,300 set aside for CapEx. Does my reasoning make sense? Feel free to poke holes...... Thanks.

@Tou V.

It seems to me that you are sold on doing TK regardless of what anyone says good or bad about it. Most investors don't have $200k that they pulled out from any other properties to put into income producing properties. So I would consider you very much experienced compared to my clients.

Your calculations are correct, if all of the items actually are true\happens... ie 10% Vacancy, 10% Repairs, 10% CAPEX, and 10% PM Fees.

Example: Some tenants stay in their homes 1,2,3,4,5 better yet I have a lady that has been in one of my turnkey properties over 11 years. So did I experience the 10% Vacancy? NOPE!! The same tenant that has been in the property 11 years has called me to fix a shortage in her light, everything else her hubby fixes and doesn't charge me a dime, did I experience 10% Repairs? NOPE .. I only charge 8% PM Fee on Properties I manage this varies among TK providers. These examples go on and on and on with other properties and other situations toooo many to list. Granted these don't happen all the time that's why it is really hard to add those calculations to all TK properties/providers.

REI is not always Rosy going the TK route and nor is always peaches and cream buying locally in your case high cost west coast route.

If you were a potential customer, I would ask "What are your REI goals" Short Term 0-3 yrs, Mid Term 3-10 yrs, and Long Term 10+ yrs, "Are you looking more for Cash Flow or concerned about Appreciation" , "What type of investment are you looking for Low Risk A-B class areas, Mild Risk B-C+ areas, or High Risk C-C- areas". After you answered those questions I would let you know if I could help you with your investment needs.

I was shocked after reading your comment, "I don't have the contacts or resources to find properties at 50% off locally, so everything I see is on the MLS."

Why Can't you find the contacts and or resources to find properties at 50% off locally?

Where there's a will there's a way!! You can do and achieve anything if you never give up!!


@Tou V.  thier are pros and cons with each.  I like out of state investing using turnkey companies.  It's getting easier for me now, because I found the right people to work with.  I had some costly lessons working with the wrong people in the beginning.  Ive learned some tricks to protect myself moving forward and have established some great relationships to look out for me.  I like to spread my eggs which the cheaper out of state houses allow me to do.  Unlike the other posts I invest for cash flow only.  If it appreciates then that's a bonus.  I don't worry about market predictions because I don't care about appreciation.  I'm just looking for a slow and steady income.  Nothing to quit my job over. I keep my proformas conservative and basic and don't over analyze everything.  I plan to buy 20 buy the end of 2017.  And if I can make a little off each it will all add up to some steady income.  How much I make will vary from time to time but in the end as long as I am making money I will be happy.  

@Tou V. I think like @Derrick Craig  said above said you sound like  have made up your mind to go turnkey and that is fine. I think you should go with it with open eyes and realistic expectations especially since you goal seems to me that you are depending on 4000 cash flow per month. Ask yourself what your long term goals are before you proceed.

You mentioned you would have 15000 for capex in 15 years so are you telling me that in the 15 years you are not going to have any repairs expenses? It can happen in a one off properties but over a 15+ properties I think you will have repairs equal to atleast 5% if you are lucky.  So that leave for 7500 after 15 years for capex. Is that really sufficient to cover capex after inflation. Do you think it will cost the same to replace roof in 2015 and 2030? You can do turnkey just have realistic numbers in mind. Expect only 150 in cash flow. If you have more that is great. Just like some people don't expect appreciation don't think cash flow of X amount is guarantee all the time. Be conservative instead of being overly optimistic.

Again this is just 2 cents. I wish you all the best.

@Tou V. I don't think you have much of a dilemma at all. If you didn't need the cash flow and were ok with banking on long term appreciation then investing in the Bay Area might make sense, but keep in mind that the Bay Area is at the top of the curve and the market is slowing down. From what you say, you don't have that luxury though. You have borrowed money that you need to generate a return on. Are you willing to pay out $1100/mth indefinitely with nothing coming in? You need to know how and when you can pay off the $200K before going in to anything. You have can't know that if you're banking on appreciation alone.

Originally posted by @Mike D'Arrigo :

@Tou V. I don't think you have much of a dilemma at all. If you didn't need the cash flow and were ok with banking on long term appreciation then investing in the Bay Area might make sense, but keep in mind that the Bay Area is at the top of the curve and the market is slowing down. From what you say, you don't have that luxury though. You have borrowed money that you need to generate a return on. Are you willing to pay out $1100/mth indefinitely with nothing coming in? You need to know how and when you can pay off the $200K before going in to anything. You have can't know that if you're banking on appreciation alone.

Yes, I borrowed $200k thinking that I'd quickly invest it and have been paying the $1100 monthly this whole year.  If I don't do anything with the $200k, then it would of been better to just not have taken it out and save $1100 a month.  I'd like to be in it for both cash flow and appreciation, but if it came down to picking one.  Right now, I'd have to pick cash flow.  You can use cash flow to pay bills and spend it freely or reinvest it.  Appreciation just sits there until you sell or refinance.  If refinance, like I did, then you just owe more each month.  Just want a realistic picture of these TK operations to ensure that I'll be generating more cash flow, then what I owe.  Say, I put $200k down on TK properties and was only able to generate $1800 monthly because of various issues, then it may of not been worth it, since I'm already paying out $1100 to use that $200k.  Now, if I was able to consistently generate $3000 or more then it makes more sense.  Maybe I'm looking for someone to prove to me the TK process really works and the calculations each TK advertises are reasonably obtainable by the average investor.  I can understand if I'm only buying 1-3, they could all be duds.  But, with 10 or more units, they should at least somewhat perform if the business model is sound.  Am I wrong to make these assumptions, because when I do my calculations it never looks that good?  As for buying local, I'd much rather do that if prices weren't so high already.  It's hard for me to justify using $200k and just waiting for a golden egg years from now.   

Here are 2 scenarios I've came up with. The 10 SFR are from TK in the mid west. The 3 triplex are right in town and I've already checked them out. They need a little work, but already have tenants with no issues. If I went with the triplex, I'd just keep them as-is and fix things when they break and update whenever they become vacant. Let me know what you think. You've all been great help. Wish I would of done this sooner, like a decade ago. LOL

Purchase price $50,000 x 10 SFR = $500,000

Down = $125,000 (25%)

Closing costs - $30,000 for all 10 SFR (10 separate conventional loans)

Mortgage = $375,000 @ 5% = $2013 month

Rent = $850 x 10 = $8500 month

---------------------

Taxes = $700

Insurance = $600

PM = $850

Vacancy = $850

Repairs = $850

Mortgage = $2013

Total expense = $5863

NOI = $2637

CapEX?=$850

Estimated montly cash flow = $1787

--------------------------------------------------------------------------------------------------------

Purchase price $175,000 x 3 triplex = $525,000

Down = $131,250 (25%)

Closing costs - $6000 (3 separate conventional loans)

Mortgage = $393,750 @ 5% = $2113 month

Rent = $650 x 9 = $5850 month

---------------------

Taxes = $525

Insurance = $175

PM = $585

Vacancy = $585

Repairs = $585

Mortgage = $2113

Total expense = $4568

NOI = $1282

CapEX?=$585

Estimated montly cash flow = $697

Estimated monthly cash flow if I PM since units are close by = $1282

----------------------------------------------------------------------------------------------------

I welcome everyone to tell me if I'm not doing something right with my calculations. I know the income received each month will be much higher, as vacancies, repairs, and CapEx doesn't happen all the time, but I'm factoring them in for when they do happen and they will eventually. Both scenarios look pretty bad honestly, but it can't be this hard to be an average investor, can it? Does it mean the average small time investor who buys a few properties isn't really making much, unless they just wait it out and hope prices double a decade from now? Please help.... Thank you.

@Tou V. I think you're looking at this the right way. With $200K to work with, you can generate $3000 per month depending on the market. I like Indianapolis and Kansas City. A typical B class property in those markets will generate an average of $250-$275 after all operating expenses and mortgage payment. Like you said, it might be harder to hit those numbers with 1-3 properties if you can a dud, but $200K would fund a portfolio of around 10 financed  properties which helps diversify your risk and compensate for the occasional duds. I don't see why you can't accomplish what you're trying to do if you're smart about it. Feel free to contact me if you'd like to talk further.

@Tou V. With $200K to work with, I think you can generate $3000 per month depending on the market. I like Indianapolis and Kansas City for cash flow. Both of these markets will generate an average of $250-$275 per month after operating expenses and mortgage payment. You're right that you might not be able to hit that consistently with just 1-3 properties if you get a dud, but with $200K you can finance around 10 properties in the Midwest. That will diversify your portfolio and compensate for the occasional dud. Fee free to contact me if you'd like to talk further.

@Tou V. Wow did not realize that you had borrowed the 200K. Please keep a buffer of 10% of total investment amount as buffer for unexpected expenses. 

Good luck.

Consider Indianapolis.....great market with low entry prices and great cash flow.

Originally posted by @Derrick Craig :

@Tou V.

It seems to me that you are sold on doing TK regardless of what anyone says good or bad about it. Most investors don't have $200k that they pulled out from any other properties to put into income producing properties. So I would consider you very much experienced compared to my clients.

Your calculations are correct, if all of the items actually are true\happens... ie 10% Vacancy, 10% Repairs, 10% CAPEX, and 10% PM Fees.

Example: Some tenants stay in their homes 1,2,3,4,5 better yet I have a lady that has been in one of my turnkey properties over 11 years. So did I experience the 10% Vacancy? NOPE!! The same tenant that has been in the property 11 years has called me to fix a shortage in her light, everything else her hubby fixes and doesn't charge me a dime, did I experience 10% Repairs? NOPE .. I only charge 8% PM Fee on Properties I manage this varies among TK providers. These examples go on and on and on with other properties and other situations toooo many to list. Granted these don't happen all the time that's why it is really hard to add those calculations to all TK properties/providers.

REI is not always Rosy going the TK route and nor is always peaches and cream buying locally in your case high cost west coast route.

If you were a potential customer, I would ask "What are your REI goals" Short Term 0-3 yrs, Mid Term 3-10 yrs, and Long Term 10+ yrs, "Are you looking more for Cash Flow or concerned about Appreciation" , "What type of investment are you looking for Low Risk A-B class areas, Mild Risk B-C+ areas, or High Risk C-C- areas". After you answered those questions I would let you know if I could help you with your investment needs.

I was shocked after reading your comment, "I don't have the contacts or resources to find properties at 50% off locally, so everything I see is on the MLS."

Why Can't you find the contacts and or resources to find properties at 50% off locally?

Where there's a will there's a way!! You can do and achieve anything if you never give up!!


Derrick, while I agree that some tenants will stay a long time thus minimizing vacancies, repairs, and CapEX.  Eventually the property will need to be updated and fixed especially after so many years when they move out.  Unless you sell and let the new owner deal with it.  Those cost will vary, but I'd rather be on the safe side.  I had a similar situation where a family stayed for 12 years in one of my rental (my very first rental).  There was very little maintenance and no vacancies for 12 years.  When they left, I had to completely renovate the house because it was getting old.  The renovation cost me $38,000.  During that time I didn't know better and wasn't allocating much to future CapEX or anything else for that matter.  Let's see if I can show it better with some numbers.

Rent $1100 x 12 years

Vac = $110

Maint = $110

CapEX = $110

-----------------------------------

That's a total savings of $330 x 144 = $47,500 because the tenant was awesome and required very little.  Then I got hit with $38,000 to make it good for the next tenant.  Here's the kicker.  I didn't know any of the things I knew now about budgeting for the long run.  The $1100 rent only covered PITI.  I was getting zero each month in terms of cash flow, ouch!!!  If I would of taken out vacancy, maint, PM, and CapEx, I would of been so negative it wouldn't even be funny.   Here's the big queston????  Would I have bought that same property again.  YES, in fact I regret not buying more, many more.  The house was on a 15 year loan and the tenant essentially paid it off.  Was I a savvy investor?  No way, was probably one of the dumbest ever.  It was pure luck.  I bought in CA and any house bought 15 years ago doubled or more just because it's Cali.  But, had it not been for appreciation, I'd been in serious trouble and lost a lot of $$$.  That's why I'm being more conservative with my calculations now.  Have to budget for everything, because it'll hit sooner or later.  To answer your questions, I'm in this for the long haul.  Whatever properties I purchase will probably never get sold as long as it's performing, unless something drastic happens.  Thanks and I appreciate all your feedback and comments. 

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