Has housing mania hit your market?

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Has housing mania hit your market?

Chris Kane
Investor · Boise, ID · Member since 2014 · 30 posts · 14 votes

I recently lost out on a duplex in an up and coming area of town that had 8 offers, including mine, the first day it hit the market. The duplex is located right next to one of my other properties so I have been sending the owner direct mail over the course of the past few years that I want to purchase his property but did not have any luck. When he listed his property on the MLS I jumped at the chance to buy it. The numbers on the duplex are flat out terrible which blew my mind that there are so many investors chasing this deal. Here is how bad they are.

Final selling price $357,000 cash which was $18k over asking and $95,000 more than what the seller paid for the property in 2014 and he made zero improvements to the property.

Rent: $1000 for one side and $1125 for the other with nine months left until each lease expires. After which, market rent per unit would be $1300.

On top of the low rents the landlord paid for electricity and gas for one of the units (no clue why he would do that since each unit is metered separate) plus took care of all the lawn mowing and yard care for both sides. 

Taxes were really high too at $5300/year. 

These numbers were so incredibly bad I couldn't believe that so many people chased this deal! I find it hard to believe that this duplex will be worth another $100k more in 2-3 years. Has the speculation mania hit your market? If so what are you seeing?

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Michael Swan
Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
9y

Hi @Chris Kane, @Ray Lai, and @Sam Dogen,

Why are you still looking in pricey California for investments? I am selling my last rental condo in San Diego that I have left. In the last year, I have sold 9 rental condos I purchased originally in 2011-2012 for double the purchase price. I have used the power of the 1031 exchange to purchase 6 apartment complexes is Ohio. My cash flow has risen from $48,000.00 a year to $120,000 a year. Plus, I am no longer at the mercy of comps and am in the process of increasing that cash flow by about another $50,000-$60,000 in the next 6-12 months. At the same time increasing NOI, which increases the value of these apartment complexes exponentially too!! The beauty of moving to a strong cash flowing apartment complex business model is that I am no longer at the mercy of comps on my way from my current 86 front doors to my projected 125-130 front doors likely by October, November, or December. Long term goal $750,000-$1,000,000 in cash flow per year. Plus, $50,000,000 in total RE and $15,000,000 in net worth and approximately 1000 front doors.

 In 2011, buying single family condos in Santee and Lakeside were cash cows for me and appreciation happened wildly and I knew that the party couldn't last forever and started to sell and 1031 exchange in May of 2015, all of 2016 and I will 1031 my last rental condo next month.  I purchased it in the summer of 2011 for $116,000 and am selling for at least $270,000.  That money will 1031 for a 20 unit or greater that will cash flow at least $20,000-$30,000 per year for at least the next 4-5 years.  To think, that little 2br 1ba condo in Santee was getting us only $5,000 a year cash flow.  The kicker is we only invested $34,000 in a down payment and about 10,000 in fix up and repairs since August of 2011.

The key is to do a calculation of your return on equity and get that equity out to earn more cash flow and build your RE empire!!  I have said this before, but if a lowly paid school teacher can have 5.5 million in RE and 2.5 million in net worth after 6 years of investing, anyone can!!

Swanny

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  • James Martin
    Metairie, LA · Member since 2016 · 67 posts · 41 votes
    9y

    New Orleans has been overpriced for a while now, but it is creeping out into the suburbs. Last week on 3 separate doubles in the burbs, they hit the MLS around lunch time and sold in less than 24 hours for over list price. Monthly rents on each are less than 1% of list and all of these are in areas where flood insurance is needed (if not required). A year ago, these deals could be done for decent cap rates as well as after debt service cash flow; no longer.

    2Reply
  • Matthew Tringali
    Property Manager · Charlotte, NC · Member since 2017 · 68 posts · 39 votes
    9y
    Originally posted by @Parker L.:

    Here in Charlotte we are seeing the mania big time. Any multifamily properties (10 units and under) here are so rare on MLS. And when they do come around, they typically go for 5%-10% over asking with subpar cashflow. Not sure who is buying these properties or how they plan to make money, but it's crazy here anyway.

     Absolutely, and not just multi-family, it is basically across the board.

    1Reply
  • Chris Kane
    OP
    Investor · Boise, ID · Member since 2014 · 30 posts · 14 votes
    9y

    @Matt R. I agree with you! That is a great strategy for providing multiple exit options. Is the only difference in construction required to build a duplex with condo standards is to run a fire rated wall from the floor up to the roof between the units? Also, is there some sort of special agreement that need to be set up with the property outlining how each owner should split exterior maintenance? I am assuming these duplexes you are building are one off properties that aren't part of a larger community managed under an HOA.

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Chris Kane:

    @Matt R. I agree with you! That is a great strategy for providing multiple exit options. Is the only difference in construction required to build a duplex with condo standards is to run a fire rated wall from the floor up to the roof between the units? Also, is there some sort of special agreement that need to be set up with the property outlining how each owner should split exterior maintenance? I am assuming these duplexes you are building are one off properties that aren't part of a larger community managed under an HOA.

     I am not sure. Perhaps check with Jay. I have not seen anything like this before. It does make that investment very flexible and much more valuable than a regular plex imo. It might just be a Portland thing for now. 

    0Reply
  • Chris Kane
    OP
    Investor · Boise, ID · Member since 2014 · 30 posts · 14 votes
    9y

    @Jay Hinrichs I meant to tag you with the question above regarding your small multi/condo construction standards strategy. Can you shed some light on this? 

    0Reply
  • Lesley Resnick
    Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    Its like in the cheesy horror films, if the house tells you to get out, don't argue.  Get out!

    My market is moving up, but not that quickly and there is still a lot  of inventory that will keep the pace steady and from overheating.  The deals are not as good as they were a few years ago, but access to capital is better, which drives up prices everywhere. 

    1Reply
  • Braden Smith
    Investor · New Orleans, LA · Member since 2012 · 969 posts · 747 votes
    9y

    I second what @James Martin said. Our market in the Greater New Orleans area is completely saturated with investors. We've had the national gurus coming here doing their weekend seminars for several years now and that has created a plethora of rookie and wannabe investors. These are the people bidding too high, paying too much and squeezing margins thinner and thinner. I can't tell you how many times I have bid on a property only to hit my max and back off then check the price it sold for later and see that the buyer paid way too much for a property. I've even spoken to some of the people that bid me out just by a chance meeting and they have told me they are just hoping to make a little money, to break even or just not lose money. These people won't survive in this business. There are always ups and downs in the real estate game. Just ride the wave while you can and stack money. If another crash happens, you'll be prepared to scoop up properties at big discounts! 

    4Reply
  • Frankie Woods
    Investor · Arlington, VA · Member since 2012 · 1k+ posts · 491 votes
    9y

    Albuquerque isn't yet frothy, but it is difficult to find deals.  I love @Michael Swan 's post.  This is exactly what I need to do!

    0Reply
  • Michael Swan
    Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    9y

    Thank you @Frankie Woods,

    "Whatever the mind can conceive and believe, it can achieve." Napolian Hill in his book, Think and Grow Rich.

    If a lowly paid teacher can do this, anybody can.    Sooooooooo many people that reach out to me for advice and guidance on BP make 3 to 4 times my combined family w2 earned income of $80,000 gross, before taxes.  

    If I had that kind of money, I would stop contributing to those 401k plans and IRA's for a while and build up a real estate financial freedom account to capitalize on any opportunities. I would have a good chunk of change in no time at all making that kind of money.

    People tell me about their $3,000-$5,000 mortgage, expensive $1000,00 car payments per month, etc... trying to keep up with the Joneses of this world.  

    By living within my means, I now have over $5,000,000 in RE and 2.5 Million in equity and $120,000 and rapidly rising cash flow per year.

    "If you reach for the stars, you may not grab one, but most certainly you will grab a handful of clouds."

    I forgot who said that.

    Swanny

    2Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y

    SoCal is always a hot market to some extent. I was competing with multiple all cash offers on properties in 2009. That's what happens in markets with high demand and perpetually limited supply; it is the nature of the beast. It is a two edged sword, though: that which is difficult to buy is easy to sell or rent and will tend to go up in value and rent over time. So, difficult to get in, but easier by the year to stay in once acquired. The opposite can also be true in many other markets. That which is easy to buy, in a market that is never hot and doesn't have much competition even today, with cheap prices, ample supply and lower demand, will be more difficult to sell or rent and will tend to NOT go up in value over time, and can even go down in inflation adjusted value over time. So, easier to get in, but harder to stay in over the long term and only way to make big profit is to scale way up and rotate your inventory before CapEx on a property eats your lunch ... so, depends on if you want your difficulties on the front end or back end. Of course, all markets fluctuate in the short term as well, and it is a matter of hedging and insulating yourself from these short term fluctuations to get to the long term profits.

    2Reply
  • Fabio Salas
    Investor · Champaign-Urbana, IL · Member since 2014 · 84 posts · 49 votes
    9y

    @Dan H. I myself own a duplex in SD and I'm looking to purchase another property there within the next 2 months, so I completely agree with purchasing there for property value and appreciation.  That said, with properties at $500K or more I personally don't want to have a bunch of my own money tied up and prefer to leverage the property and have the tenants pay that down.  Of course, by leveraging more than normal I'm actually negative cash flowing right now, but with continued rents rising I expect to positive cash flow in about 5 years.

    @Jay Hinrichs I did not realize the NW had such high prices.  It sounds a lot like my own SD market.

    0Reply
  • Greg JeanfreauPro Member
    Real Estate Agent · New Orleans, LA · Member since 2015 · 146 posts · 127 votes
    9y

    I'll third what @Braden Smith & @James Martin have said about the New Orleans market. It's been quite frothy for a number of years now. It is a good time to be careful not to over leverage and beef up reserves while the gettin's good. That being said, in all markets, there are still good deals to be had, but you have to be patient, diligent and move fast when the right one comes up. The problem is that (some) newbies get too excited and legitimize mediocre or even bad deals in their head. I have had the same experience as Braden when putting reasonable bids in on houses that I know are listed for way too much at what appears to be the height of the market. My clients get frustrated because they have been outbid and I do my best to explain to them to be patient and the right one will come. It always does. It's OK to be excited, but one must take emotions out of decisions.

    2Reply
  • Adam Vodanovich
    Wholesaler · New Orleans, LA · Member since 2010 · 10 posts · 2 votes
    9y

    I'll go along with the New Orleans guys with one little change, I have noticed a lot of movement of investors to the Baton Rouge area due to the flood and the plethora of deals. 

    @Braden Smith, @Greg Jeanfreau, and @James Martin I am always looking for commercial deals as well as buy and hold residential. If you know of anything feel free to share. Thanks

    2Reply
  • Braden Smith
    Investor · New Orleans, LA · Member since 2012 · 969 posts · 747 votes
    9y

    Hey @Adam Vodanovich. I sent you a PM. We have a rent ready double we are trying to move.

    2Reply
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