What's a good return in todays market?

Question

The 1% rule seems to be impossible to find in todays market especially being north San Diego (oceanside). Im looking for a cash deal but I'm not certain what metric I should be shooting for. Any advice would be greatly appreciated.

Dan H. · Answer

MLS equals retail.  Most new investors start by paying retail and I believe for most new investors, it is the correct approach.

Why?   Because virtually all off market require work, have risk, or both.  They often are cash only.  They often have waived contingencies.   HML and subject to are not ideal for beginners and it is a rare beginner that has the cash for a San Diego purchase.

Therefore I suggest you find an investor agent and do a boring, but safe, MLS purchase.

After you have some experience, you can take more risk and/or effort.

I get back from BPCon on 23rd and will start a unit rehab (so I will be swamped, but I am always swamped), but if you hit me up I can show a recent 1% ratio purchase I made in Escondido, discuss the risk items off the record, and discuss some of work needed and my lessons learned on that purchase.  I learned something and made a mistake due to 8 signings on the same day.  Still learning!  Limited time offer just for Hunter (feeling like giving back after BPCon but not crazy).

Good luck

Henry Clark · Answer

Your cash investor is a friend or relative.  Tell them to give you $150,000 and call it a day.

Step 1. How do you plan to scale? Let’s say you want to cover a $50,000 per year job. So you move to Ohio. Buy 50 doors at $150,000 each. Change numbers as needed. That’s $7,500,000 you’re in the hook. Can you still do 5% down as you did on your first house? That’s $375,000 cash you need.

Step2: Say you clear $200 per door per month. Change numbers to market. That’s $120,000 per year. Pay you $50,000 and they get $70,000 plus any tax breaks. Plus you pay taxes on that.

Step 3: $70,000 on $375,000 plus appreciation sounds good. But since this is your first time out, you forgot capex. Takes you 4 years to get capex under control.

Step 4: Team. At your current house. Can you call a plumber, electrician, painter, drywall, flooring, groundskeeper, hvac, etc. Will they come timely and not gouge you? You’re in Ohio in a B/C neighborhood and they know you’re from California. They got you. Banker doesn’t know you. Etc

Your friend could make 5% in their money with no risk and no hysteria.

Your only saving grace is appreciation. Interest rates drop 2% points. You appraise $250,000 more. It looks like a real smart investment.

Step 5: I or you screwed up. We assume 100% occupancy above. Re do the numbers.

I wouldn’t worry about what a good return is.  You have to decide if you’re really going to do this.   Have way more education to get.  Not talking about Analysis paralysis.

You’re putting your friend on the hook for $7,500,000 based on your efforts and what you bring to the table.

Jake Andronico · Answer

@Hunter Broschinsky

The 1% rule is a great rule of thumb, but it does not paint the entire picture.

Not taking into account so many factors (Property management, maintenance, taxes, insurance, vacancy, headache factor, etc...)

In San Diego it will likely be close to impossible to see something like the 1% rule.

A lot of great comments on this thread. When starting out, trying to find the absolute grand slam deal will keep you out of the game because you'll likely be waiting a very very long time.

One property at a time for 20-30 years puts you far ahead of most people.

Yes, you can do it faster.

Yes, you can have more debt, more risk, and be more aggressive.

But just starting out, getting into your first property, and seeing if you even like this business I believe is the most important.

Best of luck to you!!

Hunter Broschinsky · Answer

100% thought about It and am planning to invest out of state in the future. For now I'm trying to find something locally that I could move into and self manage. My partner, who is bringing the money, is hoping I can live onsite or at least really close to be some boots on the ground. We both just don't know what we are doing and are afraid of out of state for our first deal.

Account Closed · Answer

Yeah, it really helps to team up with someone who knows where the fish linger if you're going fishing and where the deals are if you'e buying properties.

I favor finding properties "Off Market" doing “Subject To” and selling on “Lease Option” for great cash flow. Such as at:

Buy using “Subject To” and selling on “Lease Option” which I explain at https://www.biggerpockets.com/forums/311/topics/1141313-subject-to-why-you-need-money-to-buy-using-subject-to-subto-safely-legally

Twana Rasoul · Answer

Hi @Hunter Broschinsky It depends on a lot of factors including location, price point, type of property, condition, etc...I have a couple of deals in escrow in Oceanside San Diego and can give you an idea of what those look like, one is a 4plex on the water and the other is a duplex inland oceanside...both different different properties and buyer profiles....you are likely to be at a higher price point and higher appreciation in coastal oceanside vs inland in say Escondido area where you will have better cashflow at a lower price point but not as high in appreciation.

Nicholas L. · Answer

@Hunter Broschinsky

it's a good question but it's hard to answer.  I don't really look based on a "return" because the types of things I get - cash flow, equity, etc. - are different based on the deal type.

You said you're "looking for a cash deal."  What does that mean?

Chris Seveney · Answer

@Hunter Broschinsky

Returns need to be reviewed along with risk. I can give you the opportunity to double your money. But it has a 49% success rate - it’s called a roulette wheel

Throwing numbers out there without understanding risk profile makes it challenging to reply

Kenneth Donaghy · Answer

@Hunter Broschinsky I agree with @Dan Heuschele, I encourage new investors, to not fall for the local wholesaler traps, a lot of time there's not a proper inspection in place, or suggestions to waive inspections, which can kill a deal especially for a newbie. I rather set my clients for success. There have been a few clients, including myself who have purchase off market direct from seller, allowing for us to do full inspections. I also know expert investors buying on market deals via the MLS because of the realistic high integrity expectations of the sellers and listing agents.

Hunter Broschinsky · Answer

Thanks for the response I will go check that out!

What's a good return in todays market?

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