how are you finding semi move in ready single family homes at prices to profit

Question

Im currently looking at single family homes in Phoenix,az , im a first time homebuyer and looking to live in the house some time, then rent it out, buy another house rinse wash repeat, having no experience at all in REA im looking at single family houses in average areas of Phx and vicinity, 3bdr, 1br +, 1000sft min, max $300k, i am working with a realtor and loan lender (broker and bank), already put offers in the range of $275 and got accepted but sadly at the moment i had issues with my loan docs and deal fell through, but that is fixed now, I just use zillow and redfin to search for homes within my range and recently asked my realtor to search homes with my criteria, but they are really and needle in a hay stack.

Patrick O'Sullivan · Answer

Target solid but cosmetically dated homes over move-in-ready ones. Stale listings, price reductions, and back-on-market properties usually mean more room to negotiate. Above all, run the future rental numbers before you buy. One deal that pencils out beats a dozen that just look good.

Aiden Avtgis · Answer

One thing I'd keep in mind is that what we look for in a house for ourselves isn't always what we should look for in a rental.

Since your plan is to live there for a while and then rent it out, I'd try to look at every house from the beginning as a rental. Will it cash flow at the price you're paying?

It can be easy to find a house you really like personally, but if the rental numbers don't work when you buy it, you could end up in a bind when you go to rent it out.

I'd run the numbers on every house you're seriously considering — rent, taxes, insurance, repairs, vacancy, and your mortgage — even though you're going to live there first.

That might help narrow down the "needle in a haystack" a little. Try looking at it first from the perspective of looking for a house that works as a rental when you're ready to move on that you are satisfied to live in now.

Good luck!

Gerardo Hernandez · Answer

Actually this property I found on market. You just ned to know what you're looking for. And if you font then hire a real estate agent that does. I have a whole search specifically for homes that have creative financing

Drew Sygit · Answer

You're reading OLD info if you think you can easily find a property on the MLS that will cashflow as a rental😖

The Real Estate Crash of 2008-2010 caused real estate prices to crash across the country - but didn't affect rent amounts. This caused a historically unique opportunity for investors - they could buy Class A properties and immediately cashflow when renting them out.

This couldn't last forever, and it didn't, as excited new investors drove up prices.

Eventually, Class A property values increased to the point that even increasing rents didn't allow them to cashflow upon purchase.

So, the flood of new investors switched to buying Class B properties.

COVID created a chaotic spike in both the sale & rental markets, attracting even more new real estate investors. According to CoreLogic, in December of 2023, almost 30% of home sales were to investors!

Investment also spiked in Class A Short-Term Rentals (STR) and investors started paying higher and higher prices based upon anticipated STR rental rates, that exceeded sustainability based upon Long-Term Rental rates (LTR).

Now we're seeing investors pouring money into buying Class C rentals - but, many are getting burned.

In our experience & opinion, the main determinant of property Class is not location or even property condition, those are #2 and #3. The #1 determinant is the Tenant Pool.

If you don't believe us, try putting several Class D tenants in Class A apartment buildings and watch what happens. Or try the reverse - rehab a property in a Class D area to Class A standards and try to get a Class A or B tenant to rent it.

Unfortunately, many newbie real estate investors are jumping into buying affordable Class C rentals - expecting Class A results.

In our opinion, Class C tenants have FICO scores from 560 to 620 - where their chance of default/nonpayment is 15-22%. See the chart from Fair Isaac Company (FICO) below:

FICO Score

Pct of Population

Default Probability

800 or more

13.00%

1.00%

750-799

27.00%

1.00%

700-749

18.00%

4.40%

650-699

15.00%

8.90%

600-649

12.00%

15.80%

550-599

8.00%

22.50%

500-549

5.00%

28.40%

Less than 499

2.00%

41.00%

Source: Fair Isaac Company

According to this chart, investors should use corresponding vacancy + tenant-nonperformance factors of approximately 5% for Class A rentals, 10% for Class B and 20% for Class C.

To address Class C payment challenges, many industry "experts" are now selling programs to newbie investors about how Section 8 tenants are the cure. If only it was that easy. Yes, the government pays the Section 8 rent timely, but more and more tenants are having to pay a portion of their rent. Then there are the challenges with Section 8 tenants paying utilities and taking care of their rental property.

Investors should fully understand that Section 8 is not a cure-all for Class C & D tenant challenges, it's just trading one set of problems for another.

We see too many investors not doing enough research to fully understand all this and making naïve investing decisions.

Once you understand the above, you still need to find a property. You’ll have to do what investors did before the Great Real Estate Crash:

1)      Evaluating 100 properties, to identify 10 to make offers on, in the hopes one seller accepts.- Yes, this takes a lot of work!

2)      Network with wholesalers who can bring you “deals”- Many wholesalers are also newbies who have no clue what a real deal is and are just time-wasters.NOTE: We often see wholesalers re-marketing MLS properties at HIGHER amounts!

3)      Start using your own personal network to find motivated sellers. - Start posting on your favorite social media site what you are looking for – not once or twice, but CONSISTENTLY for 6 months! Give updates on properties you’ve looked at or analyzed to keep your audience engaged, so when they stumble upon a potential situation, you are the first one they think of.

Good luck!

Jimmy Rojas · Answer

Thanks for the lengthy response, when you explained the tenants with fico score, are you talking about investing in a multiple unit apartments or something similar?, Im barely starting and plan to start with single family houses, for that credit is important but not that important, as you would take 1st and last months rent, deposit and any other fees before move in, all this with of course screening the potential tenant 1st.

As of right now my only real estate network is my realtor .

Gregory Acs · Answer

I think the challenge right now is that a lot of first-time buyers are looking for the same type of property, so the best opportunities don't stay available for long. I'd focus less on finding the perfect deal and more on finding a home that works both as your primary residence today and as a rental in a few years. If the numbers still make sense after factoring in maintenance, vacancies, and future carrying costs, you're probably looking in the right direction. Patience usually pays off more than forcing the first property that comes along.

Henry Lazerow · Answer

Single families stopped cashflowing 8 years or so ago when buying them in good areas, maybe in a D area now a single family can cashflow on paper atleast. Look for 3 and 4 unit properties, will give you much better returns.

Jimmy Rojas · Answer

I wish lol, who has the funds for that.

Gerardo Hernandez · Answer

Hey Jimmy, I am an agent investor in AZ. And I will tell you what other agents won't and thats you won't find them especially not as just turnkey properties you have to get creative in this market today. I recently closed on a triplex in PHX purchase price was $730K but i got it on a subto deal (took over someone's existing mortgage) with only $5000 down and it had 1 unit vacant. You could have bought that deal lived in one and rented out the other units. Basically what I am trying to say is you can't just look at a normal property and rent it how you used to. You have to get creative find ways to create more units, bedrooms etc. If you need a a true investor agent shoot me over a DM I can help. Because by you searching yourself on redfin and zillow thats just not the most efficient way especially as a beginner. I hope this helped a bit

Jimmy Rojas · Answer

Congradulations on your new property, yes exactly, to get the good deals it helps if you have a large network and think outside the box, where the prior owners of the triplex family or people you already knew?, back in 2022 a friend of mine did a subto deal on a single family house valued at only $200k took over payments and only 60k down, no lender or realtor where involved.

how are you finding semi move in ready single family homes at prices to profit

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