All Forum Posts by: Alshan San

@Alshan San which area in texas? I was first looking at Austin Texas, but realized the rent to price was way too low (or price to rent was too high).   If I remember correctly, areas around San Antonio had some nice price to rent ratio.

I too buy cheap houses but I think there’s a middle ground. All my purchase have been from 35-80k, average purchase price is 60k. Average rent is 800. These are B and C areas for the respective cities. All single family.

Now the tenants usually have less then 700 credit. Typically 550-650. I have one C class area tenant that’s above 700. I’m fine with this as long as they’re no evictjons, last judgements etc. medical bills or stuff like that is fine. Old bankruptcy, also fine.

So far it’s been pretty good. I like the Lowe overhead I have with these types of properties. They’re smaller, and my mortgage payments are also small.

I plan to buy around 20 of these before I move onto either commercial or notes

If you're new and not local you're going to have a bad time the majority of the time..... This is even more so if it's just a few houses, you need many to spread the costs.

Cheap houses work and it's been proven, you just need to be the right fit. You have to be the type of person that will collect/evict as needed, you need to be the type that is either able to do work yourself for turnover or have a existing relationship with a crew, and you need to understand the culture of the neighborhood.

I don't have any of that, so I don't buy that type of assets... and from the sounds of it like you I rather a higher class asset with different tenants. I like the good schools and family that stays for years till the kids are done w/ school type rentals..

There are pros and cons in my opinion:

Pros of many cheaper house:

1. easier to buy

2. higher rent to price

Cons of many cheaper houses:

1. less reliable tenant (damaging houses/less reliable income stream). Also some damage may not be able to covered by security deposit. 

2. more roofs = more capital expenditure. replacing fixtures like roofs/windows etc. costs the same size house, regardless of price of the house

3. less able to utilize leverage

4. higher turn around with these tenants. if you are using a property manager, this also means more replacement fee for the tenants.

One other thing to note is if you can find a home that can be rented for $2000 a month for $200K, why would anyone want to rent that from you? with 20% down and 5% interest, your only looking at monthly mortgage about $1000 (and if someone can pay $2000 in rent a month, they can come up with $40K of down payment easily). so your target for tenant is very limited to someone who has good income, but going to stay in the area for only few years and move out.

In the end, it comes down to what level of risk are you willing to take? Btw, if you are looking to buy multiple cheap house, have you looked into multi family home? this ways, at least con #2 will be somewhat (not completely) out of the equation, and possibly even #3.

The lessons I have learned over the years force me not to buy sub-90K property. It would be hard to get financing on those properties so you lose the power of leverage. I would buy two 100K properties instead of one 200K property as it gives me diversification. If there is one vacant house, the other property can still cover some or most of the expenses.
Again, these are my thoughts you should go with you comfort level and risk appetite.

I am a cheap house buyer

For example:

$10,000 house will rent for $400/month

$20,000 house rent for $450

$40,000 house rents for 600

$60,000 house rents for $700

$100,000 house rents for $850

Theoretically 10 $10K houses will bring in $4,000/month in rents. The same $100,000 spent on one house will bring in $850

Rent/Purchase percentage better with cheaper houses.

If someone trashes a cheap house, I clean up and move on

If someone trashes an expensive house I am sick

I am a cheap house buyer

Thanks everyone for the kind words of encouragement.

@Lane Kawaoka and @Sherwin Gonzales, it is more a matter of chance that the first 10 ended up being all single families.  We had made an offer on a 12 unit, but we were too late.  It may be unfounded, but we believe that SFRs appreciate better, have better tenants paying higher rents, and provide for an easier exit strategy, as there are many more buyers for SFRs than MFs.  The financing is also really easy and cheap for SFRs with 30 years fixed mortgages.  We may very well transition to a LP role in a syndication, and settle for a lower return, if the headaches and management turn out to be too great, but for now, our Property Manager is doing great.  I estimate that we'll only need 20-25 total for me to be able to walk away from my job, so we don't plan to scale that much more, and we don't have to "manage the manager" much at all now, but we'll see what the future holds.  We are also very interested in doing some BRRRRs.

@Joe Rizzo, we started looking for properties in San Diego, but the numbers didn't make sense (as I'm sure they don't near Boston).  We had realtors looking in Cleveland, Phoenix and Dallas without any luck before finding our first deal in Las Vegas.  Then we did a deal in Jacksonville, and decided to focus there.

@Ahmed Elias, 8 of the 10 already had renters in them, and we've only had to do minor repairs (re-plumbed one of the houses).  Most of them are in B neighborhoods with two of them in a C neighborhood.

@Kraig Kujawa, since the 6 units we just closed on have seller-financing, those don't count against my "10 Fannie Mae" properties.  Also, all 6 of the mortgages (if I include the one in escrow and my primary residence) are in my name, so we can do an additional 10 in my wife's name only.  We plan on using the cash flow to purchase more properties, and then once we get to 20-25, then we might pay off a few of the smaller loans to free up some more mortgages, or just increase our monthly cash flow.  Leverage is one of the best things about real estate investing...we're in no rush to pay the mortgages off.

@Ned J., Our primary residence in San Diego appreciated 50% between 2013 and 2016, so in early 2017 we performed a VA 100% cash-out refinance to take out the equity. We used this, along with selling a lot of our stock, peer-to-peer, and other financial accounts to focus on real estate. I even did a 401K loan, which doesn't count against my DTI ratio, to free up some more cash for REI. I just transferred my mutual fund IRA to a self-directed IRA, so I can get more properties. Essentially pooling all the money we could to buy properties. The cheapest house we have was $57K, with the most expensive at $119K, and the bulk right around the $100K price point.

I agree with @John Warren on this one. I bought two SFH early this year and quickly realized that the real money is in MFH. Plus it's typically easier.

Since you seem averse to using debt leverage (very bad idea, by the way), you may try searching Bigger Pockets for an Apartment Syndicator in your area to invest with. You can typically earn 8-12% preferred returns and receive an equity split when the property is sold.