All Forum Posts by: Amanda G.

Here is an example of a home listed at $150K. It will probably sell for over asking. It could use some minor cosmetic updates, but I could also rent it out immediately. This is best case scenario for this house, and honestly of all the houses I've been looking at, this would be better than the others that I've found.

0 Votes

Upstate New York, New York

Quote from @Jonathan Greene:

You should not be net negative on a single-family rental in Rochester right now. Something has to be off in your calculations. Sure, the market has picked up there because the price point is good, but I can't imagine you can't make money on a rental there.

In some areas, single-family home buyers are pushing the prices up for investors because there is no inventory so these buyers are biting off more projects than they should because they are desperate. That could be a reason, but I find it very hard to believe that you can not buy an investment property in Rochester right now and make money. Maybe the scale there now is in at least two units.

Would you mind taking a look at one of my breakdowns if I send it to you in a PM?

I've posted a reply showing one of my better Rental Property breakdowns using BP Rental Property Calculator. Again - this is not including costs of lawn care/snow removal.

0 Votes

Upstate New York, New York

Quote from @Jaycee Greene:

That's great to know. Have you looked into Section 8 rentals? I checked your county and the rent for 3BR units next year is $1,720.

I was considering Section 8, but seems to be in the C/D neighborhoods of Rochester. I would like to stay in B class area. I was thinking a good strategy near the hospital could be hospital employees/nurses/etc or recent college graduates/new families settling in the area. If I found a well vetted Section 8 tenant for the areas I'm looking at, I would consider that. But I've also had some friends deal with Section 8 horror stories so it is not my first choice, although not off the table either.

0 Votes

Upstate New York, New York

Forgot to mention, the SFH's I'm looking at are 3 bed/1 bath. Was also looking at some 2 bed/1 bath with possibility of converting into a 3 bed.

0 Votes

Upstate New York, New York

Quote from @Jaycee Greene:

Hi @Amanda G.! Sorry to hear about your frustration in finding good rentals in Rochester. One thing I didn't see in your analysis was the rents you expect to receive for the properties you were finding. I'm assuming they'd be in the $1,500 to $1,800 range, is that accurate?

Hi Jaycee, yes that is correct. $1800 is a bit high for the area, but $1500-$1700 seemed to be the going price for the areas I was looking at.

1 Vote

Upstate New York, New York

Hello All!

Last time I posted, I spoke with many investors who advised me to go look in person at the neighborhoods I was interested in purchasing. I went up to Rochester, NY this past weekend and looked by myself and also with my realtor. I have been using the BP Rental Property Calculator, and of the homes I viewed, most of them are negative cash flowing ~$50-100 or so, or barely cash flowing at less than $100/month. The best COC return I got while playing with the calculator was around 3%, but many were 1% COC return or even in the negatives. I looked at a couple of homes in C/D neighborhoods which had more cash flow, but I would rather invest in B neighborhoods for the long term appreciation/equity. I am not expecting several hundreds per month in cash flow, but I don't want to go into something that isn't making anything either. Duplexes in that price range are in D class neighborhoods, so that is not a strategy I'm willing to pursue right now. Some information:

Single Family Homes $150-175K

20% down, conventional 30 year loan (pre-approval rate: 7.75-7.875%)

Average rent in area: $1500-$1700/month

5% vacancy, 5% maintenance, 5% capex, 10% property manager (I haven't factored in lawn care/snow removal, which would most likely eat up the rest of the positive cash flow in many of the properties I looked at).

- Are these percentages acceptable for the Rochester area? (Edit: I know many investors use higher percentages. The houses I was looking at it seemed they were flips and had newer roofs, new hot water heater, new HVAC, etc. - having trouble finding houses that need some work - see below)

After looking at several houses, it seems many are flying off the market quickly. The low priced homes go from for sale to pending within a couple of days. The houses that are priced at a good deal are receiving multiple offers, resulting in bidding wars, and further resulting in the price no longer being a good deal. I know that overpaying for a house is not a good investment strategy. I was looking for the "house with good bones" and in need of some cosmetic repairs, but many of the houses in the neighborhoods I'm interested in seem to already have been flipped and put up for sale by investors. I think many people are looking for what I'm looking for in the Rochester market, so I'd appreciate some advice from anyone who has experience with this situation. I'm not done looking in Rochester, but part of me is wondering if I need to pivot to a different state with lower property taxes and not as competitive of a market.

0 Votes

Upstate New York, New York

Quote from @Jonathan Greene:

There is no formula for what you want. The classification is really just a creation for bucketing options. What is a C or D or a B or an A neighborhood is really in your hands, combined with some of the data you have reviewed. Since you are in Long Island and considering these areas, the best thing to do is to take a trip up there and decide for yourself.

Take an area like Philadelphia. It doesn't matter if someone tells you one area is a B if you go there and think it's a D. It's data + personal preference + which way is this block trending (D+ to C or C to D+). Big difference there.

Thanks Jonathan. Maybe I took some information a bit too literal in all of the information I've been trying to absorb. Time to make some moves.

0 Votes

Quote from @Matthew Irish-Jones:

Quote from @Amanda G.:

Hello all,

I'm trying to decide on where I want to purchase my first investment property. I've been looking in both Rochester, NY and Buffalo, NY, but also looking at neighborhoods on the borders of these cities. I am trying to understand if there is an easier way to determine A/B/C/D/F class neighborhoods. I have spent a lot of time comparing different homes and reviewing crime maps of the area, etc. but I feel I'm wasting a lot of time looking in D class areas which I'd like to avoid. I always see people posting to stay away from D/F neighborhoods, but I don't ever see how exactly to determine that - I've read a breakdown of what each class entails, I guess I'm just looking for a tool that tells me that instead of trying to figure it out on my own in an area that is not well known to me. Is it just based off knowledge from experience/visiting with boots on the ground/from speaking with other investors/realtors?

Thanks!

There are a few ways to determine the classification of a neighborhood. Keep in mind classification of a neighborhood is similar to the value of a home, it is subjective. The true value of a home is what a buyer and seller agree too. List price, appraisals, projections and pro forma's are all educated guesses. There is as much art as there is science to all of the above.

Neighborhood classifications are the same way. What my company believes is a C class neighborhood, could be classified a B class by other investors and vice versa.

With all that being said there are a few easy ways to start classifying neighborhoods. Cash on cash returns are, generally speaking, the inverse of risk. The higher the cash on cash returns the higher the risk. When you calculate 12% cash on cash returns on ever house on a street you are in a C class or lower area. If you are in the 20% range, you are better off going to the casino and putting all of your money on black and seeing what happnes.

Since you are out of the area properly calculating cash on cash returns can be difficult because you have variable expenses to calculate. Variable expenses like vacancy, maintenance, and CapEx get more accurate with experience. To get quick and dirty numbers you can use 5% vacancy, 10% Maintenance and 8% CapEx... assuming the building is in OK shape. Valuation of the asset condition is even more important than calculating returns because your calculation of returns comes after asset condition valuation. If you get asset condition wrong, your returns will be wrong.

There is a superior way to all of the above. Get a great team in place. A good investor agent using a good team, will tell you off the top of their head in 3 seconds every neighborhood by class, risk profile, and be able to evaluate asset condition as well.

Your job is to pick a strategy... C class investing, B class light value add, BRRR, etc... once you do that they will put the properties in front of you that fit your strategy. From there your job is to check their work and their assumptions. You take on the role of digging deep into their pro forma and grading it like a teacher instead of writing the paper yourself. Are there future maintenance projections realistic? Did they provide rental comps? Does the property inspection support their asset condition evaluation? Does the insurance company feel comfortable insuring in that area, does the lender want to lend on this property... and so on.

Thank you for breaking all of that down for me. I am definitely an over thinker at times and it gets hard to simplify. I am going to tweak my plan a bit and keep moving forward!

1 Vote

Quote from @Stuart Udis:

@Amanda G. How much time have you personally spent in these neighborhoods? Have you been in these neighborhoods during the morning, afternoon and evening to observe the residents tendencies? Have you stopped into the local coffee shops and bars/restaurants to speak with the residents? What types of grocers are nearby? They serve the local residents. Have you toured rented properties to observe the types of tenants who are living in the units? Who is buying the single family homes that come to market? Mainly investors/landlords or home owners?

It seems you’re trying to arrive at your investment thesis while sitting behind a computer. Rarely is that effective or provide an accurate depiction of the neighborhood characteristics. Even when you contact realtors they often rely on the same computer data you’re probably looking at. That’s why it’s important to touch the neighborhoods where you invest.

The last thing I’ll add is your objective even when you buy in C or lower class neighborhoods is to invest in neighborhoods that have the fundamentals that suggest they can transition to at minimum a B neighborhood. Very few are successful buying real estate in C stagnant markets. At least not over an extended period of time. The assets become difficult to operate as the price points are disproportionately impacted by operating expenses and cap ex. It’s the appreciation that makes investing in these lower tier neighborhoods worthwhile.

It’s normally the investors sitting behind a computer who fail to recognize this. They’re also the investors who miss out on the transitioning neighborhoods because physical observation is the best way to spot the neighborhoods that are transitioning real time. Data chasers are always behind and miss the most meaningful appreciation events.

Hi Stuart! Thank you for the informative reply. You are in fact correct that yes, I am currently analyzing potential investment areas behind a computer. I do have every intention of doing everything that you said. I am not quite at that step, maybe I wasn’t clear in my initial post. I agree that looking online is only going to get you so far, but I am trying to educate myself as much as possible before taking the next step.

I am early on in the process where I am looking at areas that are long distance, as I live in a HCOL area. Before I go and begin walking around neighborhoods to do everything you have discussed (which I fully intend to do), I am still trying to figure out where I should narrow my search down to. I have looked at a lot of data, I’ve talked to other investors and realtors, but I am getting stuck in choosing an area to start seriously looking and making offers. I don’t want to just start booking flights to different cities hoping I figure it out when I get there. I’d like to make informed decisions before doing so, if that makes sense. I also do not want to waste anyone’s time.

My plan is to purchase a home and use it as a long term rental, buy and hold. Hoping to find a home that needs some updating but still has good bones. I am looking for home appreciation over time in better and growing neighborhoods more so than cash flow in lower class neighborhoods. I am definitely getting stuck with analysis paralysis as many beginners do. I get different answers from different people - I know people who have invested in out of state neighborhoods I've never been or heard of, and then I know people who have invested in areas of upstate NY which is a bit closer to me. I'd love to hear more about your experience starting out.

I appreciate you taking the time to reply, and I will keep all that you said in mind!

0 Votes

Hey Kenroy, I am also a veteran from Long Island and looking to purchase my first investment property. Posting a reply here as I'm also interested in what you posted about.

So far, the only thing I've heard about is a local meetup that occurs monthly in Bay Shore hosted by @Kevin Myhre. https://www.instagram.com/libiggerpockets/

Hoping to hear about an upcoming meeting soon. Maybe I'll see you there. Best of luck and I'd love to connect to share ideas and knowledge.

Amanda

2 Votes

Long Island, New York

All Forum Posts by: Amanda G.

Amanda G. has started 2 posts and replied 11 times.

Post: Need help with my strategy - barely cash flow/cash flow negative

Post: Need help with my strategy - barely cash flow/cash flow negative

Post: Need help with my strategy - barely cash flow/cash flow negative

Post: Need help with my strategy - barely cash flow/cash flow negative

Post: Need help with my strategy - barely cash flow/cash flow negative

Post: Need help with my strategy - barely cash flow/cash flow negative

Post: Determining a Neighborhood's Class

Post: Determining a Neighborhood's Class

Post: Determining a Neighborhood's Class

Post: New primary residence