All Forum Posts by: Craig Hewitt

@Jim M. very thoughtful reply, thank you. The goal for the property is to be a long term hold and rent. Although I would guess most looking at it will be flippers due to the low price and potential for appreciation after repairs. I think a lot of your estimates are right on, which gives me heart burn and makes me think it's not quite as good of a deal as we thought. Although even at 25k the property would come out right at the comps in the area it seems (assuming it goes for 70+25 in repairs). The 'turnkey' house does not need any repairs that I saw, although I do think it's prudent to factor in some of those categories you mentioned like HVAC service, landscaping, etc.

@Jerry W. both go to the same schools, but just the neighboring houses look slightly better on the 'turnkey' property. Although overall I don't think it's significant either way.

The question to me really comes down to whether you want to finance the fixup work that someone else did (2nd house), or have control over the situation and do it yourself. Fixing it up yourself would require more capital out of pocket initially, but put you in a better equity position.

BP nation:

Need some advice on a property we're looking at. I'll compare a fixer upper that's on the market (HUD sale) to an example of what I'm finding in our market to be a fairly market priced conventional sale.

Fixer upper: HUD listed at 52,000, but bidding is already to 63,000. 1250 sq dr, 3/2 SFH. Bidding ends close of business Monday. House needs a lot of work, but most of it is just heavy makeup, no roofs, foundation issues, etc. Just needs drywall, painting, cabinets, siding. Getting estimates now but I'd ballpark 15k to get it up to snuff. Comps in the area are 95-100k, and our realtor believes that the house will go for 70-75 in its current state. Estimated rent is 1200.

The turnkey house is in a slightly nicer neighborhood and is all recently renovated. It has builder grade materials, carpet instead of hard surfaces, and is about 200 sq ft smaller than the fixer upper. Because of the size we'd get maybe 100 less in rent per month. Listed at 125k and is move in ready. Also a 3/2 SFH.

So this poses the question, does the smaller cash investment in the turnkey house make sense even though it's not "as good of a deal", or is the house that will need some work (and thus more equity/investment) make a better choice. I'd say that we feel that the fixer upper is a bit more risky because you never know what you'll find when you start working on a place.

I guess that behind door 3 really could be "neither is a good choice", which my wife is saying, and we should wait for the 100k turnkey.

I'm a newb at RE, so please fire away with questions or comments on which way to go.

Thanks.

Craig

Greetings from the beautiful city of New Orleans. I'm am super excited to be amongst such savvy real estate investors. My wife and I are actively looking for our first investment property in the New Orleans area. We live in Mandeville and from the suggestion of most of the members here we'll look there for our first property. Our goal, like many here, is to acquire enough cash flowing rental properties in the coming years to replace our current income and have absolute financial freedom. We believe this will take 5-8 years and we're hoping to have a good mix of SFH and MFH. It seems the MFH cash flow a little better in our area, but I think a good mix is important to our risk management strategy. I'm excited to get to know everyone, and anyone in NOLA let's catch up sometime. Would love to bounce ideas off some other local investors. Craig

I had suspected that there weren't any of the typical tax benefits that one sees with REI in the lending space, as @Bill Gulley mentioned. And you bring up an interesting point of a 'lender' being someone who can be involved in many types of funding investments. I would think this is beyond the scope of this post, but certainly something that should be explored. As I build up my network of local contacts one thing is regularly repeated: those with available cash are highly sought after commodities. Seems there are regularly opportunities for money to enter the system and make 'win-win' situations for both sides. Even outside of real estate.

This has been a most helpful series of conversations and I thank everyone for their insight. At this point we are leaning toward the long term hold/rent approach as it has solid opportunity for cash flow, some appreciation, inflation hedge, and will fulfill our longer term goal of real estate cash flowing our (hopefully early) retirement. Now the decision of what type of RE to invest in comes up. But that's another story unto itself and has been debated here many times before.

One last wrinkle. If you took leverage out of the equation, would this change your approach to these two options? If you had the cash to invest but didn't want mortgages, does one approach trump others? I would think not, but interested in your thoughts.

Quite true. I said as my real estate investing goal to "build generational wealth". This outlook is extremely long term for me, and I do think a mix of both is probably warranted. As you said the super wealthy don't ever sell anything and that would be in our model. Ann Bellamy thanks for the book recommendations. I'm going Amazoning now.

@Steve Chaisson , @Darrell Shepherd , and @Kenneth Bell thanks for the input. Sounds like the consensus is building towards property ownership having potential for larger gains, while probably requiring more work. The discount purchase and increased value through improvements is tough to quantify and will change on every property. There also seems to be a decreasing return on investment for some renovations.

I would imagine as I get older I would prefer to be less hands on and could move in the direction of commercial real estate where property management is definitely built in. Seems to be a middle ground of sorts.

@Bradford Arner that's not demeaning at all. I'm an engineer by trade, so not incapable of running the numbers, but am trying to make sure that my calculations are including all of the variables of both sides properly. Things like @Michael Seeker mentioned...depreciation, mortgage interest tax deductions, etc. But I do think that appreciation of the underlying asset in a property ownership situation should be considered. While it wouldn't be the goal of the investment, longer term it does play into your net worth just like repayment of principal on a loan would.

Thanks for helping a newb out with your thoughts. Keep 'em coming.

Yes, that's my understanding as well, with points added to the rate range you mentioned. I am not a risk averse investor, so Hard Money, or longer term (5-15 years) Private Lending doesn't scare me. Either way I know there's a ton to learn before jumping in. I just want to make sure I'm jumping in the right pool.

A bit of a philosophical question here, but looking for anyone who's done some of the in-depth calculations of these types of investments. The question is if I'm just getting into real estate investing and have 100k to put into the market annually is the accumulation of wealth larger as a private lender or a property owner of SFH rentals.

I can't even imagine how to start calculating this, so I'm asking for some help with considerations. The question in my mind immediately would be what is the 'value' in terms of wealth creation of potential for appreciation of the underlying asset as a property owner in a long-term holding situation versus beginning to make a return on my investment now as a lender of money. The power of compounding interest sure would be on the side of the lender model, but there's no chance for capital appreciation over time. Would the compounding of interest over time make up the difference for the lack of appreciation? I live in an area that I do not expect to appreciate significantly over the coming years (at least in the markets I'm comfortable investing in), but is a stable market for mid tier rentals.

Thanks to everyone for making BP such a valuable asset. I just found the site a few weeks ago and have been hovering pretty regularly since then.

Interested to see people's insights on this topic.

hi Chris,

I'm a fellow Nola resident as well and am just getting my investing career started. I frequent the uptown area pretty often and will have to stop in to the cafe soon. If you're up for it I'd love to catch up sometime to talk shop. I think there's a ton of opportunity in town for developing some of those borderline safe/desireable areas. As a Northshore resident I may have a skewed perspective, but know that uptown, etc is where the real action is in the New Orleans market.