All Forum Posts by: Mike H.

I think you're missing the most important piece of investing - and thats the assumption that you need to buy right. Its the age old adage that you make money when you buy.  

I see too many people above suggesting you need to put 20 to 30% down to cash flow.  But they appear to be suggesting that you're paying retail.  And therein lies the problem.  If you're paying retail, you are not investing right.

You need to be able to find deals. They're out there. They require more effort. But they can be had. Find markets where if you're all in at 75% or better, you'll cash flow and then go find deals to where you can be all in at that LTV (i.e. purchase plus rehab)

Direct mail works.  Mail people that appear to be in a tight spot - i.e. 90 day notices, unpaid taxes, ect.  And find the houses that you can be all in around 70 to 75% purchase plus rehab.  And then hold.

To me, I'd suggest you look at smaller towns that have good schools and are close to cities so that you can get houses closer to that 200k or less mark yet still have a shot at decent appreciation and decent rental increases over time. Be sure to take property taxes into account too - there's a huge difference across the country. 

Here's the other thing I'd add.  If you can find the deals, you can do the 2 for 1 thing too. Lets say the market is 200k houses. And you flip one and make 30k and then you hold the second one and throw that 30k into a deal that you picked up for 150k.  Now you're at 120k on a 200k house and your cash flow should be pretty solid. More work to have to do two deals to keep one.  

 

Seems like a silly question though.  What else would an invvestor "consider" to use to finance their properties other than a "long term rental loan"?  Do I have another option? IF so, what is it? Again, I'm sure they were trying to dum up business but maybe didn't think that post through enough. 

So this was a new build. Did you pay 100k for the lot and 100k for the build? Or 100k for the lot and the build.  Either way, you owned it for 20 years and the value seemingly tripled (I'll assume you were all in with lot and build at 200k).  And if so, thats amazing. 

Long term capital gain isn't bad.  But then again, given the fact that its such an amazing rental, why not just refi it and pull cash out.  You'll get the cash entirely free.  And you'll get a ton more principal paydown going forward with having a loan and you'll continue to get appreciation but at a much higher base.  

The house tripled in value in 20 years.  What if it does that again in the next 20 years.  It'd be worth 1.8 million dollars.  What if it goes up 5% a year.  In 10 years, it'll be worth 900k.  Even if you borrowed 400k against it now, you'd have well over 500k in equity in 10 years (500k plus the principal paydown).

To me, I think you refi it and pull the money out entirely tax free. Why give up such an amazing rental.  Its going to continue to go up in value and rents should continue going oup the next few years too. 

I think ultimately, thats the key. If you're paying retail for a property, its hard to make the numbers really work. STR changed that rule for a bit there for a run of 3 or 4 years but now even that has come back down to reality.

The key to investing has always been to buy right. Whether its LTR or STR - if you buy at a discount of around 70 to 75% LTV, you should do ok. If you're paying retail, there are very few markets out there that can give you a reasonable return on your 25% down payment.

That being said. I always add that if people are truly factoring in all the ways real estate makes you money, then there are some markets that make perfect sense as an investment even if you pay retail.   Just have to run your number on the market and the product type (i.e. small houses versus big houses, etc).

This article makes some very strange assumptions. It makes it sound like investors don't know that mobile home parks are a good investor.  I would suggest that all the big money has been chasing mobile home parks for at least a decade or more.  Its not a secret and hasn't been in years. So it seems strange to suggest otherwise.

The issue with mobile home parks is that very few new ones can get permitted these days. Towns/cities hate them because there are no proprety taxes yet they chew up services for things like more school kids, etc.

I'm sure there are deals to be had out there in parks for people that are looking.  But I don't see any low hanging fruit in any niche in real estate investing any more.  Buffett let the cat out of the bag years ago on mobile home parks and you're not going to fall into tons of discounted deals on anything right now.  

So there should be a difference if the house was damaged by flooding versus winds/tornado.  Was your house flooded? Or did the windws blow stuff off the house or blow stuff into the house that represents the damage?   

You might be covered if its the second one. 

But I would be very scared if I owned stuff in florida right now. At some point, and I think we've actually hit that point after the second hurricane in a month or whatever its been, is that people are going to be tired of dealing with these massive storms and the ever increasing rise in insurance rates.   And at some point, I almost wonder when all the insurance companies are going to pull up stakes there entirely and really make that state unlivable.

These storms of a century now appear to be happening every couple of years.  And the fear is that this may be the new norm there.  Even inland away from the coast - there's the risk of wind and/or flooding from crazy rain - I could see people rethinking their decision to move to florida. 

The question is where do those people go now? I would have said north carolina before but look at how that storm walloped a couple of towns there. Texas? Georgia? Tennessee? 

its got to be a place with no income taxes and low property taxes for older people on fixed incomes - yet warm weather.  It'll be interesting to see what happens to florida if a mass migration truly happens. 

I just don't know anyone in their right mind that would want to move to any city on the coast in florida any more. 

 Try comparing texas to illinois.  Its not even close.  The taxes in the towns i'm here in illinois are 3.1 to 3.4% of the assessed value.  And our assessed values are very close to actual values.  So a 300k home owner is paying close to 10k a year in proprty taxes.  Some towns are a little better than 3's.  But still. I know in tennesse there are 300k houses paying like 600 bucks a year in property taxes.  

How bad can texas really be?  Compared to tennessee, maybe they are bad.  But nobody compares to illinois. :-)

A couple of things.  One. It looks like the payment on the duplex is 7k a month. Is that correct? That means you spent about 1.6 million assuming a 25% down payment - leaving 1.2 million loan at 7%. But here's the critical question and answer :
How much did you actually pay for the duplex. How much do you owe? How much will the duplex appraise for once its fixed up?

Noone here can give you any legitimate response without knowing the answers to those three questions.

If you paid 1.6 million and put down 25% and now owe 1.2 million and the duplex will be worth 2 million dollars when its complete, then you can easily get a hard money lender to lend you on the property.  But they're going to require you to refi the entire amount (i.e. they'll refi the existing loan of 1.2 and add the 200k for rehab for a total loan of 1.4). 

They are not doing a heloc for the rehab amount and ending up in second position.  They have to be in first so they'll have to refi the existing mortgage you have plus add the rehab.  But that also requires the total loan amount (refi of the existing mortgage plus 200k for rehab costs) to be less than 70% or 75% of the total value of the duplex after its repaired.

btw: I hope you can rent each side out for more than 3,500  if you just paid 1.6 million and had to put down 400k.  And based on your 7,300 /mo mortgage payment on it, thats what I came up with by assuming 25% down (1.6 purchase, 25% down or 400k, leaving 1.2 million dollar loan) and 7% amortized over 30.

 Suggesting revenue numbers are trending down year over year is somewhat accurate at a the macro level.  But if you want to drill down to markets and product type, you'll see there are certain combinations still doing well.  In Sevier county, the larger properties (3bed, 2,000 sq ft and higher) have definitely seen a decline in rents.  But the smaller properties (1 or 2 bed, 1,000 to 1300 sq ft) have actually continued to rise.

My guess would be the people with a family of four that were coming in and staying at the larger 3 bedrooms are deciding that its more economical to just rent out the 1 or 2 bedroom places so that they can still vacation at a cabin but at a more reasonable price.

Additionally, two and three years ago, the numbers on the larger ones just made more sense so people went a built a bunch of those but the small ones not so much.  And right now the building starts have been almost non-existent for the past year.  So eventually the oversupply will be sucked up and this lack of building will allow rents/occupancies to return to a more normal growth period.

Keep in mind.  That when you have these big event changing periods, everyone tends to overreact.  When the housing crash hit in 08, everyone and their brother was saying how the housing prices weren't going to come back up to pre crash levels for years.  And that real estate was no longer a great investment. The logic of that made no sense though.  But when I was buying during that period, I had lenders sit me down and tell me they couldn't give me a loan on investment properties because of how bad of a long term investment it would be.

This covid thing was a huge disruptor. Flooded the country's str's with more guests than ever because of all the extra money they got and their ability to work from anywhere so they could travel and still work. And that drove more building and more entry into STR investing than made sense. We are at an oversupply.

But now we're seeing the correction.  Nobody is building new stuff in sevier county. Nobody. Very few investors are buying existing stuff. And some people in other areas of the country are getting out altogether.  This is a good thing for long term investors. And exactly what you'd want and expect to happen.

But don't be scared off by whats happening now.  If you're investing for the next 12 months projection, you're in the wrong business.  Invest for what the market should look like 3 to 5 years out.  And to me, I think this area looks absolutely great.  Florida would scare the heck out of me given the recurring hurricanes and insurance increases.  

There is always the possibility. But here's the thing. If people own a cabin that is zoned to allow STRs, then they are going to rent them via an STR program. You won't find any cabins up for rent as long term rentals. The numbers don't make sense for owners. So why would an owner rent a property long term and take a haircut from the rent they're currently getting?

Again, this is a different area than most. Most areas have long term rentals that can in fact be converted to short term rentals.  But go check the long term rentals on zillow for the entire county. You won't find a single cabin for rent. Not one.  You'll find houses - but houses that are in areas that don't allow STRs.

So how are you going to talk an owner thats renting their cabin via STR already into taking a long term rental amount so that there is room for you to make money?

i.e. a one bedroom cabin,1000 sq ft is probably grossing 45 to 55k a year. The landlord is paying property management (20%) plus all utilities out of that though. You'd have to get that for say 2k a month to have enough room to then STR the thing and make it worth your time.   Good luck with that...

Can you find one needle in the haystack? I guess its possible.  But I wouldn't put money on it.  And again. You could obviously find someone that would rent it for 4k a month long term.  But you're going to lose money on that when you go to rent it back out on STR program.  

this area is completely different than most and I don't believe you can find a deal for arbitrate AND make a reasonable profit doing so.