All Forum Posts by: Tou V.

@Tou V. did I understand you correctly, you have been paying $1100 a month since the beginning of this year... if that is the case you have burned $9900 trying to decide what to do! At this point it really does not matter if you go local,  the BA or TK. You have to stop the bleeding, that has to be priority #1. Just trying to get back to break even is going to be a challenge. Do something before you burn all of your money and time....

-Arlen

@Tou V.

It seems to me that you are sold on doing TK regardless of what anyone says good or bad about it. Most investors don't have $200k that they pulled out from any other properties to put into income producing properties. So I would consider you very much experienced compared to my clients.

Your calculations are correct, if all of the items actually are true\happens... ie 10% Vacancy, 10% Repairs, 10% CAPEX, and 10% PM Fees.

Example: Some tenants stay in their homes 1,2,3,4,5 better yet I have a lady that has been in one of my turnkey properties over 11 years. So did I experience the 10% Vacancy? NOPE!! The same tenant that has been in the property 11 years has called me to fix a shortage in her light, everything else her hubby fixes and doesn't charge me a dime, did I experience 10% Repairs? NOPE .. I only charge 8% PM Fee on Properties I manage this varies among TK providers. These examples go on and on and on with other properties and other situations toooo many to list. Granted these don't happen all the time that's why it is really hard to add those calculations to all TK properties/providers.

REI is not always Rosy going the TK route and nor is always peaches and cream buying locally in your case high cost west coast route.

If you were a potential customer, I would ask "What are your REI goals" Short Term 0-3 yrs, Mid Term 3-10 yrs, and Long Term 10+ yrs, "Are you looking more for Cash Flow or concerned about Appreciation" , "What type of investment are you looking for Low Risk A-B class areas, Mild Risk B-C+ areas, or High Risk C-C- areas". After you answered those questions I would let you know if I could help you with your investment needs.

I was shocked after reading your comment, "I don't have the contacts or resources to find properties at 50% off locally, so everything I see is on the MLS."

Why Can't you find the contacts and or resources to find properties at 50% off locally?

Where there's a will there's a way!! You can do and achieve anything if you never give up!!

@Tou V. I don't think you have much of a dilemma at all. If you didn't need the cash flow and were ok with banking on long term appreciation then investing in the Bay Area might make sense, but keep in mind that the Bay Area is at the top of the curve and the market is slowing down. From what you say, you don't have that luxury though. You have borrowed money that you need to generate a return on. Are you willing to pay out $1100/mth indefinitely with nothing coming in? You need to know how and when you can pay off the $200K before going in to anything. You have can't know that if you're banking on appreciation alone.

@Tou V. "in the example you gave about you 85 dollars per month for repairs. So for 1 year you are talking about 1020 dollars for year. So do you really think this will cover repairs, Capex and making the unit ready when the tenant leaves? I think that is highly optimistic over the long term. Ask the turnkey providers how much replacing a heater will cost, How much fixing a plumbing issue on average costs and some common capex items and repairs so you know if really that number makes sense. I have actually seen some turnkey providers use 5% for repairs and no mention of capex.

I somehow missed you were in Stockton. I think Arlen has a good point about trying things locally since you are close to one of the lower cost areas in California."

@Radhika M.

I agree it is optimistic, but also depends on what condition the property is when initially bought. If all major components were replaced / repaired properly, then buyer should be good for a while without incurring major CapEX. I have an idea on how much repairs cost. At $1020 yearly it would take 5-7 years to cover a roof replacement, 1 year to cover a water heater, and 3-4 years to cover heater / AC. Plumbing are $150+ per call, well any repairs are $100+ and escalates rather quickly. I'd assume the general idea is a roof should last 20+ years, heater / AC and water heater around 15 years. Thus if you saved $1020 for 15 years, you should have $15,300 set aside for CapEx. Does my reasoning make sense? Feel free to poke holes...... Thanks.

@Tou V.

Here is a Stockon Apt. 12 unit @ $650 

588k NOI 52K senior government tenants.

New roof, plumbing, windows, electrical and plus one unit for retail unrented for extra flow.

http://www.loopnet.com/Listing/19307476/530-N-San-...

@Tou V. I always suggest invest locally if you possibly can!!

Most people don't have $200k in cash lying around and most are not as experienced investors as you are.

@Tou V. I always suggest invest locally if you possibly can!!

Most people don't have $200k in cash lying around and most are not as experienced investors as you are.

@Tou V. I believe that the discussion of first tier market vs fly over markets is directed incorrectly to appreciation vs cash flow. My feeling is more of a question of barrier to entry into the REI market. All investors should be looking for both appreciation and cash flow.  If a person picks one or the other, I believe that there is a level of sophistication that is lacking in their strategy.  The amount of appreciation or cash flow maybe different for each investor and the weighting might be different, but I would hope that everybody is looking for both.  Pretty much every book you pick up on REI will highlight this point.

Obviously, the financial barrier is much higher in the Bay Area vs a mid west city.  However, the potential for appreciation is also much higher.  One the other hand, the barriers to getting clear and factual details about potential properties for purchase or the daily operations of the rentals is much harder to get from a property located in a different state.  You have to trust and lean heavily on the support team that you find/create.  I am sure that there are great established teams that can support an investor, but I always follow the saying; "trust but verify".  It is just harder to verify if I have to get on a plane to see my property vs get in my car.

No matter what anybody says, the BA is an "end goal" market.  Meaning people want to invest here, but because the barrier is so high not everybody can enter easily.  But once you are in the door, there are definite ways to get great appreciation and great cash flow.  Look for my posts about my purchases in Mountain View and Oakland to get some more details.  I have posted real purchase, refi and rent numbers.  But the cash flow part takes time and effort, it is not something that comes the month after you sign the contract.  In the fly over areas, you might get great cash flow from the get go, but you will never get the great appreciation.  

The lowest barrier of entry for your situation might be to focus on your home town or cities nearby. I know of a fellow BP member who has been successfully doing flips in Stockton, from the BA, in his spare time. You are in that city, there is no reason you could not do flips more profitably and more quickly. If you wanted to, you could do buy and hold there with similar acquisition costs and rental rates as many of the cities hundreds or even thousands of miles away, but save yourself the "turnkey" or management fees. Build up your cash further and then make the move for a BA buy and hold if that is something that you still want to do.

Don't get caught up in the hype of what "everybody else" is doing.  That could mean going to the BA or going out of state.  I suggest you focus on your "unfair advantage", which might be the fact that you are from Stockton and you have $200k available to you...

Good luck to you!

-Arlen

@Tou V. Every one's situation is different and the decision needs to be based on what the individuals requirements is. It looks like cash flow is very important to you and you need the cash flow as soon as you buy. 

I have a question about your numbers though. You are saying 200K can buy you 16rentals. So are you talking about buying the properties for 50K or less. So you are looking at properties are 50K cost and rental price of 750 or so you have 250 cash flow after expenses and mortgage payment. Is that right? I am not sure you have read some of the posts and articles about the capex you need for these properties?. If you take out 10% vacancy, 10% repairs, 10% property management, and then property taxes and insurance. you are already at 50% expenses. You need to account for Capex after the 50%. And based on many posts if you account for 100 to 150 dollars for capex if you plan to own these rentals long term. So really how are you getting 250 dollars for profit. You need to realize that the capex is not a % of rental income. So if you buy a property in the same town for 100k and 50K your capex will be relatively same but your rents will be lower for 50K property.

I am no expert but living in the bay area it is hard to find properties locally so I have looked at some turn key options and so far I have not found any on the 50K to 80Krange that make me want to take the leap. I think there were properties available for 50K range in decent neighborhood's a couple of years ago but I don't see them now. 

I am not against investing out of state but I would stay away from lower class properties and buy A/B properties where you have a chance of appreciation that is equal to inflation. To me there is no point in buying a property that will have 0% appreciation. This means you are buying a depreciating asset (not keeping up with inflation in rent/or property value). If it was for your personal home it is a different matter.

I am no expert and pretty new myself but that is just how I see things. Good luck no matter what you choose.