All Forum Posts by: Ken Badziak

Owner finance, or private money. Find a deal where the owner is willing to hold the note for X amount of years at Y interest rate, or ask a "rich uncle" if he'll loan you the purchase amount and carry a note. It can certainly be done, but you'll just have to work harder to find that deal. But they do exist; guy I know just purchased a $1.2m building here in Lauderdale with zero down, owner financed. And in the future, remember: If it Flies, Floats, or F*cks, it's cheaper to rent!

Originally posted by :

  ...I would not worry if your chosen locale is Boston or LA as @Ken Badziak is incorrect about places like Cleveland beating places like LA. Southern Cal has been one of the best Buy n Hold REI in the US for return on almost any duration (5 years, 10 years, 20 years, 30 years). You or Ken can research this to confirm. There is little reason to think otherwise for the future.

I like math. It's hard to argue with numbers. 1+1=2. (Unless you're using Common Core, then 1+1= apple).

And math says that California is NOT a great place to invest. Between absurdly high acquisition costs, absurdly high taxes, absurdly high operating costs... not even absurdly high rental rates can makeup for it, long run. Yes, one can find good deals in California, I'm certain. But for every 1 "good deal" you might come across in SoCal, one could EASILY find 10-20 deals secondary markets.

California is a cyclical market; when RE appreciates, it appreciates well, but when it crashes, look out below. And when your tenants can no longer afford the absurdly high rental rates they were paying prior to the next crash (i.e., today) what's going to happen to your investments as tenants flee?

Not to mention that practically not a week goes by without a newspaper headline showing a net outflow of population (I guess people can only take absurdly high taxes, government regulations, cost of living,etcetc for soloing before they decider's not worth it.) and SoCal continues to be a lousy place to invest, compared to other, more stable and "boring" Midwest and Southern markets.

I agree with the "house hack"; if one HAD to live in SoCal, possibly THE BEST way would be through a house-hacked duplex, try or quad. But to build a viable long term portfolio? SoCal isn't the place. Maybe after the next crash when prices come down to earth somewhat,but not today. 

If you're happy with single-digit returns, then yeah. SoCal is wonderful. I personally like double-digit returns. Which is why I'm not spending too much effort looking for rentals locally here in Miami; I'm looking elsewhere. Which is why David Greene, of Oakland CA, is doing the same. http://greeneincome.com Which is why many many many investors are doing the same.

Math doesn't lie. 

Want buy and hold in SoCal? Wait for the next crash. THEN I'd be inclined to agree somewhat. But today? No way.

What's the date and location? Is there a website, or is the info on BREIA?

Originally posted by @Chris Clothier:

Originally posted by @Ken Badziak:

I love leverage. If you can find a turn-key provider that will work with conventional loans, then great! They do exist, but most of them want cash.

That being said, even if you paid cash, you'd still be using leverage... When you refinance and pull equity out a year later.

 I'm sorry Ken, but I have to comment here before Travis gets sent down a long path to frustration and confusion before he gets started.  I have no idea where this notion that a majority of Turnkey companies will require all cash??? I know a majority of the best companies in this business and every one of them worked their backsides off to provide properties that will qualify for financing. Most have contact information for multiple different lenders that specialize in working with non-owner -occupied properties.

When lenders refuse to finance a purchase, it is because there is a high risk in financing that property. Why will they not finance $50,000 properties? Because the default rate of homes financed at those levels is too high. It is not worth the risk and the time spent on the file.

The same goes for refinancing that property. Banks that will not finance a purchase are not going to be rushing through the door to refinance them either.These price points you are talking about, three properties purchased free and clear for $150,000 and Turnkey for that matter is a disaster waiting to happen.  $50,000 all in would include all closing costs incurred by the buyer and ignores that he would need to keep reserves off to the side, which at this price point should be a minimum of $10,000 per property.  

That leaves him for $40,000 to buy the property, including closing costs from a Turnkey vendor.  What will the buyer get...absolute junk!  It has been shown over and over again that a Turnkey provider cannot purchase a property, fully renovate that property to a level eliminating most deferred maintenance and make a profit that allows them to make money, cover overhead (team, systems, physical location, property management) all for $40,000.  It CANNOT be done at a level that an out-of-area investor should absolutely expect.

It looks great.  It sounds great and the people selling low-cost, cheap junkers love to tell the story about how easy it is...but it is not and this is where investors get seriously hurt.  This is where investors lose thousands and thousands of dollars and that is if they are lucky enough to be able to get any of their money back out.

@Travis M. gave you the best advice on here and that is to get your money working for you now.  Earn a nice return on your money while you learn exactly where you want to invest and what you want to invest in.

You will be able to find opportunity in the single-family market and the multi-family market if and when you choose to physically own property.  I would figure out what I don't know first, learn the best way to build your passive portoflio second and then decide the route you want to take.

Do not let your money burn a hole in your pocket and please do not waste it chasing high returns on risky investments.  Right now it is more important for you to earn a smart return on your money.  Much more important than buying assets if that is not the smart return.

Hey Chris, thanks for the reply. Valuable information indeed!

Like I said before, I don't own any of these $50k properties yet, but having done some research and listened to quite a few podcasts and read blog posts here and elsewhere on the Interwebs, I would feel comfortable investing in them. 

That being said, however, the argument can easily be made that there is a far better tenant base available in $80-120k houses, and the barrier to entry between a $100k house isn't that much more to a $50k house, when financed. If I had cash to go all in on a $50k house in reality I might just as easily rather go for a down payment on two $100k houses...

IRT turn-key providers mostly wanting cash, I've talked to maybe half a dozen at this point. Each and every one of them made it abundantly clear that they either flat out want cash, or very much prefer to work with clients who have the cash to plunk down. I guess I just haven't talked to the right ones yet. Your company I haven't yet talked to, but Memphis Invest is definitely on my list; right now I was focusing on areas where I can get to easily through my company (we don't hit Memphis yet, but I'm sure that'll change soon...)

But yeah, overall, I'm inclined to agree with you. Perhaps for most investors $50k houses aren't the best way to start, but $80-120k houses offer more opportunity, both in higher class tenants and more possibility of appreciation...

Ann Horlacher $1000 a month shouldn't be too hard to hit. A good rule of thumb is to take your rent, multiply by .60 for expenses, then subtract any debt servicing (if any) from that. So if you're paying all cash for that house and get $700 a month in rent, subtract 40% (X .60) and you get $420 a month positive cash flow. If you put 25% down ($12.5k) and put it on a 30 year fixed, your monthly P&I payment comes out to about $200. So if you go all cash you can hit your cash flow target of $1000/mo with just three houses. If you leverage you can do it with 5! Good luck!

I don't own any properties in Indy (yet) but everything I've been reading to date leads me to believe $1000 rents for sub $50k properties isn't going to happen. You'd be better off expecting $600, $700 and maaaaaybe $800 a month. Still, pretty damn good returns!

Engelo Rumora , I'm gonna have to give you a call!

"tough to invest in my first deal so far way from my primary residence though, I am hesitant to make that first step without complete control and ability to personally manage and monitor the property"  Travis M, I used to think the same way. But you gotta just trust the system. WHEN you find a good reputable turn key provider and property manager (and there are a lot of them out there) it's actually pretty easy, in fact way easier than "doing it yourself", because you're taking all the emotion out of it. Do yourself a favor. Start listening to Clayton's podcasts, and Brie's podcasts. You'll hear plenty of interviews with investors just like yourself, who either live out of the country or live in areas where local investing just doesn't make sense. If I was in your shoes, with a year left before you return to America, I'd take $200k of your $250k and buy 4 turn-key properties in either Indianapolis, Dayton, Toledo, Detroit. All of which are within reasonable driving distance to Chicago if you REALLY get the itch to "check out the property". Start collecting the cash flow, get that clock working for you; many banks won't consider rental income as actual income until you've been a landlord for two years. So you'll knock out 1/2 of that by the time you come back to the land of the free. Then, once you're ready to buy something in Chicago, pull some equity out of your cash-flowing properties and use it as a down payment. In the meanwhile, learn as much as you can about the Chicago market; your idea is solid, but $1m just won't buy you much in the way of a 4plex (four flat in Chicagoese). Maybe even rent for a year to really know the city. In many neighborhoods the boat has already sailed, but you'll still find deals, but you have to go to areas like Avalon, Jefferson Park (if up on the north side, anyways). Lincoln Square is an amazing neighborhood, and has good Air BnB rentals, but it's kinda hard to get to for the tourist crowd... Anyways, that's it. Nothing to fear with long distance investing. I live in Miami but am investing now in Cleveland, with my eyes also set on other markets. Will I own in South Florida? Maybe, if a stupid good deal drops in my lap, sure. But by and large, the numbers just don't make sense. I think you'll find the same holds true for Chicago.

But I think you'll find the prices will be out of your range for what you're looking for. $1m just doesn't go that far in Chicago, ESPECIALLY in the downtown area. My sister lives in Logan Square, one of the hottest neighborhoods now. (It was almost a war zone when they bought 7 years ago!) the duplex across the street from her sold for around $800k... as a tear down.

If you're looking in the Chicago area I'd definitely reach out to Brie Schmidt here on BP. She does a LOT of investing up on the North Side. Good luck! Definitely do your homework before pulling the trigger!