All Forum Posts by: Robert G.

Becky, in a "hot" market, the MLS isn't a great resource for investors.

By definition, properties are selling easily and quickly in a hot market. Often with multiple offers to choose from, as you've stated. Basically everything listed in the MLS will be at or near fair market value. Generally, whatever isn't selling is either vastly overpriced or has serious issues (be it structural, legal, or whatever).

I don't know whether you plan to flip or buy-and-hold, but if you're looking for a good deal, neither of those scenarios helps you much.  First of all, you need a bigger discount to be successful.  Getting a property at 3.5% below asking ($166k instead of $172k) doesn't give you anywhere near the margins you need, unless that $172k was a seriously underpriced asking amount (which it wasn't, in theory, due to the "hot" market and the fact that it has been on the market 75 days and had the price lowered already).  Hard as it sounds, as an investor, you want to buy that property at $126k, not $166k.

Basically, with those market conditions, the MLS just wont work 99% of the time. You need to network to find off-market deals. Or market (yellow letters) so they come to you. Or use a wholesaler. Or buy all-cash and target distressed REOs. Unfortunately, you need to get creative. It's more work, definitely.

Buying in a hot market is very tough.  BUT, you'll have a much easier time when it comes to sell.  You've got that on your side.

 It is exactly the same way in Miami.  The rent rates just dont justify the purchase prices.

I regularly see duplexes asking $450k that would bring in a total of $2,700 or so in rent. The issue, I believe, is that the duplexes are not valued like other commercial property. The sellers are NOT looking at the income stream in order to value the property. Rather, they are looking at comps in the area, like any other SFR. And if they see the 1800 square feet 3/2s in the neighborhood selling for $275k, then they're are going to look at the duplex (which is larger, with more bedrooms, more bathrooms, and an extra kitchen) and value it at $350k (or whatever, for this example). So the expecation, and the asking price, is simply not tied to the rental income it is capable of producing. Unfortunately.

Noe, I agree with your concept, but not your conclusion. VERY unlikely that any SFR in Miami costing $290-300K is in an "A" class area. That price range corresponds to "B" class, at best, around here. Maybe even lower, depending on the location.

As for the refinance scenario, lets say he cashes out 75% ($225,000).  The question is would be willing to spend $225k for an asset that has a gross monthly return of $1850.  I wouldn't.  That is less then 1%.  About 0.8%, I think.  I don't even need to run the numbers to know I'd rather have the 225k to invest elsewhere.

I've heard very good things about The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges.  I've purchased it (Amazon) but haven't gotten around to reading it yet.

My other suggestion would be to read any offering by Frank Gallinelli.  Make sure you have a solid understanding of the finances/math involved. 

Jorge,

Unfortunately, there is no magic shortcut.

In my opinion, you have two options.  

1) Educate yourself and save up.  How much to save depends on your goal.  If you want to be a wholesaler, you need a few thousand to pay for the necessary marketing.  If you want to be a flipper, you need quite a bit more, usually.  And, from an investing viewpoint, you should forget about buy-and-hold in South Florida until you have substantial resources.

 2) Find a lendor/investor/partner.  Basically, find someone that is willing to provide the funds and allow you to do the heavy lifting.  This is difficult to find when you have no experience, but not impossible.  You need to hustle and network.  Build trust and relationships.

A few thoughts that may be useful to you:

First of all, you shouldn't expect the numbers to work on this property.  Before you dive in, look at the deal from a macro scale: $180,000 for a gross $1,900 a month return.  That is enough, right there, to know this isn't going to work out.

Now, if you like to property and want to try to make it work, you need to investigate several possibilities.  

Can you buy it for less?  You'll need to run the numbers at several different purchase prices to see where it makes sense to you.  

Can you increase the returns?  In other words, is $1,900 representative of market rent in the area, or can you increase rents (and therefore gross income)? Are the tenants on leases or month to month?  If your research shows that the property should be bringing in, say, $2,200 a month, then you'll need to run the numbers as such to determine what purchase price you're comfortable with.  That $300 a month gain increases the annual gross income by $3,600 (which should make the property worth about $30,000 or so more).

Can you decrease the expenses?  Passing on utilities would be ideal.  That is a reduction of $225 a month, which can be a game-changer for a property at this level.  Can you find cheaper insurance?  Can you get the property reaccessed and get taxes lowered?

Essentially, you want to pay less then $180,000 for a property that will earn more then $1,900 a month, and will cost you less then the current expense levels.  If you can get all of that to work on this property, then it may very well be a workable deal.

Another thought, I would suggest doing more research on maintenance and capital expenditures. 10% monthly may be a decent guideline in residential SFR, but I would expect higher expenses in a triplex (think about it, 3 kitchens, more bathrooms, more doors, just more repairs needed in general, plus you're dealing with a lower economic tenant pool that can be rougher on the properties).

Hope that helps.

The Miami market isn't a mystery.  Essentially, the ridiculous sums of foreign investment is propping up the market, and inflating it beyond the norm.  Purchase prices are no longer in line with replacement costs, or even what local wages/salaries can manage.  The reason behind the inflation may be unique, but for our purposes you can treat it like most other hot (and overpriced) markets.

What does this mean?  

If you want to wholesale, go for it.  Plenty of willing and able buyers, you just need to find and lock down solid off-market deals.

If you want to flip, go for it.  But be aware that fluctuations in this market are amplified, so projects here are riskier, particularly rehabs that take several months.

If you want to buy and hold, go somewhere else.  The competition among buyers, high purchase prices, and high insurance/tax expenses make being a successful landlord here rather difficult.  For most, it is an appreciation play.  Which isn't the Bigger Pockets way.

Then you aren't a wholesaler that dabbles in real estate investing.

You are actually a Real Estate Investor that happens to wholesale a minority of the deals you come across.

That works great if you are a WHOLESALER and can make use of such deal flow.  And that works great if you are a big time investor and can handle multiple deals simultaneously.  But the majority of investors are looking for 1 flip opportunity.  Or 1 investment property to buy and hold.  These people, looking for 1, maybe 2, deals a year simply can't handle the expense or the effort involved in what you are suggesting.

Which should be, theoretically, why wholesalers exist.  You handle that aspect, the expense and effort of finding and locking down these off market deals, and then you turn around and sell it, with your margin included, to that very investor I described above.

We just need more wholesalers, selling properties at a fair price for both sides.  Miami is so hot, and has so many foreign investors that don't seem to care about values and cap rates, that wholesalers can move properties for higher prices, closer to market value.  Which cuts out the investor with limited resources and creates this environment, where good deals are so hard to find.

Great location, and I would make future events, but I'll be out of town for this one.  Enjoy!