All Forum Posts by: McKellar Newsom

Zubair,
The property I mentioned is rented at 698 and should hit in the 20% range for a return if expenses don't go over 50%. My insurance is for bought value not replacement so my costs might be a bit lower than some. I do have 7% property management and $20/month alarm monitoring on that particular property.

The problem I have found with the cheaper properties is that you have to buy in cash. Banks don't typically want to loan less than 50K.

For cheaper properties, I like Chattanooga, Memphis and Nashville. I recently bought a 4/2, 1100SF, 2007, Section 8 type property for $21,500. Newer ones like that don't come around all the time, but on occasion.

I like to add alarm systems, motion sensor lights & HVAC cages for lower end properties, especially if they are not located in my home city.

I don't have any rentals in the Cincinnati/Dayton area but have some in Akron and Columbus. In Akron and Columbus, the water bill cannot be put in the tenants' name. Most turns I have had in these properties have ended up with an extra water bill to pay. It's not usually a huge amount 100-200 but it would be nice to know if you will have this issue in Dayton and Cincinnati as well. I haven't seen this issue in any other state.

I've stopped purchasing in Ohio because rents seem to be going down a bit. I'm seeing rents rise in my other rental areas. Double check to see how the economy is doing and what experts are predicting regarding future growth.

I was in your situation in 2007. I lived in Bozeman, Montana, a resort town with a minimum home price in the 250s. I kept making bids to get a 10 percent return and never landed anything. I ended up investing in other states and have loved my results.

Out of state investing, however, is not for everyone. You have to like managing managers because you aren't there to do everything. Choose a market with cheaper house prices, landlord friendly laws, high rents and potential future job growth. Look at places with good airports that you wouldn't mind visiting often. Don't forget to add travel costs in for your returns.

I will say I ended up moving to one of my markets but still have houses in 6 different areas. I like the diversity. Good luck to you.

I recently considered a rental in a flood zone. My insurance agent mentioned that properties in a flood zone require government backed insurance. Evidently, with the government push to decrease expenses, one idea has been to stop government backed insurance for flood zone properties. I find it hard to believe that the government might stop providing backing for this type of insurance but even the suggestion makes me more cautious about buying properties in a flood zone. Has anyone else heard of the this potential change in flood zone insurance?

Thanks George and Steve. McK

Another point to consider is that states have been changing their laws regarding hard money lending. I'd suggest calling your state's financial institution governing body to confirm usury laws, etc.

George, I've never had to redo an asphalt driveway, just a concrete one. Are they cheaper? Any feel for how much cheaper?

Since you asked for suggestions, I'll tell you what I would do. Ultimately, however, you have to develop a strategy that works for you.

First, I would steer clear of states like California that have more liability issues for landlords. I wouldn't invest in California, New York or Alabama because of liability issues. I have never researched liability issues in Arizona but you should before you invest there.

Check out bestplaces.net. If you are in the market for a city to invest, consider population, median income, median home price, current job growth and future job growth.

I like cities over 100,000 people in the market area. You want a 3-5 ratio of median home price to median household income. Phoenix has a 176k median home price and 48K median household income (ratio of 3.6). Las Vegas is 270K to 56K (ratio of 3.7). I tend to think 270 is a high median home price though.

I'm in Tennessee not California so 270K might seem like a deal to you. For example, my hometown of Chattanooga has a median home price of 127K.

Phoenix has .28% current jobs growth and 30% predicted. Las Vegas is at a negative 2.46% and 21% future growth.

I really like some areas in the southeast right now because home prices are low and predicted job growth is high.

As for leveraging or not, you mentioned 50K properties but most banks will only lend you a minimum of 50K and you need 20%+ down. I'd start by looking at a 80-100K property to invest in cash. Get the one property rehabbed and rented. Wait 6 months, then refi. . Take it one property at a time. Good luck. McKellar

How steep is the driveway. I tend to say no immediately to steep driveways because renters and buyers prefer flatter ones. We have lots of steep driveways here in Chattanooga.

The cost of concrete has gone up recently. I'd get a couple of quotes. We had 3K in costs on a small concrete driveway this past spring. An asphalt driveway might be much cheaper.

Keep in mind you potentially have material costs, labor costs, back hoe prices and dump fees. Good luck. mck