All Forum Posts by: Account Closed

Quote from @Bryce Jamison:

I tend to shy away from homes over ~20 years old to buy and hold for long term renting. This is because I'm concerned that even though the things in the house I can see look great things like the electrical, plumbing, or the foundation may need major repair if not immediately relatively soon. I'm also concerned older homes have already seen their biggest jump in capital appreciation and don't have as much potential for price growth compared to newer homes.

What are your thoughts on older homes? Is there something I'm not taking into consideration? Would a low enough sales price make all of my concerns go away?

Thank you for your time!

Age isn't everything. It also matters where the home is located, and what the weather, type of tenants it attracts/has been attracting, etc. other factors are. The stresses a house goes under are different depending on the location, weather, type of construction, and tons of other factors. 

Rent-to-price ratios also matter. I've owned homes built in the 1990s, and ones built in the 1960s. They both cash flowed and I never had major issues while owning them. I also have a friend that bought brand new construction, but had to shell out tens of thousands in repairs because the home wasn't built properly, the inspection didn't catch the issues, the builder didn't have a warranty on the property, and insurance didn't cover all the problems. So "new" doesn't immediately mean "low maintenance/low headaches" necessarily. 

It also depends on what in the older homes was replaced/updated/renovated. If you have a older home that has never shown signs of foundational issues, and it has a new(er) roof, electric, plumbing, HVAC, hot water heater, etc. Then you can pretty easily calculate what the holding costs of that home will be and when you'll have to replace those systems. The due diligence period and having a good home inspection are your friends in a situation like that. 

Regarding foundations in particular: Homes that are in some parts of the south east are built on gumbo clay. When it rains, the clay shifts, and so does your foundation. This happens to any home built on that. TRUST me, I know that very well because I've lived in locations like that for a long time before. If your house is not build on soil like that, but instead is built on more stable soil types, you probably will have fewer issues as long as the foundation was built properly to begin with. An older home you'll definitely know if there's a foundational issue or not. You might not uncover that with a newer home until much, much later. But that's just my two cents. 

Also I agree with one of the above comments: "A deal is a deal". Either the numbers work or they don't. Age isn't the main factor here. 

Quote from @Simon Ashbaugh:

Quote from @Drew Sygit:

@Account Closed

Beginning investors need to STOP believing all the fluff about rental investing, especially with the overheated real estate market trending to historic norms.

Historically:

Class A takes 3-5 year to positive cashflow, but you get highest relative rent & value appreciation

Class B gives decent amount of relative rent & value appreciation

Class C is mostly cashflow and at the lower end of relative rent & value appreciation

Class D is all cashflow with zero or negative relative rent & value appreciation

So, make sure you understand the Class of properties you are looking at and the corresponding results to expect.

 This is good. I have so many people come to me asking for $1000+ cashflow in an A-B location and their max budget is 100k. You will almost always trade some cashflow for appreciation and vice versa. Lots of podcast syndrome out there lol

 Agreed, I'm well aware of this dynamic, since I've been doing this for a couple of years. Cashflow is what I'm focused on. I appreciate everyone's advice. I'm getting ready to close on a property in Akron that met my requirements. I'm steering clear of the Raleigh market for the reasons I outlined in the original post. Although my personal home is in Raleigh and it would work as a rental if I move out someday, but only because I financed it at ridiculous once in a lifetime type rates and put 20% down and I've since paid down the mortgage a little bit. But those criteria are very much the exception. Straight LTRs don't really work in Raleigh unless you have some kind of unusual circumstances. 

Quote from @Tiffany Alexy:

You've gotten some great info here! Cash flow is pretty much non existent in Raleigh.  Are you open to other submarkets? I've found some decent opportunities in Johnston County. I've found that while the two (cash flow and appreciation) are not mutually exclusive per se, usually a property leans in favor of one or the other.  Raleigh is a better appreciation play at this point (though I would caution with a long time horizon).  Gone are the days of 19% YoY growth, at least for now.

Also, 10% down is going to make it even tougher.  Do you already have a lender lined up that will do that? The lowest I've seen is 15% and that's a rarity.

Thanks! I agree. I am, I started to look at other areas (I didn't even bother to really look much in Raleigh since the types of properties I'd want to own don't really exist here in terms of cash flow). Also agreed that properties tend to veer towards one or the other (cash flow or appreciation). So the 10% down applies to if I use a VA loan, live in the property for a year, then move and rent it out. I've considered doing this, but if I just buy a straight rental, I'll be using a conventional mortgage with 20% down.

Thanks everyone for the advice. @Cory J Thornton: Really great advice, I definitely appreciate it. I think my focus (aside from continuing to research/analyze properties) definitely needs to shift a little to getting better lead generation for off market opportunities. All the pointers you put down are spot on and I'm going to start doing those and tracking metrics against the time I spend on this. 

@Jared Hottle: Yep, agreed on driving for dollars, I'll need to make a plan for the areas I'm targeting and try to visit those on a regular cadence, even if I'm only able to do it when I'm not working.

@Nathan Gesner: Thanks, I'll definitely incorporate this into my lead generation activities and start seeking folks out who are wholesalers. I'm sure you're correct about the lack of conservatism in my calculations. I'll keep this in mind and try to stick to more conservative numbers. I think I was subconsciously putting in low numbers just to struggle to get potential opportunities to work, but of course, that's wishful thinking. Part of why I posted my assumptions/numbers down in my first post was to get exactly this kind of feedback (thank you!) for if I was being either overly conservative, or low balling things. This is very good feedback. Thanks. 

@Steve Vaughan: I definitely understand your point, but I guess it depends on what "turn key" means. I've bought turn key properties that definitely cash flowed. They needed a slight amount of work but had tenants in place who paid on time in full. But we still analyzed the properties, still negotiated, still visited the properties in person, did due diligence, etc. We were also employing a property manager that we had personally independently vetted that was not linked to the seller, and we made sure we were "managing the manager" persistently afterwards. I think Chad Carson has a pretty good video on the pros/cons of this: here. In the end, there are no shortcuts. I also agree with you that buying below market nearby (in my view it's too difficult for me to do in Raleigh given my current time constraints, but I could do it an hour or two out) and trying to take care of as much as possible in house is the ideal goal. 

Quote from @Joseph Crunkilton:

Finding deals is the toughest part about real estate. I spent a long time driving for dollars, cold calling etc and found very few opportunities. 

I connected with @Zach Lemaster and was able to purchase a couple cash flowing rentals with his team. I didn't have to source any deals and have been making much more than I would've on the open market. 

Have you ever considered purchasing a turnkey?

Yes, I'm open to buying anything that makes sense financially and can be sustained. Turnkeys I've bought and owned before, so definitely open to it if it cash flows. Thanks for the recommendation, I'm checking Zach out now, appreciate the advice/pointers!

Quote from @Steven Taylor:

@Account Closed I am in the same boat, looking for properties (multifamily) that cash flow from day one with specific criteria, and not much is out there. I', a buyer in any market, however..... my 2 Cents and high-level opinion: 

I believe patience is key right now. Maintain capital preservation and keep some dry powder given where I see the market (entering Phase 3, hyper-supply). We are already seeing more price reductions, rent increase slowdown, and increasing vacancies. There is usually a 12-18 month lag in housing drops vs wall street paper. I think in the fall of next year there will be some tremendous deals on the market!  In the meantime, you can find some places to park your money and get ~3-4%. I always remember the profit is made on the purchase.  Right now there are a lot of sellers in denial about the reality of the market (Hint it's past its peak!). 

S

 Yep, I do think Raleigh will continue to appreciate, but I have to say, I have seen slight price declines already in my neighborhood over the past few weeks/months. Around 5K price declines so far on average. Listings are also taking slightly longer to sell. I do think we'll see some more moderation next year, but I also think we won't see a crash. Most of the folks that have bought houses (unlike 08) have pretty good credit, some savings, and then locked in long term low interest rates. But at the same time, builders that are doing new construction are offering pretty great deals atm as well. It's kind of weird at the moment I guess. The opportunities will definitely come, just got to keep plodding along and looking I guess. 

Quote from @V.G Jason:

Quote from @Steven Taylor:

@Account Closed I am in the same boat, looking for properties (multifamily) that cash flow from day one with specific criteria, and not much is out there. I', a buyer in any market, however..... my 2 Cents and high-level opinion: 

I believe patience is key right now. Maintain capital preservation and keep some dry powder given where I see the market (entering Phase 3, hyper-supply). We are already seeing more price reductions, rent increase slowdown, and increasing vacancies. There is usually a 12-18 month lag in housing drops vs wall street paper. I think in the fall of next year there will be some tremendous deals on the market!  In the meantime, you can find some places to park your money and get ~3-4%. I always remember the profit is made on the purchase.  Right now there are a lot of sellers in denial about the reality of the market (Hint it's past its peak!). 

S

Obviously it's all market specific, but there's still a fundamental short amount of supply. I don't think we'll see a nation wide crash, I just feel we'll see super low turnover of homes. In some markets, the domino effect can happen(I suspect STR markets and other markets with high % of new builds coming online q4 22-q3 23). Some markets are not past their peak at all, they still will sell higher YoY. And next year, will still be worth more.

 ^ Yep I agree. Raleigh is definitely going to continue to appreciate for instance (no end in sight atm). Also, I agree with your earlier post as well, I figured I'd already found out what is likely to be a common experience, but I just wanted to sanity check my approach and see if there was a major problem with my approach. Good to know I need to keep plugging away (and I will). I'll keep networking, put together a lead generation campaign, etc. 

Quote from @Jewel B.:

Are you looking for turnkey properties only?

 No, I'm potentially open to properties that need a little bit of work too. As long as the numbers make sense as an LTR after renovations/repairs. 

So a little bit about my background before I dive in: I previously have owned rental properties before (back in 2018 - 2019). Those properties we all bought in cash (no leverage) they were lower end properties that cash flowed and already had tenants. My business partner bought me out near the end of 2019 or so and we parted ways amicably. Then Covid happened, and I wasn't involved in the space for a few years. My main job is working in tech as a project manager. I have capital, but most of it is already fully invested at this point. The area we had been buying in has since appreciated and the properties no longer cash flow, he has since exited real estate altogether (and moved out of state as well). 

I'm getting "re"-started now again. I have my LLC set up, bank account, liability insurance, etc. and I've been doing research and analyzing properties. I want cash flow, preferably through SFH. But it seems impossible to find anything at the moment. Which means I'm probably either A. Not searching the right way, or B. Not searching in the right markets. So I'm open to advice on what to change. Below, is what I have been doing so far over the past few weeks:

I live in Raleigh, and I know it's extremely unlikely I'm going to find any kind of cash flowing LTR properties here (I'm not open whatsoever to STR or MTR that is a non-starter for me). For me, appreciation would be a nice inadvertent bonus, but I care far more about cash flow and am prioritizing that. So I've only been looking outside of the Raleigh area, trying to stay in state for now, and looking in Greensboro, Fayetteville, Rocky Mount, Winston-Salem, and Greenville. I've been primarily looking through Zillow, REIA, and realtors so far.

I've been debating about "driving for dollars" on the weekends an hour or two outside of Raleigh, but wouldn't be able to do it during the week because of work. Price wise I want to aim for properties that are below 290K and that could still net me $200 /mo with no more than 10% down. But so far, those criteria seem to be unrealistic. I have the money to put more down, but I'm trying hard not to in order to preserve the money for expenses or more down payments for other properties. 

I'm open to changing my searching strategy or property type (going to condos or multifamily instead of SFH, etc.) or partnering if I need to after vetting the potential partner(s). Not sure what else I should be considering changing at this point. Open to suggestions though if anyone has advice.

In terms of what the "numbers" are: I typically assume:

5% for maintenance and repairs

5% for vacancy (sometimes more in certain markets)

5% for capital expenses

8% for property management 

Then additional amounts for whatever rates are for property taxes, insurance, HOAs, etc. 

Rental income I typically pull from either bigger pockets, Zillow, or from a local property management company's estimates, and from what similar properties are renting out for. 

Quote from @Zach Rubin:

The more reading the better! All the books welcomed! Haha This is great information to go by and I do greatly appreciate it.

Hey Zach, I also have quite a few books that I have read/am reading in my profile if you want to take a look, all of them are pretty good. Most of them are on Chad Carson's reading list (he's a down to Earth real estate guy from SC). Good luck on your first deal. I'm trying to get back in after a few years of covid. My challenge has been finding properties that cash flow (I may write a post about it actually because it's been so challenging for me to find something).