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BiggerPockets.com
from what i understand, you’re going to have a hard time in an already hot market/good properties. for instance, if you’re in DC, the ship has long sailed on U street. you’re not going to double your investment on a $600k property, and if you do, by the time that investment doubles you’ll maybe have broken even. better idea would be to buy a piece of shit for $250k in SE or something and pour $150k into renovation and in 10 years it might be worth $700k+ once people stop shooting at each other on the street and a whole foods moves in.
There is an Accenture poster who is well-versed in this matter! He will be along shortly... suggest you ask for his burner. He was really helpful when I emailed him.
It’s about buying distressed properties that no one wants (not something that needs serious foundation repair, but something that needs cosmetic repair), buying it for 20/25% under FMV, putting some money into the repair which will artificially jack up the FMV and give you automatic equity, refinance the finished product to repay yourself the rehab costs, then rent it out
Hi I'm here! Haha. A1 is referring to the BRRR method - tried and true. Problem is, distressed properties are difficult to deal with. Short sales can take months and months to close, foreclosures and pre-foreclosures often have hidden costs, cash purchase requirements, and hidden liens/encumbrances that cloud title. And auction properties are...well...hit or miss. But the general concept holds. Buy for value, stay for cash flow, sell not to cash out, but to get into something bigger like a MFH / commercial property.
@p1 you need to find the right property... for example if you’re goal is something that’s cash flow positive, you need to find a property with the right property price to rental income ratio.
To your point PWC1, you're right that the cost list is extremely long, and there will be years that are challenging when you have to replace a new roof or evict a tenant. But those are (hopefully) very uncommon occurrences. You need to find properties that have a (subjectively) good profit margin inclusive of all those costs. When evaluating properties, first thing I do is an inspection. What's the life left on my big assets? What needs immediate repairing? Can I make my purchase contingent on the seller fixing some immediate problems? A general rule of thumb is the 50% rule - assume that you are going to spend AT LEAST 50% of your effective gross income in operating costs. That's before P&I of your mortgage btw. What are your costs? Other than financing charges, you've got taxes/insurance/utilities (if you're covering them)/maintenance repairs/capital expenditures. Another good rule of thumb is to 'set aside' 5% of monthly income for eventual capital expenditures (some people do 7.5%) and 10% for general maintenance and repair. Some years it will be more, some it will be less, but it typically averages out to that over time with a good property. Run your analysis on what you could rent the property for, and then subtract all these costs. Aim for a CoC (more important than cap rate) of 10% or higher - this is your return on capital invested. Keep in mind that your total return also includes equity accrual and any appreciation. The properties are out there...you just need to look in the C & B level markets. Avoid the west coast unless you're ready to get creative. I like Atlanta, Columbus Ohio, Detroit, and Nashville.
@p3 please share a burner, I’d like to know about the properties @a2 recommends as well!
Had a friend who used biggerpockets.com. They had a good introduction article I enjoyed, but I ultimately came to realize that there are so many expenses that diminish the returns so I eventually lost interest
And as Accenture user mentioned on another thread... even diminished returns can be boosted thru use of leverage (mortgage)
@s1 I would hope the goal is cash flow positive! Otherwise it'd just be a poor investment. But I guess what I was getting at was that the price to own the property is higher than most people think when they just want "passive income." So going back to your property price vs rental income ratio, your property price can include inspection fees, mortgage payments, cosmetic improvements, lawn care, maintenance and repairs (plumbing, heating, cooling, electricity, appliances, flooring, roofing, the list goes on), property taxes, management fees, finders fees, HOA fees, insurance, and more. Obviously not all of those expenses will be necessary on every property, but at the same time, that list isn't entirely exhaustive either. Anyway, I don't claim to be an expert in this area, and if you could educate me I would appreciate any wisdom you could share, but what really deterred me from the real estate industry was that a lot of these properties end up looking more like liabilities over time with higher than expected costs and decreasing margins that may not warrant the time spent investing in the industry
How do you do real estate investment when you live in one of the most expensive areas in the US, the Bay Area?
@p1 I’m about to buy a turnkey property from Memphis Invest (in Memphis TN and/or Austin TX). Memphis Invest Turnkey means I won’t have to actively manage the property (rehab, collect rent, contact tenant, etc). It would obviously lower my returns, but allows me to invest all over the country.
^i do what he just said except in Columbus, Detroit, and Atlanta. I also do syndication investments outside of downtown Seattle (where I live) in some of the cheaper neighboring counties.
A2 can you help me find properties? I legit am nervous about buying where I don’t live and I live in an exp state. NJ
Properties in NJ are not considered expensive at all. The growing in NJ is very slow depends on the area.
Have you seen jersey city? I find it high
Yes, path train one stop from wtc. It closes to the city. Except few commercial buildings, I found it's more closed to a developing area. I personally prefer house over condo/coop to avoid management restrictions and will focus on multi-fam nearby path station for an easier rent out. School district not too good, but will attract young single professionals.