Lisa Vander is the one who coined the term “return on equity” because you were taking equity from your California properties here and investing them elsewhere. Most people don’t have the necessary cash to invest in real estate but can tap into the equity of their homes and property.
Risky, yes. Still, I think it is better than letting the equity sit here in San Diego/California doing nothing but decreasing.
From the research I’ve done, the BRAC (Base Realignment and Closure Commission) has recommended moving military jobs into Huntsville and many defense related jobs are staying and expanding as well. Even with that, the Huntsville market, while not as strong as San Diego, does have a strong rental market. The demand for units is strong but the prices are reasonable, even ridiculous by San Diego standards ($375 rent for a 2 bedroom, come on…). While the military itself is not my primary target demographic, the growing economy of the military base is promising.
In any case, this property is an ideal example of how you can use a little money or equity here from California and put it out there to work for you.
When you are borrowing money to make money, the important number is “cash on cash”. Let’s say you take money out of your property, borrowing at an interest rate of 6%. Your “cash on cash” needs to be at 9% or better. This property’s “cash on cash” is about 18%.
When looking for out-of-state properties, these are the numbers I look for:
ROE greater than 30%.
Cash on Cash greater than interest rate +3%.
Expenses (excluding mortgage) < 1/3 of gross income
Cash flows
Keep those numbers in mind when looking for properties and you will be ahead of most other real estate investors (most of whom do not run these numbers).
