I vote yes, but only for ares I vote yes, but only for ares that pencil out. There are areas that have gone down 50-60% from peak and now have PITI that’s well below the market rent.
SD Realtor
August 28, 2011 @
2:57 PM
I think that is a pretty I think that is a pretty reasonable answer/strategy AN.
ctr70
August 28, 2011 @
4:29 PM
Just out of curiosity, I Just out of curiosity, I would like to hear the rationale from the 4 people who voted it is NOT a good time to buy investment property?
UCGal
August 29, 2011 @
6:25 AM
ctr70 wrote:Just out of [quote=ctr70]Just out of curiosity, I would like to hear the rationale from the 4 people who voted it is NOT a good time to buy investment property?[/quote]
For the specific price point and criteria I’m looking at it still does not pencil out.
Here’s what I’m looking at:
– less than 30 minutes from our home since we’ll be, managing it.
– 2-4 units…
– less than $300k
– less than $30k worth of work needed to get it to “maintainable”
– positive cash flow with a 25% down payment. (PITI, vacancy, maintenance)
We’ve lookd, on and off, for a few years.. we keep getting out bid by folks who seem not to case about cash flow. For me, it only makes sense if you can make money/return without regard for appreciation.
scaredyclassic
August 29, 2011 @
6:47 AM
i voted no and here’s why; i voted no and here’s why; friend who wanted to quit work to become a “landlord” to not work as much makes me feel not all the excess has been wrung out. there’s still too much hope out there. small sample size, sure, but i think it’s true.
this isn’t a real bottom.
earlyretirement
August 29, 2011 @
9:49 PM
UCGal wrote:ctr70 wrote:Just [quote=UCGal][quote=ctr70]Just out of curiosity, I would like to hear the rationale from the 4 people who voted it is NOT a good time to buy investment property?[/quote]
For the specific price point and criteria I’m looking at it still does not pencil out.
Here’s what I’m looking at:
– less than 30 minutes from our home since we’ll be, managing it.
– 2-4 units…
– less than $300k
– less than $30k worth of work needed to get it to “maintainable”
– positive cash flow with a 25% down payment. (PITI, vacancy, maintenance)
We’ve lookd, on and off, for a few years.. we keep getting out bid by folks who seem not to case about cash flow. For me, it only makes sense if you can make money/return without regard for appreciation.[/quote]
I agree it seems tougher in San Diego vs. other places. I have a friend/client that is absolutely cleaning up in Sacramento. He is buying tons of SFH’s and also multi-tenant buildings from the courthouse steps. His original plan was to flip them. I guess he is flipping some of them but surprisingly when he did the numbers they really make great investment he claims so he has held on to several of the buildings.
That’s not my cup of tea buying things off the courthouse steps and I don’t know anything about it but he seems to be doing really well at it.
I guess he has been paying current tenants some cash to allow him to go in and see it and inspect it so he has a good idea.
There are opportunities out there. From the rental market perspective I think there are better opportunities vs. San Diego.
I do agree to FORGET about capital appreciation potential and only go for cash flow. Capital appreciation is icing on the cake but definitely shouldn’t be counted on.
Fearful
August 30, 2011 @
7:09 AM
earlyretirement wrote:
I do [quote=earlyretirement]
I do agree to FORGET about capital appreciation potential and only go for cash flow. Capital appreciation is icing on the cake but definitely shouldn’t be counted on.[/quote]
If capital appreciation is the icing on the cake, is capital depreciation the black fly in your chardonnay?
If interest rates ever do get around to rising, the 4-5% cap rate will suddenly seem a lot less appealing. Of course, rents would probably go up then as well, driven either by inflation or economic activity.
I do agree to FORGET about capital appreciation potential and only go for cash flow. Capital appreciation is icing on the cake but definitely shouldn’t be counted on.[/quote]
If capital appreciation is the icing on the cake, is capital depreciation the black fly in your chardonnay?
If interest rates ever do get around to rising, the 4-5% cap rate will suddenly seem a lot less appealing. Of course, rents would probably go up then as well, driven either by inflation or economic activity.[/quote]
I don’t think we’ll see an end to low interest rates any time soon.
I do agree to FORGET about capital appreciation potential and only go for cash flow. Capital appreciation is icing on the cake but definitely shouldn’t be counted on.[/quote]
If capital appreciation is the icing on the cake, is capital depreciation the black fly in your chardonnay?
If interest rates ever do get around to rising, the 4-5% cap rate will suddenly seem a lot less appealing. Of course, rents would probably go up then as well, driven either by inflation or economic activity.[/quote]
I don’t think we’ll see an end to low interest rates any time soon.[/quote]
Exactly… the low interest rate environment should last for several more years.
But I agree with the point that being a landlord is NOT for everyone. In fact, lots of people aren’t cut out to be landlords. It’s not an easy business and without an excellent property manager you can get eaten alive.
And even when you do have a good property manager, there are always things that will happen out of your control like leaks, electrical problems, gas problems, water problems, etc. So you have to be ok to deal with these types of expenses if/when they come up.
Also, I’ve met many people that try to manage their own properties but they don’t understand just how time consuming they can be. Even if you don’t take care of everything and just handle bookings, it takes a lot of time answering emails, etc.
But once you get experience, you can get it down to a science. I own many properties and although I use a big property management company in most, I get almost all my own bookings via various marketing of my own.
It’s NOT an easy business and i think real estate is a LONG TERM investment. I never go into it with any plans to flip the property.
Yeah, property prices can and do go down. But I’m comfortable with where prices will be 20 years from now from both the value of the properties but also the rental yields. But even then, I probably won’t sell my properties as long as they are spinning off cash flow each month. I look at it as one of those things where I’ll just keep the properties in the family and pass them on to my kids. (Or hopefully I live to be a really old fart and the income stream is used to take care of me…..)
Can property prices go down? Sure they can and I do think they will probably go down for another year or so. But over the long term, I still think now is a decent time to buy in many cities around the USA. That couldn’t be said a few years ago but I think it’s true now.
Just like people during the bubble people thought property prices will go up forever…. there are many bears out there now that think property prices will go down forever…and that just is NOT the case.
briansd1
September 8, 2011 @
2:50 PM
earlyretirement wrote: I [quote=earlyretirement] I own many properties and although I use a big property management company in most, I get almost all my own bookings via various marketing of my own.
[/quote]
What kind of bookings are you talking about?
Short-term vacation rentals?
I’ve rented some pretty nice houses on VRBO and I was wondering if the return is pretty good.
GH
August 30, 2011 @
8:41 AM
ctr70 wrote:Just out of [quote=ctr70]Just out of curiosity, I would like to hear the rationale from the 4 people who voted it is NOT a good time to buy investment property?[/quote]
An enormous number of homes are currently sitting empty and I believe as homelessness rises in the US banks will be forced to or decide it is a good business model to rent these limbo homes out until market conditions allow them to sell at the price they desire or at a time their sale will not collapse prices further. Thus I believe there could soon be an enormous number of rental homes on the market depressing rents and this could go on for years or decades.
Personally I would not buy rental property unless I understood how this might impact my financial situation if I were forced to reduce my rent to compete with rental foreclosures.
CA renter
August 31, 2011 @
2:39 AM
GH wrote:ctr70 wrote:Just out [quote=GH][quote=ctr70]Just out of curiosity, I would like to hear the rationale from the 4 people who voted it is NOT a good time to buy investment property?[/quote]
An enormous number of homes are currently sitting empty and I believe as homelessness rises in the US banks will be forced to or decide it is a good business model to rent these limbo homes out until market conditions allow them to sell at the price they desire or at a time their sale will not collapse prices further. Thus I believe there could soon be an enormous number of rental homes on the market depressing rents and this could go on for years or decades.
Personally I would not buy rental property unless I understood how this might impact my financial situation if I were forced to reduce my rent to compete with rental foreclosures.[/quote]
Bingo, GH!
I really hate these delay tactics since they distort the market so much and prevent housing from becoming affordable again. Here is another brain twister:
In a joint public appeal this month, the agencies invited the public to send in suggestions for managing the inventory, particularly ideas for turning foreclosed homes into rentals.
We are nowhere near the bottom. We are in a holding pattern because these idiots can’t even understand why we’re in the predicament we’re in. They can’t solve the problem because they can’t define the problem. We’ll just have to grit our teeth and deal with a few more years of govt bumbling and fumbling — wasting precious time and money in the process.
ctr70
September 3, 2011 @
9:07 PM
I totally don’t agree with BG I totally don’t agree with BG that you have to do all the rehab yourself. Most successful investors I know hire out ALL the labor for fixing and maintenance. Sure if you have those skills or have more time than money and want to do that stuff you can save a few bucks. But I don’t think it’s a great use of your time to wander though the aisles of Home Depot or teach yourself do lay tile or fix plumbing. Especially if you are a busy professional. The problem is people who fix things themselves do not put a dollar amount per hour on their own time. Labor is really cheap and plentiful right now, and a handyman who does this stuff every day can do it 10X as fast as you could. Your job should be finding a deal under market, if it’s such skinny deal you have to do all the maintenance and fix yourself, you should have got a better deal. The keys are more being good at finding good deals and tenant screening vs. fixing stuff yourself.
I also disagree it has to be 5 min from where you work or live. Of course close is good, but their may not be cash flow deals 5 min from your house. 30 miles is fine. Even further is not bad if you can get some trusted handyman where you buy. You do not have to go out to the property much at all. I sometimes don’t hear from my tenants for months and months.
I also don’t think property mgmt is that hard at all. People make way too big a deal of it. Read NOLO Press on CA landlording law and a few good landlording books in Barnes and Nobles. The key is YOU have to do the tenant screening, do NOT hire that out. All you have to do is post it on Craigslist and put a sign in front, all free. Then run their credit, get their paystubs (and possibly w-2’s), talk to their 2 prior landlords, do an eviction check and use your intuition. You also need a property lots of people WANT to rent so you CAN be choosy. If you have to beg for tenants you are in trouble.
Also I would not worry much about depreciation in value if you are buying at the LOW END of the SFR market in SD. Most of the price drops on the LOW END (where most rental investors buy) came the first year of the crash. The LOW END of the SFR market has not dropped much since then and still has not hit the spring 2009 price lows. The MID and HIGH end yes they could fall more. And condos could fall more too.
clearfund
August 28, 2011 @
6:12 PM
I would agree that ‘now’ I would agree that ‘now’ (meaning this low phase in the cycle) is a great time to be buying the right property at the right price.
we’re finding highly profitable deals in central Sd (kearny mesa), east county (santee), etc.
but be warned, one can way overpay even in a down market. Make sure the income will carry you (and deliver a return after everything is paid plus reserves) and don’t count on an increase in the market to save the day…cash flow, cash flow and the profits are gravy when they come around.
wannabe2077
August 28, 2011 @
6:33 PM
I think it is a good time to
I think it is a good time to buy rental properties in some areas. It is even better if you have deep pockets.
I know of a large REIT that purchased a luxury apartment complex for $5 million in California. The rent from the apartments was $60,000 per month (assuming 0% vacancy). Assuming 10% vacancy and $200,000 in maintenance & taxes it is still a 9-10% return. It beats my money market account.
clearfund
August 28, 2011 @
7:01 PM
wannabe – the odds of a wannabe – the odds of a decent apt bldg trading at a 9%+ cap rate is about ZERO in this market.
Apartments are the ‘hot’ property type with tons of financing avaialble and lots of buyers.
thus, they trade in the 5%-6% cap rate range on average. This will translate into a 4.5%+/- all cash yield. Even 4% financing won’t juice the yield all that much since the yield and debt are so close to each other. All that debt will only give you increased risk for a marginal extra return.
If an apt bldg traded at a 9%+ yield it must be a s-hole bldg in a very scary area that no one wants to hang around in.
Just the facts as I see them.
earlyretirement
August 29, 2011 @
12:07 AM
clearfund wrote:…cash flow, [quote=clearfund]…cash flow, cash flow and the profits are gravy when they come around.[/quote]
I totally agree with you clearfund. With the deals that I’m doing and the real estate I’m buying on behalf of my investors/clients… it’s all about the cash flow. It used to be cash flow plus capital appreciation potential but now all the investors are screaming..”show me the money”. I think that will continue for the next few years.
And even when you have capital appreciation opportunity in a short amount of time…many investors aren’t looking for the quick money if the rental yields are good enough.
Case in point, I recently purchased a $500,000 apartment for a client of mine. I did everything from start to finish. Heck, he never even saw the property in person besides a few photos until after it was closed. Well, 2 months after buying it, I had another investor that offered him $750,000 for it. He would have made a cool quarter of a million bucks in less than 2 months.
He still wouldn’t budge because the cash flow via high end rentals is so good as well he really loved the unit and uses it as a possible retirement home.
It’s all about the cash flow these days.
PS – Clearfund, It was great meeting up with you in Breckenridge…. we’ll have to break bread in SD. Cheers.
clearfund
August 29, 2011 @
6:46 AM
Likewise Early, we’ll round Likewise Early, we’ll round up in 2-3 weeks. Great meeting you and your nice family.
So long as CDs are essentially <1%, individual investors will continue flocking to solid real estate at a net yield north of 5%, in my recent experience that is.
bearishgurl
August 29, 2011 @
8:14 AM
I voted yes under the I voted yes under the following conditions (for a small investor):
You purchase a property (1-4 units and preferably an SFR) within 5 mins of where you work or reside (no transportation costs to rehab/manage it). You understand intimately your rental market and can communicate effectively with that market. You pay <=$275K for an SFR (depending on size, condition and location). You are handy enough and not afraid of common fix-up/haul out work. You do ALL rehab work yourself, except for that which needs to be signed off by a professional, (i.e. upgraded elec panel) and are able to complete the necessary work and put the property into service within 90 days of closing. You buy an SFR with no structural problems and “decent bones” which does NOT need the footprint increased in order to fetch $1650 – $2000 mo rent consistently. You demand an adequate damage deposit of no less than one months rent (and at least half of 1 mos rent for 1 pet in addition to the damage deposit). You hire a gardener for your tenants or specify in your rental contract/lease that the tenant will perform the landscaping duties and provide him/her with the tools. (This agreement will only work well with motivated tenants who possess particular skill sets and if the LL lives/works VERY close by.)
In the case of 2-4 units, the LL resides in one of the units or lives/works within 5 mins of the property. Cost for a 4-unit complex should be no more than $350K (due to higher vacancy exposure than an SFR). The units in aggregate should fetch at least $3000 mo consistently.
Buying a nearby investment SFR with future plans to retire in it yourself or rent/sell/deed it to your children can make even more sense, given today’s low prices and low interest rates.
Rentals can be labor-intensive but due to credit challenges for many, I believe reliable tenants are and will be the “name of the game” for serious investors now and in the coming years. For this and other reasons, I will be pursuing a “CPM” designation in the coming months :=]
sdrealtor
August 29, 2011 @
2:10 PM
Th reality is it is a great Th reality is it is a great time. You just need to buy the right ones.
evolusd
August 29, 2011 @
5:13 PM
We’ve been financing this We’ve been financing this type of investment.
Since conventional lenders place limits on the number of ‘investor’ loans a person can have, I’ve put together commercial loan commitments for a few investors for this type of investment (as long as they hold title in LLC/LP/Corp). We approve a large dollar amount based on thier personal balance sheet and they are able to peel off a % of cost for each property they buy. Fixed or variable rate, medium-term maturities with 25-year amortizations.
Good cash flow and hopefully a pop in value during the term.
peterb
August 30, 2011 @
9:37 AM
Test the waters to see how Test the waters to see how the section 8 tenants are in your area. I know a few people that swear by the sober, single mom tenant. Uncle Sugar pays the rent.
But, I would be prepared to see your capital depreciate more with time. I think our economy is in a structural change due to demographic and global trends. And that change is not upward.
Jazzman
September 6, 2011 @
5:15 AM
The answer has to be yes and The answer has to be yes and no, depending where you look. Yield chasers sometimes over-look the importance of quality property managers, especially important for out of state risk spreading portfolios. What is a little more surprising is that not more turn key operators are appearing to fill the demand. Why is there not one in California? Probably because attractive rent ratios are still allusive. Invest where you feel comfortable and always allow for 50% costs.
August 28, 2011 @ 1:22 PM
I vote yes, but only for ares
I vote yes, but only for ares that pencil out. There are areas that have gone down 50-60% from peak and now have PITI that’s well below the market rent.
August 28, 2011 @ 2:57 PM
I think that is a pretty
I think that is a pretty reasonable answer/strategy AN.
August 28, 2011 @ 4:29 PM
Just out of curiosity, I
Just out of curiosity, I would like to hear the rationale from the 4 people who voted it is NOT a good time to buy investment property?
August 29, 2011 @ 6:25 AM
ctr70 wrote:Just out of
[quote=ctr70]Just out of curiosity, I would like to hear the rationale from the 4 people who voted it is NOT a good time to buy investment property?[/quote]
For the specific price point and criteria I’m looking at it still does not pencil out.
Here’s what I’m looking at:
– less than 30 minutes from our home since we’ll be, managing it.
– 2-4 units…
– less than $300k
– less than $30k worth of work needed to get it to “maintainable”
– positive cash flow with a 25% down payment. (PITI, vacancy, maintenance)
We’ve lookd, on and off, for a few years.. we keep getting out bid by folks who seem not to case about cash flow. For me, it only makes sense if you can make money/return without regard for appreciation.
August 29, 2011 @ 6:47 AM
i voted no and here’s why;
i voted no and here’s why; friend who wanted to quit work to become a “landlord” to not work as much makes me feel not all the excess has been wrung out. there’s still too much hope out there. small sample size, sure, but i think it’s true.
this isn’t a real bottom.
August 29, 2011 @ 9:49 PM
UCGal wrote:ctr70 wrote:Just
[quote=UCGal][quote=ctr70]Just out of curiosity, I would like to hear the rationale from the 4 people who voted it is NOT a good time to buy investment property?[/quote]
For the specific price point and criteria I’m looking at it still does not pencil out.
Here’s what I’m looking at:
– less than 30 minutes from our home since we’ll be, managing it.
– 2-4 units…
– less than $300k
– less than $30k worth of work needed to get it to “maintainable”
– positive cash flow with a 25% down payment. (PITI, vacancy, maintenance)
We’ve lookd, on and off, for a few years.. we keep getting out bid by folks who seem not to case about cash flow. For me, it only makes sense if you can make money/return without regard for appreciation.[/quote]
I agree it seems tougher in San Diego vs. other places. I have a friend/client that is absolutely cleaning up in Sacramento. He is buying tons of SFH’s and also multi-tenant buildings from the courthouse steps. His original plan was to flip them. I guess he is flipping some of them but surprisingly when he did the numbers they really make great investment he claims so he has held on to several of the buildings.
That’s not my cup of tea buying things off the courthouse steps and I don’t know anything about it but he seems to be doing really well at it.
I guess he has been paying current tenants some cash to allow him to go in and see it and inspect it so he has a good idea.
There are opportunities out there. From the rental market perspective I think there are better opportunities vs. San Diego.
I do agree to FORGET about capital appreciation potential and only go for cash flow. Capital appreciation is icing on the cake but definitely shouldn’t be counted on.
August 30, 2011 @ 7:09 AM
earlyretirement wrote:
I do
[quote=earlyretirement]
I do agree to FORGET about capital appreciation potential and only go for cash flow. Capital appreciation is icing on the cake but definitely shouldn’t be counted on.[/quote]
If capital appreciation is the icing on the cake, is capital depreciation the black fly in your chardonnay?
If interest rates ever do get around to rising, the 4-5% cap rate will suddenly seem a lot less appealing. Of course, rents would probably go up then as well, driven either by inflation or economic activity.
August 30, 2011 @ 8:45 AM
Fearful wrote:earlyretirement
[quote=Fearful][quote=earlyretirement]
I do agree to FORGET about capital appreciation potential and only go for cash flow. Capital appreciation is icing on the cake but definitely shouldn’t be counted on.[/quote]
If capital appreciation is the icing on the cake, is capital depreciation the black fly in your chardonnay?
If interest rates ever do get around to rising, the 4-5% cap rate will suddenly seem a lot less appealing. Of course, rents would probably go up then as well, driven either by inflation or economic activity.[/quote]
I don’t think we’ll see an end to low interest rates any time soon.
August 30, 2011 @ 8:45 PM
flu wrote:Fearful
[quote=flu][quote=Fearful][quote=earlyretirement]
I do agree to FORGET about capital appreciation potential and only go for cash flow. Capital appreciation is icing on the cake but definitely shouldn’t be counted on.[/quote]
If capital appreciation is the icing on the cake, is capital depreciation the black fly in your chardonnay?
If interest rates ever do get around to rising, the 4-5% cap rate will suddenly seem a lot less appealing. Of course, rents would probably go up then as well, driven either by inflation or economic activity.[/quote]
I don’t think we’ll see an end to low interest rates any time soon.[/quote]
Exactly… the low interest rate environment should last for several more years.
But I agree with the point that being a landlord is NOT for everyone. In fact, lots of people aren’t cut out to be landlords. It’s not an easy business and without an excellent property manager you can get eaten alive.
And even when you do have a good property manager, there are always things that will happen out of your control like leaks, electrical problems, gas problems, water problems, etc. So you have to be ok to deal with these types of expenses if/when they come up.
Also, I’ve met many people that try to manage their own properties but they don’t understand just how time consuming they can be. Even if you don’t take care of everything and just handle bookings, it takes a lot of time answering emails, etc.
But once you get experience, you can get it down to a science. I own many properties and although I use a big property management company in most, I get almost all my own bookings via various marketing of my own.
It’s NOT an easy business and i think real estate is a LONG TERM investment. I never go into it with any plans to flip the property.
Yeah, property prices can and do go down. But I’m comfortable with where prices will be 20 years from now from both the value of the properties but also the rental yields. But even then, I probably won’t sell my properties as long as they are spinning off cash flow each month. I look at it as one of those things where I’ll just keep the properties in the family and pass them on to my kids. (Or hopefully I live to be a really old fart and the income stream is used to take care of me…..)
Can property prices go down? Sure they can and I do think they will probably go down for another year or so. But over the long term, I still think now is a decent time to buy in many cities around the USA. That couldn’t be said a few years ago but I think it’s true now.
Just like people during the bubble people thought property prices will go up forever…. there are many bears out there now that think property prices will go down forever…and that just is NOT the case.
September 8, 2011 @ 2:50 PM
earlyretirement wrote: I
[quote=earlyretirement] I own many properties and although I use a big property management company in most, I get almost all my own bookings via various marketing of my own.
[/quote]
What kind of bookings are you talking about?
Short-term vacation rentals?
I’ve rented some pretty nice houses on VRBO and I was wondering if the return is pretty good.
August 30, 2011 @ 8:41 AM
ctr70 wrote:Just out of
[quote=ctr70]Just out of curiosity, I would like to hear the rationale from the 4 people who voted it is NOT a good time to buy investment property?[/quote]
An enormous number of homes are currently sitting empty and I believe as homelessness rises in the US banks will be forced to or decide it is a good business model to rent these limbo homes out until market conditions allow them to sell at the price they desire or at a time their sale will not collapse prices further. Thus I believe there could soon be an enormous number of rental homes on the market depressing rents and this could go on for years or decades.
Personally I would not buy rental property unless I understood how this might impact my financial situation if I were forced to reduce my rent to compete with rental foreclosures.
August 31, 2011 @ 2:39 AM
GH wrote:ctr70 wrote:Just out
[quote=GH][quote=ctr70]Just out of curiosity, I would like to hear the rationale from the 4 people who voted it is NOT a good time to buy investment property?[/quote]
An enormous number of homes are currently sitting empty and I believe as homelessness rises in the US banks will be forced to or decide it is a good business model to rent these limbo homes out until market conditions allow them to sell at the price they desire or at a time their sale will not collapse prices further. Thus I believe there could soon be an enormous number of rental homes on the market depressing rents and this could go on for years or decades.
Personally I would not buy rental property unless I understood how this might impact my financial situation if I were forced to reduce my rent to compete with rental foreclosures.[/quote]
Bingo, GH!
I really hate these delay tactics since they distort the market so much and prevent housing from becoming affordable again. Here is another brain twister:
In a joint public appeal this month, the agencies invited the public to send in suggestions for managing the inventory, particularly ideas for turning foreclosed homes into rentals.
http://www.businessweek.com/news/2011-08-29/u-s-struggles-as-biggest-seller-of-homes-in-buyers-market.html
We are nowhere near the bottom. We are in a holding pattern because these idiots can’t even understand why we’re in the predicament we’re in. They can’t solve the problem because they can’t define the problem. We’ll just have to grit our teeth and deal with a few more years of govt bumbling and fumbling — wasting precious time and money in the process.
September 3, 2011 @ 9:07 PM
I totally don’t agree with BG
I totally don’t agree with BG that you have to do all the rehab yourself. Most successful investors I know hire out ALL the labor for fixing and maintenance. Sure if you have those skills or have more time than money and want to do that stuff you can save a few bucks. But I don’t think it’s a great use of your time to wander though the aisles of Home Depot or teach yourself do lay tile or fix plumbing. Especially if you are a busy professional. The problem is people who fix things themselves do not put a dollar amount per hour on their own time. Labor is really cheap and plentiful right now, and a handyman who does this stuff every day can do it 10X as fast as you could. Your job should be finding a deal under market, if it’s such skinny deal you have to do all the maintenance and fix yourself, you should have got a better deal. The keys are more being good at finding good deals and tenant screening vs. fixing stuff yourself.
I also disagree it has to be 5 min from where you work or live. Of course close is good, but their may not be cash flow deals 5 min from your house. 30 miles is fine. Even further is not bad if you can get some trusted handyman where you buy. You do not have to go out to the property much at all. I sometimes don’t hear from my tenants for months and months.
I also don’t think property mgmt is that hard at all. People make way too big a deal of it. Read NOLO Press on CA landlording law and a few good landlording books in Barnes and Nobles. The key is YOU have to do the tenant screening, do NOT hire that out. All you have to do is post it on Craigslist and put a sign in front, all free. Then run their credit, get their paystubs (and possibly w-2’s), talk to their 2 prior landlords, do an eviction check and use your intuition. You also need a property lots of people WANT to rent so you CAN be choosy. If you have to beg for tenants you are in trouble.
Also I would not worry much about depreciation in value if you are buying at the LOW END of the SFR market in SD. Most of the price drops on the LOW END (where most rental investors buy) came the first year of the crash. The LOW END of the SFR market has not dropped much since then and still has not hit the spring 2009 price lows. The MID and HIGH end yes they could fall more. And condos could fall more too.
August 28, 2011 @ 6:12 PM
I would agree that ‘now’
I would agree that ‘now’ (meaning this low phase in the cycle) is a great time to be buying the right property at the right price.
we’re finding highly profitable deals in central Sd (kearny mesa), east county (santee), etc.
but be warned, one can way overpay even in a down market. Make sure the income will carry you (and deliver a return after everything is paid plus reserves) and don’t count on an increase in the market to save the day…cash flow, cash flow and the profits are gravy when they come around.
August 28, 2011 @ 6:33 PM
I think it is a good time to
I think it is a good time to buy rental properties in some areas. It is even better if you have deep pockets.
I know of a large REIT that purchased a luxury apartment complex for $5 million in California. The rent from the apartments was $60,000 per month (assuming 0% vacancy). Assuming 10% vacancy and $200,000 in maintenance & taxes it is still a 9-10% return. It beats my money market account.
August 28, 2011 @ 7:01 PM
wannabe – the odds of a
wannabe – the odds of a decent apt bldg trading at a 9%+ cap rate is about ZERO in this market.
Apartments are the ‘hot’ property type with tons of financing avaialble and lots of buyers.
thus, they trade in the 5%-6% cap rate range on average. This will translate into a 4.5%+/- all cash yield. Even 4% financing won’t juice the yield all that much since the yield and debt are so close to each other. All that debt will only give you increased risk for a marginal extra return.
If an apt bldg traded at a 9%+ yield it must be a s-hole bldg in a very scary area that no one wants to hang around in.
Just the facts as I see them.
August 29, 2011 @ 12:07 AM
clearfund wrote:…cash flow,
[quote=clearfund]…cash flow, cash flow and the profits are gravy when they come around.[/quote]
I totally agree with you clearfund. With the deals that I’m doing and the real estate I’m buying on behalf of my investors/clients… it’s all about the cash flow. It used to be cash flow plus capital appreciation potential but now all the investors are screaming..”show me the money”. I think that will continue for the next few years.
And even when you have capital appreciation opportunity in a short amount of time…many investors aren’t looking for the quick money if the rental yields are good enough.
Case in point, I recently purchased a $500,000 apartment for a client of mine. I did everything from start to finish. Heck, he never even saw the property in person besides a few photos until after it was closed. Well, 2 months after buying it, I had another investor that offered him $750,000 for it. He would have made a cool quarter of a million bucks in less than 2 months.
He still wouldn’t budge because the cash flow via high end rentals is so good as well he really loved the unit and uses it as a possible retirement home.
It’s all about the cash flow these days.
PS – Clearfund, It was great meeting up with you in Breckenridge…. we’ll have to break bread in SD. Cheers.
August 29, 2011 @ 6:46 AM
Likewise Early, we’ll round
Likewise Early, we’ll round up in 2-3 weeks. Great meeting you and your nice family.
So long as CDs are essentially <1%, individual investors will continue flocking to solid real estate at a net yield north of 5%, in my recent experience that is.
August 29, 2011 @ 8:14 AM
I voted yes under the
I voted yes under the following conditions (for a small investor):
You purchase a property (1-4 units and preferably an SFR) within 5 mins of where you work or reside (no transportation costs to rehab/manage it). You understand intimately your rental market and can communicate effectively with that market. You pay <=$275K for an SFR (depending on size, condition and location). You are handy enough and not afraid of common fix-up/haul out work. You do ALL rehab work yourself, except for that which needs to be signed off by a professional, (i.e. upgraded elec panel) and are able to complete the necessary work and put the property into service within 90 days of closing. You buy an SFR with no structural problems and “decent bones” which does NOT need the footprint increased in order to fetch $1650 – $2000 mo rent consistently. You demand an adequate damage deposit of no less than one months rent (and at least half of 1 mos rent for 1 pet in addition to the damage deposit). You hire a gardener for your tenants or specify in your rental contract/lease that the tenant will perform the landscaping duties and provide him/her with the tools. (This agreement will only work well with motivated tenants who possess particular skill sets and if the LL lives/works VERY close by.)
In the case of 2-4 units, the LL resides in one of the units or lives/works within 5 mins of the property. Cost for a 4-unit complex should be no more than $350K (due to higher vacancy exposure than an SFR). The units in aggregate should fetch at least $3000 mo consistently.
Buying a nearby investment SFR with future plans to retire in it yourself or rent/sell/deed it to your children can make even more sense, given today’s low prices and low interest rates.
Rentals can be labor-intensive but due to credit challenges for many, I believe reliable tenants are and will be the “name of the game” for serious investors now and in the coming years. For this and other reasons, I will be pursuing a “CPM” designation in the coming months :=]
August 29, 2011 @ 2:10 PM
Th reality is it is a great
Th reality is it is a great time. You just need to buy the right ones.
August 29, 2011 @ 5:13 PM
We’ve been financing this
We’ve been financing this type of investment.
Since conventional lenders place limits on the number of ‘investor’ loans a person can have, I’ve put together commercial loan commitments for a few investors for this type of investment (as long as they hold title in LLC/LP/Corp). We approve a large dollar amount based on thier personal balance sheet and they are able to peel off a % of cost for each property they buy. Fixed or variable rate, medium-term maturities with 25-year amortizations.
Good cash flow and hopefully a pop in value during the term.
August 30, 2011 @ 9:37 AM
Test the waters to see how
Test the waters to see how the section 8 tenants are in your area. I know a few people that swear by the sober, single mom tenant. Uncle Sugar pays the rent.
But, I would be prepared to see your capital depreciate more with time. I think our economy is in a structural change due to demographic and global trends. And that change is not upward.
September 6, 2011 @ 5:15 AM
The answer has to be yes and
The answer has to be yes and no, depending where you look. Yield chasers sometimes over-look the importance of quality property managers, especially important for out of state risk spreading portfolios. What is a little more surprising is that not more turn key operators are appearing to fill the demand. Why is there not one in California? Probably because attractive rent ratios are still allusive. Invest where you feel comfortable and always allow for 50% costs.