My personal aesthetic leads me to a few acres with a couple cabins. Monitor heat, electricity, no running water to freeze. Easy. Plus I'd be more likely to like the renters. And I could pay cash as I built.
Then I see things like this - http://fairbanks.craigslist.org/reo/2807139248.html - seven units, would require a loan but still have instant positive cash flow. Repair issues are likely frequent and who knows what else. But it seems like instant 2k/m cash flow.
Actually buying is probably a long ways off for me, but I want to learn how to evaluate these things. What do you folks think? Is there a good book for information like this?
Evaluating potential rentals
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George the original one
- Posts: 5406
- Joined: Wed Jul 28, 2010 3:28 am
- Location: Wettest corner of Orygun
When I see deals *that* attractive (financially), I always have to ask, "why would the owner sell?" I mean, would you give up 30% annual return voluntarily?
Do the units have signed rental/lease agreements?
Are there injunctions/liens against the property?
Is there hazardous waste?
Have the zoning police moved to enforce anything?
Is the government about to exercise right of emminent domain?
How long has it been on the market?
Do the units have signed rental/lease agreements?
Are there injunctions/liens against the property?
Is there hazardous waste?
Have the zoning police moved to enforce anything?
Is the government about to exercise right of emminent domain?
How long has it been on the market?
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mikenotspam
- Posts: 55
- Joined: Thu Oct 20, 2011 4:05 am
Thanks, George, since riparian's question pertains directly to me, too. Will be interested in other responses.
Providence is rife with properties under 100k, and definitely under 200k, with undoubtedly repairs needed (a lot of the houses in this area are built in 1900-1920), but wonderful potential income. I need to learn repairs and what not myself, first. Volunteer with a contractor to learn on the job? I'm not sure where to begin, honestly, but I'd like to develop some skills in this area in the next couple years. MikeBOS, want free labor for your Boston houses that just needs tutelage on a Saturday?
Providence is rife with properties under 100k, and definitely under 200k, with undoubtedly repairs needed (a lot of the houses in this area are built in 1900-1920), but wonderful potential income. I need to learn repairs and what not myself, first. Volunteer with a contractor to learn on the job? I'm not sure where to begin, honestly, but I'd like to develop some skills in this area in the next couple years. MikeBOS, want free labor for your Boston houses that just needs tutelage on a Saturday?
@mikenotspam: get Black and Decker books... They will cover virtually everything you need to know, the rest is just practice, purchasing tools, will to do it.
@Jason: I was decidedly unmoved by that book. Sure, all the numbers were great, but in real estate most (especially when you're starting) your calculations aren't going to hold up too well... If your numbers are showing it is just barely worth it, walk away immediately. I have yet to come in under budget once, and I always underestimate the work involved (being an optimist has hurt me
The people whom I've seen do well are more of the very hard working get your hands dirty, puritan work ethic types... The best ones are also very ingenious at getting cheap materials and work. Maybe I'm just biased because I like doing numbers on a computer, but fixing houses is not something I enjoy. Perhaps because I worked construction for many years when I was a teenager and in my early 20s.
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Landlording can be a lot of work. I focused on getting the absolute top returns, which meant buying houses in poor condition... I would not advocate this to anyone with a FT job as I got completely burned out.
I would not consider touching rental properties for less than a 20% return. Especially if they're going to require a lot of time and effort.
Count 50% of your month's rent as costs. I've always done better, but this is a good safe metric.
George has a good point, if it's on open market and there are no buyers there is often a reason. One thing I've noticed about flippers/landlords is they are generally very savvy and entrepreneurial people. If they pass, you really, really want to know why... I just bought a house at auction and found out I outbid the town's building inspector! I got it cheap, but he had excellent reasons for not bidding more.
I'd look for auctions. Without a serious discount, you're saying YES when other more experienced people said NO... 15-25% off retail will give the margin of error you will need as a starting RE investor. I used to steal govt liquidations at under 50% of list, but that loophole was closed. Now I'm back to square one; being utterly unable to find an attractive RE deal.
@Jason: I was decidedly unmoved by that book. Sure, all the numbers were great, but in real estate most (especially when you're starting) your calculations aren't going to hold up too well... If your numbers are showing it is just barely worth it, walk away immediately. I have yet to come in under budget once, and I always underestimate the work involved (being an optimist has hurt me
The people whom I've seen do well are more of the very hard working get your hands dirty, puritan work ethic types... The best ones are also very ingenious at getting cheap materials and work. Maybe I'm just biased because I like doing numbers on a computer, but fixing houses is not something I enjoy. Perhaps because I worked construction for many years when I was a teenager and in my early 20s.
___________
Landlording can be a lot of work. I focused on getting the absolute top returns, which meant buying houses in poor condition... I would not advocate this to anyone with a FT job as I got completely burned out.
I would not consider touching rental properties for less than a 20% return. Especially if they're going to require a lot of time and effort.
Count 50% of your month's rent as costs. I've always done better, but this is a good safe metric.
George has a good point, if it's on open market and there are no buyers there is often a reason. One thing I've noticed about flippers/landlords is they are generally very savvy and entrepreneurial people. If they pass, you really, really want to know why... I just bought a house at auction and found out I outbid the town's building inspector! I got it cheap, but he had excellent reasons for not bidding more.
I'd look for auctions. Without a serious discount, you're saying YES when other more experienced people said NO... 15-25% off retail will give the margin of error you will need as a starting RE investor. I used to steal govt liquidations at under 50% of list, but that loophole was closed. Now I'm back to square one; being utterly unable to find an attractive RE deal.
That place wont qualify for a mortgage, maybe a business loan but the interest rate would be much higher. If a place needs a bunch of work I expect a greater rate of return. For a turn key single family rental in perfect condition I can get 10% return on cash where I live. If I'm going to be spending the next 3 months rehabing a property I'd want 20% return.
Thanks everyone! Wow, so much to learn.
@mikenotspam, Habitat for Humanity! They'll let you try all the things.
@AlexK I was thinking it was probably the business loan thing that made the price drop so much. If one had alternative financing would it potentially make something like that worth it?
Unfortunately my internets too slow for that MM page, but I emailed it to myself to read in town.
@mikenotspam, Habitat for Humanity! They'll let you try all the things.
@AlexK I was thinking it was probably the business loan thing that made the price drop so much. If one had alternative financing would it potentially make something like that worth it?
Unfortunately my internets too slow for that MM page, but I emailed it to myself to read in town.
I get so discouraged by these posts. I'm struggling to stay co-located with my extended family, and find that the best I can find in these parts is $200k for a duplex with $800 rent (x2) with $6k/yr taxes,
It's all good info though... just a little disappointing for me. I have to wonder who is buying these places around me.
So not much to add except - wishing it to be so, does not necessarily make it so. So make sure to run the numbers, and don't assume that every region in the country (US) can support such an endeavor/investment.
It's all good info though... just a little disappointing for me. I have to wonder who is buying these places around me.
So not much to add except - wishing it to be so, does not necessarily make it so. So make sure to run the numbers, and don't assume that every region in the country (US) can support such an endeavor/investment.
@bigato, thanks! I have chrome, Firefox, and opera. I mostly use chrome with the pictures turned off, but I'm in the middle of nowhere on an EDGE (AT&T) connection - there are lots of sites that won't load. I got my new laptop today tho and I'm irrationally hopeful that that'll make a difference.
Edit: mostly I use my iPhone with native browser tho - do you know if there's a way to turn off pics and flash for that?
Edit: mostly I use my iPhone with native browser tho - do you know if there's a way to turn off pics and flash for that?
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mikenotspam
- Posts: 55
- Joined: Thu Oct 20, 2011 4:05 am
chilly I wonder the same thing, who is buying these overpriced rentals?
I went to a string of auctions last year and was amazed at the bids people were making. I remember this one house I figured to be sellable for about $70k-$80k all fixed up. - A tiny place with no driveway, no yard, in a so-so neighborhood, in a mid-sized city with bad schools and crime problems, where houses in good condition don't sell for more than $100k. And it required about $10k worth of materials to rehab, plus probably around 250 hours of my time. I was hoping to pick it up for less than $35k.
I placed a few bids. But within seconds it was out of my price range, so I just sat back and watched, slack-jawed, as these two older guys bid it up to $62k.
WTF?
I don't know how anyone could make money like that.
I went to a string of auctions last year and was amazed at the bids people were making. I remember this one house I figured to be sellable for about $70k-$80k all fixed up. - A tiny place with no driveway, no yard, in a so-so neighborhood, in a mid-sized city with bad schools and crime problems, where houses in good condition don't sell for more than $100k. And it required about $10k worth of materials to rehab, plus probably around 250 hours of my time. I was hoping to pick it up for less than $35k.
I placed a few bids. But within seconds it was out of my price range, so I just sat back and watched, slack-jawed, as these two older guys bid it up to $62k.
WTF?
I don't know how anyone could make money like that.