Curious to hear whether it's still worth investing in single or multi-family houses in 2019 (given the market is red-hot and certain tax regulations have changed some write-off rules)
Who's done this, what are your experiences like? I'd like to hire a management company as I'm NYC based and would be interested in properties in Tampa that I personally don't have to mess with.
It really depends on what your investment objective is. Are you looking for appreciation or income? If the former then not really since the market is basically fully price not accounting for distressed fix-em-up properties. For straight income like what I do, it is actually a pretty good market, you can still squeeze in a 5% rent increase every year. Just be careful with your capital structure and focus on buying really well and you will be fine. You can always refinance later and full out some equity for other investments.
For management companies, they do take the hassle of managing property away. They charge a fee as you already know but life is much better when you don't have tenants telling you to fix their clogged toilet.
Property managers cost 10% of NOI, lowest is around 8%. Also, I would probably do this once you have enough to buy or finance at least a few cheap rental properties. You don't want to put all your eggs in one basket, and then have something go wrong, and the repair eats up your NOI.
You can find PMs as low as 3-4%. My company charges 7% and lease-up fees for the most part.
Hit me up if any of y'all wanna buy a rehabbed multifamily turnkey in Pilsen.
Incoming
This is a tough one. If you live in a desirable area--which most educated Millenials do due to job opportunities--the law of supply and demand will ensure that there will be nothing available that you ("you" generically, not "you" specifically) can realistically afford. So, the most likely scenario is for you to invest in properties outside of the area in which you live (lower cost markets), which can be difficult if you don't know the market well + management fees are a killer.
There is a reason not that many people buy passive income properties--in the last 20 years or so real estate has become "professionalized", which has led to the absolute destruction of returns. Again, the law of supply and demand at work.
If you happen to know a lower cost area really well (maybe you grew up there), I think it makes a ton of sense. Even so, it's not easy for most people to come up with 25% down payment on an investment property, and if you do, it will take a good while to recoup that cash so you can buy another one. Great long-term strategy if you really have a long-term focus, but there will be those days when you feel like a complete fool.
The stock market has been growing at 10-13% per year for, like, a decade. Where you really win with real estate is in the use of financial leverage. Passive income properties in low cost markets is a terrible strategy without leverage since you would realize inferior returns to a passive investment in the total stock market. Where you really win is if you accidentally pick a low cost market that ends up being the next D.C. or Nashville. Again, that takes patience and good fortune.
A good friend of mine (1st year VP) began investing in real estate in 2013, when the market had not yet fully rebounded. He focused on purchasing multifamily properties out of market around college campuses, hiring property managers with proven track records in the local market to vet the potential renters, and then collect.
He went all in on those investments, and at the moment has 24 doors in 4 states in the South (think college football towns).
It's next to impossible to find those deals in today's market.
I’ve got a few properties. Good deals are tough to find. I drive around the city looking for small duplexes and quads owned by mom and pop investors trying to buy them off market. Usually (but not always) when a property is listed on Zillow or the MLS, it’s not worth the hassle for the small return (if any return that is). And then some bozo buys the property thus reinforcing the trend in price creep.
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What about offices? They seem like the best of both worlds.
You're asking the wrong guy. I have no idea except to think that commercial real estate has even thinner margins.
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