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Word of caution, just really know the numbers, the market, what you're doing, the exit strategy, etc before you jump in. Have owned several properties for close to 20 years. Both good and bad experiences. Trying to unload some commercial lots right now and it is not easy.
RE is a great investment if you know what you're doing and can carry the costs for an extended period of time (at some point you will have to - would be unusual otherwise).
Go in with your eyes wide open, assume some crazy crap will happen, and have a plan. It can be lucrative and it can suck depending on the circumstances.
Don't rush.
Educating yourself is a great idea. There are tons of articles (just google something like "learning about investment RE"). Like anyhting else, it starts with vocabulary. Learn the terms and the issues. I can't tell you, you have to do the research so you learn it.
After you get comfortable with the language, decide if you are interested in commercial or residential. Different set of issues. Both can be lucrative or horrible depending on many variables.
Do a Ben Franklin (Pro / Con list) on all the imaginable issues and see if it's worth the risk. If nothing else, you're IDing things that will ultinately happen. (for xample - have owned a restaurant building for 15+ yrs. Becoming a headache with revolving tenants. Want to sell. County is making sounds like we need a new septic permit and they won't issue one until we do X which will cost Y - never thought that would happen but those are the types of things that do happen.) really cut in to your profits.
Not all doom and gloom. Have had yrs where we made substantial profits flipping properties (well in to six figures) so it can be great. Just get comfortable with the risk, assume it won't go as planned (at least not exactly), be able to cover the carry cost without hardship, and most of all - be realisitc. We have a managing member who is so pie in the sky it's laughable. Whatever he projects I knock off at least 30-50%.
I don't really care too much about cap rate going-in, only when I'm going for a refi. Most of the stabilized properties that I'm looking at trade between a 8-10% cap.
For cash on cash return, I'm looking at around a 28%+ Cash-on-Cash
How are you targeting 28% cash on cash in any market? Mobile home parks don't spit out that much.
Yes of course! Saved $25K and bought a studio condo in Long Beach, CA, literally two blocks away from the beach. I picked up a property that ended up on the market for a very long time because the seller was trying to 1031 three properties all at the same time. Her attempt fell through and she finally decided to sell them separately.
I went through the traditional finance route, but half way through realized my parents sold their house this year and are looking for ways to reinvest their capital. My dad was hesitant, so my mom invested her own money with me. I offered my mom $4.2% and 30-year am for a $200,000 loan, but my mom was happy to do a lower rate for me, since their alternative for a fixed income fund is trash.
I have a really good working relationship with my mom because I care more about helping her retire, and she cares more about helping me succeed. I made sure her name is recorded on the deed and we did all the paperwork correctly, even though I would never, ever want to default on her. We ended up with a 3.6% loan with 3 years of interest only. She's happy getting a check from me every month, and I'm definitely taking her on another vacation some time soon!
anyone else read 'saved $25K and bought a studio condo in Long Beach, CA' and was like wtf
Ahh, the lucrative 3.6% yield high-risk non-amortizing credit. How did you two form such a strong working relationship ?
I own a lot of properties everything from single families to small buildings. I do quite a bit of section 8 and realize going into this that it is anything, but passive investment. The maintenance/damage alone is a killer with many of those tenants and the properties tend to be older. Just to give you an idea, cracked cast iron sewer pipe (very common in properties 50-60+ years old) starts at 2k for a small leak and goes up to over 10 depending on how involved it is. Units haven’t been rocked? Cracked plaster and lead paint laws are a real pain. Yearly inspections with the housing authority will place all the repairs for damage to property done by the tenants on you the landlord to fix. Older systems in a property? You will be amazed at what HVAC repairs cost. The tenants generally also always fall behind even on section 8.
Private payers in each property class have their own pros/cons etc.
Real estate is a good business to be in, time and time again though people go into it and are not prepared for the realities and over leverage themselves. Find a property that is recently built that you can get a solid tenant for if you are starting out, even if the return on paper is less. Things will go wrong, but with a new property, there’s a lot less to go wrong.
My understanding is they pay a % of their income, usually around 30%, and the Sect 8/Housing Assistance program pays the remainder. So the landlord receives the subsidy from Sect 8 but the tenant may still fall behind on their share. So for example, say the "market rent" is $1,600, the tenant may pay $600 and the housing assistance program may pay $1,000. But if the tenant falls behind... you get the point.
If someone else here is familiar, feel free to correct me if I'm wrong but that's my understanding. Some investors & prop mgmt companies specialize in these sort of investments but as some others have eluded to, it can be a tough business
So I figured I'd keep this thread updated as an accountability sheet.
Bought 2 properties, a 6 unit apartment complex in a C/D area, plan is to do section 8.
Buying for 217k, NOI 27k as is. Can be bumped to 36k NOI after switching tenants to section 8 (takes about 6-9 months). Should reappraise at 350-370k after it's done @ 10% cap rate. Was under contract 2/24 and closing 4/25 hopefully.
Bought a single family house in class A neighborhood. Purchase is 53k, rehab is 53k. ARV is 160-180k given the current circumstances. Closed 4/14 and began work 4/16.
Current project: Looking to build tiny home community for homeless veterans in rural Ohio, close to Akron area.
Stretching the definition of Class A