Buying properties to sell/rent

Town Houses/Single Home/Apartment buildings roughly between 1000sq-7000sq. sorry for not specifying.

With rates dropping it's becoming increasingly more appealing. Mortgages have come to an all time low. However, keep in mind that more and more institutional investors are starting to set up funds to buy up residential housing. The competition is coming and the window for opportunity is closing or might have closed already.

One of the major problems I see is that the market in NYC never got as bad as other markets. The best opportunities continue to be in Phoenix and Las Vegas, but I see a lot of risks in buying a home there if you don't live there. You have very little opportunity in doing due diligence and figuring out which neighborhoods are desirable etc.., but if you do it can become costly very quick.

Well it's not fake if that's what you were gettin' at.

I'm looking to get involved myself. The best option to enter is probably getting a threeplex or fourplex and living in one of the units. It still qualifies for an FHA loan with 4 units or less and owner occupied, gets you some management experience, isn't a heavy burden cost wise, etc. Just seems to make sense.

Outside of that, I've actually considered getting into hard money lending and was curious if anybody else dabbled there. Basically financing people's attempts to rehab/flip/whatever and charge decently high rates. Where I am, that's 12-15%, 2-4 points, reasonable LTV (60-70%), etc. If you have 100-200k to use, I see it as a decent trade. Some risk to it for sure, but pretty respectable returns and minimal legwork needed if it's a side project. Without leveraging yourself at all, you could end up getting >20% returns a year on that capital.

I was never really that interested in investing in property, but if I had enough money right now, I would be snatching up every fucking slice I could.

If you had a timescale of about 5-10 years, I don't see how you could lose (open to correction).

How often does that happen though? If the counter party has enough equity of their own at stake and you have a lien on said property, you're never looking at a total loss.... breakeven might be highest if they default part way through the process. I would be interested in ideas about this, seems like an interesting trade. I can also see value in cross collateralizing with people's personal property in return for offering them marginally lower rates (even though it likely securitizes your loan much, much better).

hey at least your investment won't blow up for another 70 years...

What are the benefits of purchasing physical property versus investing in a REIT or REIT ETF? I presume that physical RE offers a higher return long term, but there's also more risk and more work involved. Insuring the property, repairs, working with tenants who refuse to pay rent, etc. Would like to hear opinions on this matter.

I have investment in real estate but before purchasing property , you must know about tax on property.

My brother and his Brother in law just invested money into land in Montana (they live out west) and they got it a very favorable price per acre.

They asked me to invest but didn't state why it is such a good investment (both are lawyers), I was skeptical and could not find anything online to support this.

Any one hear of Montana R.E. and why it is lucrative?

blackjack21:

So does anyone here actually invest in Real Estate? If so, has anyone taken a chance since the Housing market collapsed?

Residential? commercial? New York? Las Vegas? Dallas?

i do...going prtty well..im almost 10% up in 2 months...the lower th rates drop the better for REITs

I invest in real estate with my family. We are buying residential properties in Las Vegas right now, and have been for the past 3 years. It's not as good as it was a few years ago (09, 10), but you can still buy some pretty cheap properties and make good returns if you have a long-term view (can wait for the capital appreciation 4-6 years down the road). It's been hard to extract good returns on rental income because rents have been driven down in the last year as more supply comes online and banks are releasing more and more of their inventory. This is NOT an easy business - dealing with repairs, contractors, general bullshit of irate tenants. To make it worthwhile in the rental business, you gotta scale up and buy a few units. One unit is not worth the trouble. We typically buy at auction (REDC) and then rent it out to extract income, but make most of our money on capital appreciation and interest. Raw land is where you'll get the most capital appreciation if you can withstand paying taxes on it without generating income. We also do seller financing on these properties that we end up selling. That's a pretty decent business. We make 10-12% interest only loans and balloon it with a 5 year horizon.

We also act as lenders in hard money lending through a few mortgage brokers we know. Often the transactions are in CA.

The situation looks a bit different in the UK. If looking for financing with a mortgage, the minimum deposit is currently around 20% mark. Despite a continued oversupply of residential property to the market, the average house prices are currently only 13% lower in real terms than at their peak in Q2 2007. With the prices stagnant, oversupply in some areas such as Edinburgh and Wales will over the next 3-5 years force further declines as sellers finally decide to realize their returns.

London is an interesting exception. Majority of the central areas suffer from housing shortage, with average property prices now at £477,440, a new record high. By contrast, some of London's eastern peripheries suffer from a significant oversupply, which in my view, should further push down local prices by some 5-6% in real terms over the next 3 years.

A snapshot FT article here: http://www.ft.com/cms/s/0/ad02af98-b88f-11e1-a2d6-00144feabdc0.html#axz…

My response was too long for a comment, so I posted it on the main board. I do invest in real estate, and I talked a little bit about how I did it... http://www.wallstreetoasis.com/forums/response-to-does-anyone-here-inve…

slumlordddd.....

As the old saying goes, real estate gets sick but never dies. Great idea and I commend you for doing all of that in low-income areas.

I am personally planning on buying an apartment building in Saudi Arabia. They're always full and returns are ~10%. Costs are extremely minimal. No taxes. REIT, anyone? :P lol I wish, too bad foreigners can't buy real estate here or else it would've been hot,hot,hot!

I am planning to do something like this over in Miami. You can get fourplexes for as low as $50k asking in the bad areas, but I won't be caught dead "literally" there. Minor repairs needed ($5/sqft). Section 8 guaranteed rent, professional management and above average conditions are my goal. I have my sights on a few properties composed entirely of 1/1 units with around $700/month rent based on a 20% discount from fair market rent calculations. 20% down interest only 5/1 arm if i can get them. I intend to sell or pay them off by the end of that 5 year period. On top of that, I get a 3% commission back from the purchase (As my mother is a realtor in the city)... That's about $1500 return instantly after my down payment which I put into my repair fund.

Costs: Property taxes: 1,100/year Management: 5% gross Monthlies: $400/month approx (utilities, insurance, water/sewer). The tenants pay the rest. Reserve fund: $500/month (this is generous, but see why). Interest payments: $200/month

NOI: Approx. $18k before taxes. at 20% down (I can get 3.5% down if I was able to establish an apartment as a residence while not using it... but I wont go there). I made my money back and $8k additional in 1 year. Time to buy another place!

Now my reasoning behind the reserve fund. I have an idea of giving my tenants an incentive to keep the property clean and safe. I will offer each tenant a rebate of a certain percentage of Gross income for every month the place stays nice (Paid as free utilities or random gifts?). Not sure on the legality of it, but it's an idea.

Maybe invest in a nice gate, some bars and some outdoor cameras to prevent crime. Sure, it's extra money into the pot, but it might be worth it.

Did you account for HOA, taxes, and insurance? Remember that with condos, there's always the possibility of getting hit with a huge assessment for something like redoing the roof or something. HOA fees will eat up any net income you make, though you do get to depreciate it. Also don't forget manager's fees. If you work in NY and want to buy an investment property in Charlotte or Atlanta you will want a property manager. They usually take about 10% of your rent revenue.

If you're looking for a depressed market, there are 3 flats available for like $350k and each one's renting for $1k in Chicago (Hyde Park area). No HOA's, no assessments (well you have to care for everything) and with 20% down the mortgage payment's going to be about $1,600 a month at 5% fixed, 30 years. On an FHA 3% down loan, probably about $2,300 but I'm not sure if they'll let you buy investment properties on an FHA loan.

Now the math works out better if you live in Chicago and buy yourself a 3 flat, live in 1 and rent out the other. You lose about $1k of income but you also don't pay rent and you're paying about $2,300 with $2k of income, and you get to deduct mortgage interest, so you probably could come out ahead.

The Other Road for topics not covered. Also, feel free to post investment questions in the HF/AM/S&T forums, there are a lot of guys there that can help out.

If WSO had a forum for every one of these things, there would be forums for:

Real Estate Real Estate Investing Corporate Finance Financial Leadership/Development Programs Entrepreneurship Tech Entrepreneurship

...to name a few.

interested as well. are there any good reads on this topic?

Ill give you one of my simple models if you hook me up with a job :).

Lol, but seriously, it really depends on how much you will have as your LTV on average for your properties. With rates so low, its crazy not to go into RE, but this has caused RE prices in better areas to rise significantly. I don't exactly know how much you are willing to commit as equity, so can't really go over leverage. If single family is how you want to start, I highly suggest you understand the market first. I have seen many RE investors get trapped due to low prices in distressed areas, not like the ghetto or anything, but some cities have not recovered as well as others. I can't speak much for single family, obviously, due to the fact our clients are multi-billion dollar REITs. In regards to investors, it will be insanely difficult to convince anyone to invest with you, nothing personal, but investors require a fair amount of experience just like with any transaction they do.

Shoot me a PM. If you have some markets you are interested in looking into, let me know. We have some pretty good software which we use for market research/analysis, we are paying several hundred thousand a year for it, and I don't think I use it enough. I don't mind helping you out.

As I've mentioned in another thread, I've done 3 real estate deals now since 2009 and am up about $417,000. They say real estate is location, location, location; however, in RE investing, it's finance, finance, finance. So much of what you can do starts with what you can get financed. So your credit score, liquidity/LTV, current income from job, loan size, property condition, etc. impact what you can do--build, renovate, or just buy existing--and IF you can do it at all. All of those factors impact your debt-to-income ratio, LTV, and pricing and qualification for loan product. Ideally, you'll avoid banks and work in cash only as an investor.

Without information on income, liquidity, and targeted price range, it would be difficult to even start to advise you on where to begin.

Its enterprise software, that we got and have an entire team that we pay to maintain and upkeep. It feeds from multiple subscriptions that we have, costar, reis, axiometrics, cbre cap markets, and various other ones.

The price of packages is based on users and markets. For example, if you only want to research NJ properties, then you only need the NJ packages. We have all 50 states and several users. I don't know the exact cost, but I believe its somewhere around $35-$40k a month.

A couple of things you need to do:

1. Do not buy property like this without a professional inspection. They will be able to identify any major structural issues with the property (they have an educated eye for it, you don't), whether it's the foundation, electrical, etc. Don't be penny wise, pound foolish and skimp on this - it's a couple hundred bucks that can save you tens of thousands.

2. Hire a property manager, unless you want tenants bugging you all the time about buying a new fridge, fixing a leaky toilet, etc. The shittier the property, the more often these problems come up (and they're students on top of that - stuff will get damaged and they will try and claim that it wasn't their fault, but either way it has to get fixed). Property managers typically take a percentage of the rent as their fees (or a fixed monthly, depending on what they want). And like any service, you get what you pay for (go with referrals from others if you can and it's worth paying a little more for someone you trust). The more hands off you want to be, the more it's going to cost you.

And you're an investor, so you should know: if it looks too good to be true, it probably is. Doesn't mean you shouldn't invest, but that your operating costs are going to be higher than you'd expect. I'm sure you've factored in a healthy maintenance expense budget annually (if the property is shitty - you still have to keep the place up to code, and a shitty house is like a shitty car - it can be a money pit if you buy the wrong one) and property taxes, special assessments on top of hiring a property manager.

Do a title search on the property as well. You need to know if there's any encumbrances, easements, liens etc. or any clouds on title before you buy. And if you do buy, obviously you'll need title insurance policy.

http://www.wallstreetoasis.com/forums/4-more-things-you-learn-as-a-rent…

Great advice on that thread.

Now, coming from someone with a decent amount of single family experience, I advice against most people who do not have some flexibility in their job to buy a rental house. There is a lot more that goes into it than at first glance. If the property is also far away it makes it that much more difficult to handle.

If your cap rates are that high, than hiring a property manager can make sense. But i guarantee unless you use someone who you know personally, you will most likely get killed on the fees & repairs. Fees for a single family will be roughly 10% + 1st month rent every year. Plus they also uncharge you any repairs. This can roughly take 5-6% of your ROI away.

Risky areas that are "bad neighborhoods" have great upside potential if the area gets gentrified. But if the area gets worse you will not only get stuck with a house you can't sell, you might not be able to rent it. Obviously this is all area dependent. All areas work differently.

When it comes to student housing there are a couple things to look out for. Try to find out if any permits were applied for student housing buildings. If a new housing building is built that can lower your rents.

Also get personal guarantees on the rent from the parents on the kids. Your tenants will make or break your profit. Trusting kids is hard. Even with personal guarantees from the parents it is difficult to collect.

My last tenant in one of my rentals cost me $16,000 in renovations/repairs!

For quotes, take a contractor with you when you look at the house. They can give you a rough estimate. Most contractors will do this for free b.c they want your business.

Everything @mbaapply stated but I'd also look at the overall risks of the property itself, and this goes beyond the time suck of how many units/income it will produce to you (even if you have a prop manager), what sort of debt terms you're looking at (recourse?) and just general things like that, but what's the risk on the property? If the college decides to build more on campus housing and the student demand diminishes or evaporates, are you stuck with X units in a crappy part of town renting to low income people? Students can be a pain but being a landlord in the hood can be horrible. And they won't pay as much as students so if you have recourse debt on it and default you're fucked personally. Even if it's non-recourse you're out all of your equity. I know it sounds like an outside chance but I'd do your diligence with the college to make sure they're not planning in building more housing anytime soon.

Um, 50% IRR over 50 years sounds pretty good to me.

When you say "a property" are you reffering to a single family home, duplex, 4-8 units, or larger complex? If its a small property expect to pay a property manager close to 10% of EGI, if its a complex expect to pay 3-4%.

Get an inspector and if there is issues, have a couple GC give quotes. We own a few and would recommend hiring it out and not dealing with the daily problems of a drunken college student. Make sure you don't get burned on a property tax reassessment if you acquire more than assessed value.

i didnt expect this many responses so first and foremost, thank you all.

the property is a single fam connected town house - 3 bed, 1 bath, 1180 sq ft. the prop manager would most likely be 8-10% gross and first months rent. i'd try and negotiate with them to some degree on the 1st months rent since from what i was told, finding students isnt hard. the thing that gets me is the 20% mark up on contractors. seems bizarre to me to do that.

as far as the school expanding; i need to investigate this. they added housing a few years ago but outside of buying up the area i'd be buying in or close to it, there isnt much room to expand horizontally.

those returns i mentioned are even after an assumed 10% prop manager off gross and 20% off gross for a maintenance fund every month.

i'm going to take all of your advice and bring a contractor with me for sure and run title.

thanks again.

yea it seems like having an arrangement with a prop manager where they manage the day to day and payments and I hire someone for any contracting work or issues would be ideal. i dont know how realistic it is though.

If you only own the single home, finding a worthwhile guy to manage it could be difficult. Even if you do find a worthwhile guy, he's probably going to cost you the majority of your return.

Another thing to consider is that a SFH in a rough neighborhood isn't going to be nearly as liquid an asset as the same home in a decent neighborhood. You may find yourself stuck with something you don't want to manage.

The economics look good on paper because managing one-off houses can be a pain in the balls.

Caveat to the above - I don't do it, but I know quite a few people that do. Their experiences vary greatly.

Just wondering your IRR is levered or unlevered? Are you putting 20% down or buying cash?

the IRR is levered since i'm only putting 20% down. I can send the model out for purposes of the conversation. Just PM me. basic assumptions are; > $100K home value, 2x to 3x rent to mortgage ratio, 20% maintenance fund off gross monthly, 30 year mortgage, 4.5% rate, 30 year cash flow run with mortgage, 20 year terminal value with mortgage paid off. no assumption of any reinvestment of excess cash back into principal.

I agree with the need to not have a prop manager. The more I speak with people the more I realize it's not really warranted for just 1 property.

The property I saw last night was in OK shape, but may be an issue renting to students. It's a little too far extended from campus for my liking. Looking at other opps now in the area that are closer but the purchase price will surely be higher - albeit small.

@slothrop - could you elaborate more on the people you know who have those experiences you mentioned?

sorry,

If you can get 650k for it, I would sell it tomorrow.

I think doing a single project at a time is easy to do on nights and weekends. In fact, it's really easy. I delegated the design, engineering, and daily building and anything associated with construction to the builder. My job was simply to find the right property, hire the real estate agent to acquire the property and sell the finished units, and to acquire financing. Not time consuming at all.

I think I could take on about 3 of the sized projects I've done at once while still working. There is a point, however, if raising outside money, that one would need to incorporate, open an office, hire personnel, and manage the projects at a high level, which would require going full time. I'm no where close to that yet, but that's the goal.

Very inspirational DCDep. I recognize you from a great post you did on affordable housing.

Could you elaborate on how you found a good builder? Also, have you considered expanding beyond single family homes? Thanks for the insight.

Well, I kind of cheated. My builder is my brother-in-law who has about 25 years of homebuilding experience in Northern Virginia. The guy is brilliant at what he does but he's an incredibly difficult personality to work with. He just recently went out on his own after spending years with the big boys like Toll Brothers. He does both commercial and residential builds.

The goal is to definitely diversify into commercial development once/if I am able to raise outside funds, but the great thing about residential is how liquid the properties are.

I like to buy land in my area for as cheap as possible then sell it for as much as I can. Generally through sheriff sale or from out of state owner that doesn't know what they have. I did my first deal when I was in school, bought a piece of land on a sorta gentrifying commercial strip for 10k and sold it a few months later for 32k. Have done a few similar deals since then, I'd like to get a small time home building business going so have been holding onto my land lately. Currently building 2 townhouses on land I got for cheap, was able to convince a bank to lend me something like 87% of project cost due to the equity I created by stealing the land and obtaining entitlements. Still not sure if homebuilding is a better business than just flipping land quickly but figured it'd be a good learning experience either way.

Awesome thread, I'm considering vacation properties out on the east coast in the next year. Need a longer season than we get here in the Midwest.

Also, "contractor" has the same negative connotation with me that "banker" has with the general public.