Will

Hi all,

I have recently freed up some cash and want to buy some more investment properties. I am considering three options:

1. $100k 4-plex, each unit 650ft^2 one bedroom, renovated in 2005, new roof in 2010, seedy part of town, but fully rented out. I estimate my net after expenses to be about $800/mo.

2. $145k 3-plex, renovated recently, nicer part of town, each unit 500ft^2 one bedroom, many upgrades, partially rented currently. I estimate my net after expenses to be about $700/mo.

3. Buy two single family homes for approx. $100k each, partnering with another party, I invest all the cash, he invests all the time for management/upkeep, we split profits 50/50. I estimate my net after expenses (and his share) to be about $500/mo.

Option one is attractive to me because it's so cheap, but I'm wondering about long-term property value retention. Option two is more likely to hold it's value, even appreciate, but represents a larger initial investment. Option three *seems* like the lowest risk proposition (low volatility for several reasons) but offers lowest potential ROI... if you don't consider the home value appreciating. Any thoughts?

Will

To any others in the future looking for info on the same topic: I ended up purchasing a $180k 4 plex in a more affluent part of town. After expenses, it should generate around $10k per year in income. Interest rates are so low right now that if you can swing the 25% downpayment, it really makes sense to borrow the rest. Even if you're going to use a property management company to collect rent and place tenants, returns are very reasonable. Especially consider that you can reinvest profits in other properties. For me, plunking down $45k and netting $10k at the end of the year represents a 22% return... not bad!

Scot

I have bought / sold / rented about 35 houses over the past 10 years. Rental stuff can be awesome but can also be a nightmare.

You paid about $45k (plus closing cost) per unit. What are your month rents? $800/month?

Did you allow for vacancies? how about repairs (depending on if your tenants are awesome or assholes)? I assume you pay water sewer trash, property and repairs to HVAC, Roof, etc..)...

I would never use a property manager... they mostly suck and want 50% of 1 months rent to place a tenant.... then a % of monthly rent... blaaa...

I am almost completely out of the business.... i think i had 18 houses at one time and was anticipating that being my retirement but.... didn't happen..... i am down to 3 houses... all for sale....

Will

Interesting. Yes, I did allow for vacancies and management expenses. May I ask why you're getting out?

s.hasan546

Agreed

It's not as easy as most people think. When you adjust for potential vacancies, evictions, and repairs your not making anywhere near 20%. Maybe 10 % with hopes of value appreciation.

My family had 4 rentals + 3-5 flippers at any given time. We sold everything and am down to 1 last investment house.

The main reason we're getting out b.c, in NY at least, rent barely covers a mortgage after all the unforeseen expenses. The hassle between collecting rent, keeping up with repairs, and dealing with evictions/vacancies are time consuming and cost a lot of money.

Owning rentals is like a part time job that doesn't pay well. The only way you come out ahead is hoping for property value appreciation, which i don't believe is in the near future. Also the interest you pay on your mortgage kills your property value appreciation most of the time.

Scot

^^^^^ sort of similar... but i started to get out due to my ex wife not agreeing on the prices...... and i was getting a little burned out of all the a-hole tenants... no matter how nice i was they were almost (like 95%) assholes who destroyed my places.....so, ya sometimes a fair amount of the rental income was offset with fixing the messes...(i probably have 10+ judgments against idiots but they are all useless)....and the appreciation was sometimes all i had in the end...

at this poiont I want to have the ability to move once my son graduates high school so i am trying to get out of the last 3 houses... once I resettle into a different part of the world i may revisit rental houses.

I had a mix of HUD (section 8) houses, private renters and rent to own type setups.... i did have 5-6 rent to own people buy the houses and i probably averaged $20k per house... I have a full time job so I never needed to try and gouge people like most rent to own type set ups... but fast forward and now it is a bitch to get a mortgage so someone with a 600 credit score = no mortgage..

I lost $ on 1 property out of about 35 and luckily that was only about $5k.... Overall I did well... i dealt with the idiots and ghetto mentalities but probably finished $500k ahead (and unfortunately my ex wife has half of that...boooooo...lol...) if you count all the appreciation and rental income from all the houses...

wifeb123

Buy stock...just my 2c

Scot

^ fail.

hukares

I have no advice to give as I'm just getting into this business. My angle that I'm hoping will make this work is by having the properties in the Philippines - my wife's native country. Her family manages and repairs for a smaller chunk than a typical management company would take (plus the arrangement saves me from some of the Filipino tradition of remittance). There are practically no laws protecting the renters. They pay 3 months deposit. The houses are concrete and hard to destroy. If they don't pay, they can be kicked out at any time. Plus, property is cheap enough for anyone to start. The negative is that foreigners can't own land there, but my wife is native. My guess is that other poor countries around the world may have good oppuntunities though management may be an issue. Corruption is also an issue in these places. All local officials and police have their hands out. It lowers the profits, but I am still expecting a capitalization rate of 14% this year. Better than you are likely to get in the USA.

Scot

Cap rates in my shitty town are awesome, but you do have to deal with idiots.

typical section 8 rent for a 3 bedroom in harrisburg is $750 / month... purchase price of $25k is fairly easy... cap rate at 19% with $1k a year in repairs..... you would normally think some appreciation but Harrisburg is in Bankruptcy so there is negative appreciation.. LOL

Gross Rent $9,000.00


Preperty Taxes $2,000.00
Insurance $350.00
Utilities $900.00
Repairs & Maint $1,000.00


Total Exp $4,250.00

Net Income $4,750.00

19% cap rate