Most “people” with insightful posts like that usually have a website to share too…
I have been impressed with the responses too - I just looked through them all. I will say that I too believe over leveraging is dangerous.
Would you rather be a man with 20 properties and 2 million dollars in debt and $75000 in net income? Or a man with 20 properties with $0 in debt and $75000 in net income?
I am just describing the two possible scenarios that you may or not be in, if you have a professional job and are considering taking out a loan on 20 houses over time with little to no money down. The problem with that…as many have pointed out…is that you are in serious debt. That sucks.
Borrowing like that (too much) can really screw up ones debt to income ratio, which in turn will cause you to have trouble getting loans in the future, and in turn basically ruin your investment business OR even possibly your chance to get a new personal home loan. Plus most banks, not to mention Fannie Mae & Freddie Mac, have internal limits on how many loans they will give people…like literally 5, 10 or 20 single family homes. So again, taking out too many loans on single family homes can be a bad idea.
If I were to borrow a ton of money, which is anything over $500k in my opinion, I would rather it be on a much higher yielding investment product such as a commercial strip mall or an apartment complex - not single family homes.
But if you are looking to pay cash OR finance for single family homes, like I do, the most profitable ones are the lower and lower-middle income ones (in Texas in particular it’s an extremely profitable niche). I have had great luck paying cash for these homes.
Anyway - good luck with whatever you do.
I think what I am learning here is people are buying decent places for 25k.
Are you seeing these listed in the mid 20s online? Or are you finding decent 40k houses and offering 20k…22k…25k… knowing its a good deal.
I guess I need to know where to look. Because most houses I find under 30k online look like trash. I am in Central Florida.
Thanks again for all the posts!
Ian
That’s not exactly correct. One of the best things I learned is that if you want to make a lot of money in single family homes - you need to follow the 2% rule. I have gotten deals that have been 3% and better! Basically, that means you get at least 2% of your total investment in the house - including fixup costs - back per month in rent.
So, ideally,
- a $50k house should rent for $1000 per month.
- a $40k house should rent for $800 per month
- a $20k house should rent for $400 per month
- OR a $100k house should rent for $2000 per month
The problem is, the more expensive of a house you buy, the harder it is to get 2x the rent per month. Additionally, those deals are harder to find. You will find a lot more $40k houses that rent for $800 a month than $100k houses that rent for $2000 per month.
So do not limit yourself to $25k and less houses, but starting out with those “cheapo” deals is perfectly OK.
And do not be afraid of borrowing money either - just be smart about it and do not borrow to much.
Good luck!
P.S. The above information pertains to buying lower income, and middle income single family homes - as long term, buy & hold rentals. There are plenty of other forms of real estate investing, and other forms of single family home investing even, that are very profitable. Don’t close your mind to other ways of making money in real estate, especially as you come more successful over time.
Thanks!
My question though, and I guess Ill get a feel for this as I start making offers but, are you looking at lets say 30-50k listing properties finding something you can work with and low balling them? Say offer 25 on a 45 ? I am assuming sometimes your offer sticks or its a numbers game. Just starting out I feel I wont be as comfortable judging the house. I will need to find a good investment realtor who knows what they are talking about.
I actually drove by a property today that had a for sale sign. I looked it up on Trulia, its listed for 41k
http://www.trulia.com/property/3078594397-1102-39th-St-W-Bradenton-FL-34205
I know I should look at comps , etc… but if you came across this listing, what would be the sort of offer you would come in at. Zillow mentions avg rent at 825$ that would put 2% at 41,250. So assuming youd probably put around 10k into the deal, your goal would be to get it at around 30. Would you offer 25k?
Thanks again! The more real case studies I get to see the better!
Ian
FWIW, I usually stop looking at houses once the asking price gets up to 45k. Anything above that and the seller is not “ready.” That house I just told you about that was basically move in ready for 26k was listed for 53k about a little over a year ago. Was it worth that? Heck no. It appraised for 30k. Now before everyone on here says that’s horrible because we paid 26k, realize it’s renting for $625/mo and I turned it in less than one week. We’ve paid far less for houses, but had a ton of work to do to them. Sometimes it’s nice to get one that is ready to go.
You really have to know what these houses will rent for in order to know what to pay. Remember it’s an investment you have to do by the numbers. That’s all that counts. Check for rent signs in your area. Check newspapers, craigslist, etc. Know what you can rent different kinds of houses for.
I’m not a huge fan of throwing out low ball offers on tons of properties. I know what my numbers need to be in order to make it work. People can offer 20% of asking price all day long and maybe come across a deal once in a great while.
Ian – chiming back in, Justin has great advice as always, and MotivateCEO is just a wellspring of real estate knowledge, these are some fantastic regular posters on this site, you are very fortunate to benefit from their hard-earned knowledge, for the today-only price of zilch!
Usually with REOs, they will discount relatively little from list at the beginning of the listing period, and after the DOM (days on market) start to build, the bank/servicer will relax this percentage. Every one follows a different matrix, as well as gets some input from their listing agent in the field.
You might expect to get it for 90% in the first three weeks, then 85% for the next three, then 80%… And simultaneous to this, the bank is dropping the price on a regular basis, perhaps every 30 days.
The bank will typically not take a low-ball offer, it is a better strategy for them to systematically lower the price in increments until they get offers. They’re stupid to do otherwise. Yes, they’re motivated to sell but they also have the capital and time to follow a systematic price reduction strategy. Why would they take an offer at 60% of list, when they could just decrease the list price by 10%, potentially triggering bid activity.
There are always exceptions to this, but that is generally how they operate. HUD is a little different. There is no human at HUD making decisions, there is a computer. An agent submits an offer to HUD’s system, and if your offer is too low, the computer will counter with its “minimum”. At that point, you can take it or not. You can then wait for the next price drop and try again, when the computer has a lower minimum based on the longer DOM. I mention this because HUD has lots of REOs in every market (these are defaulted FHA loans, by the way.).
Sometimes REOs are priced VERY aggressively right out of the gate, and smart investors see this and will bid full list or even higher. Investors often get into “multiples” on these, meaning that the listing agent has received (or at least they say they’ve received) multiple offers, and comes back to all bidders with a demand for the “highest and best” bid. This has become somewhat of an overused marketing ploy designed to get bidders salivating and even bidding against themselves at times. You always must formulate your max offering price on the front end, start your bidding below that, and be willing to GO NO HIGHER than your predetermined max. You must be unemotional, go by the numbers. It’s always good to have a whole list of properties you’re evaluating at all times, so any one property feels more like just the commodity it is, and you can take it or leave it, and move on if it doesn’t pan out.
When you know your target market or farm area intimately (this should probably be an area of perhaps 20-30 square miles initially, in an urban area), you will begin to develop an intuitive feel for what properties in certain neighborhoods, of a certain size, are worth, in “average to good condition”. You must constantly review ALL the sales activity in that area, so that you have your fingers on the pulse of that market. I usually just run a preliminary number assuming an $8k average rehab, maybe as much as $12k if it appears to have quite a lot of issues, and if it’s in the ballpark on numbers, I get over to the property and inspect it, then write a cash offer.
I like to drive streets/neighborhoods and assign a grade to the street, then you can color code this on a map. When new properties hit the market, you can plot them on a mapping tool and compare to your map with the grades.
To identify your target area, use the mapping tool on realtor.com to show you where the concentrations of houses in the 25-50k list price range. This will help you formulate a target area in your market.
Working REOs is a good place to start, but you will be advised to get familiar with the short sale process, as there are lots of those out there, both on the MLS as well as some you may begin turning up if you choose to market to underwater borrowers. Meeting with borrowers in their homes is something I’m just beginning to look into. Most short sales on the MLS are so-called “unapproved short sales”, meaning that the lender may not even know that the homeowner has their house on the market (they DO know that the homeowner is in trouble, since they probably haven’t been making payments).
So the list price on a SS is just a price the listing agent has come up with. As the listing agent begins reducing the price, at some point they will trigger one or more bids. At that time, the listing agent submits a short sale package to the lender and gets the approval process started. The lender may well come back with a higher counter, and so you have to know your max price you’ll pay, as always. A lot of investors advocate throwing lots of very aggressive bids out there on SS properties, and seeing which ones get traction. These typically take 60-120 days to get an answer from the bank, but there are millions of underwater borrowers who are in financial distress typically due to job loss or income reduction, so this is a huge market that you could begin to tap into as well.
Would anyone here recommend using an Investment Property Company like this one in Central Florida as a way to learn as a beginner?
They offer everything from turn key investing, property management, properties that they find…
Im assuming these guys are wholesalers. They try to flip properties pretty quick. But they claim to be experienced in rehabbing renting, etc. And offer their help if you buy from them. If a good offer is on the table, would companies like this be useful. I would be new to rehabbing, so just learning the process and getting good recommendations to contractors in the area would be great help. This is all assuming these people are honest and not trying to rip people off. I am assuming they are trying to make some money on the sale of the property. But hopefully for a beginner its not too much more then going on your own, plus if they really will help organize the rehab as part of the purchase that may be very useful.
Has anyone else had any experience with companies like this?
Thanks
Ian
Ian,
A refinance is income tax free.