For the last 3 years I’ve been rehabbing homes in the central Ohio area. The market for selling to retail buyers has slowed considerably, so I’m looking to take my profits, and buy my first rental property. I have about $70K (also 800 credit) to invest but Im not sure of the best place to start (single family, section 8, 4plex, 5+ units). I spent the last year studying commercial fundamentals so I’m not completely green, though I have yet to have any real world experience managing rental property. I am currently working with a commercial broker who has brought me 10+ properties to look at over the past 2 months, but so far they seem wildly over priced. Im not sure what kind of discounts off the asking price I can expect, or which properties I should even bother offering on. My financee and I are getting married in a few months and are planning to start a family & buy a house, so I am obviously under pressure to make this money achieve superior returns to provide for them. So I guess my question is if you were in my position whats a good place to start.
look for a guy who posts on here named ‘propertymanager’. he’s geographically in the same part of the country as you and he’ll have some good insight into what may be the right property class in that area.
a few points:
- Forget about 5+ units. I’m all about diving into things and figuring them out as you go but you need a certain level of experience to make those deals happen at the right numbers and you could seriously hinder the financial future of your fledgling family with your very first rental property.
- You state that you have been learning commercial fundamentals. Ok good, but remember this, although similiar they also have very different characteristics with regards to valuation. Lots of post on here about that.
- In regards to your commercial broker. By bringing you 10 properties he has successfully showed you about 1/10th of what you will need to see to make a good first deal. Many, almost all will be overpriced. Every seller thinks they have a gold mine, and every buyer sees a dump. You’re looking for the ones that are reasonably priced where you can offer about 60-70% on (being real general here).
One more thing about commercial brokers and I speak from my experience only. They bring you commercial properties which means 4+ units with regards to multi family properties. 3 units and below is considered residential, so you may be cheating yourself out of a whole lot of prospective properties by only working with a commercial broker. You’ll most likely end up finding that you find the deals yourself but broker’s have their place also.
Good luck!
jbaldwin,
Thanks for your reply. I will try to contact “propertymanager” . I will also take your advice and try to stay away from 5+ units (If i happen across something I’ll post it here) and concentrate on singles through 4plex’s. So on average I will have to look at about 100 multifamily properties before I find a home run? Should I just ignore the overpriced properties and be patient for a building thats priced reasonably… and then offer 60-70% on it? I have MLS access so I can look for single family houses myself. What kind of cash flow should I look for in a single family investment (I’ve heard $250/mnth minimum) also will my operating expenses (including management) really run 45-50% of the gross rents on a single family rental?
My financee and I are getting married in a few months and are planning to start a family & buy a house, so I am obviously under pressure to make this money achieve superior returns to provide for them.
sickawhat,
The good news is that the rental market in a lot of the country (including most of Ohio) is very good. However, you I hope you understand that it will take a few YEARS to build a significant rental property business. Obviously, you will need some income to live on while you are building your business. The great thing about the rental business is that once you’re finished, you should have a significant net worth and a significant monthly cash flow that will require relatively little hands on work to keep going. So, a BIG sacrifice now can result in a great lifestyle for a lifetime.
I am not a subscriber to the “look at 100 to find 1” theory. In fact, I very rarely look at more than 2 or 3 properties before buying one. The key is to get out of the house and meet people. Although there can be a few good deals on the MLS (REOs, etc), most of my good deals come from talking to people. A good place to start is to join your local REIA and make friends with the SUCCESSFUL landlords there. You’ll be amazed at how many deals you will get just by knowing the right people.
Should I just ignore the overpriced properties and be patient for a building thats priced reasonably..... and then offer 60-70% on it?
No, I would suggest finding DESPERATE sellers who are already selling for pennies on the dollar. It is ABSOLUTELY IMPERATIVE that you buy EVERY rental at the right price, which means a BIG discount to market price. CASH FLOW IS KING with rentals, especially considering that you want to feed your family with that cash flow.
I would strongly suggest starting with a few single family houses. They usually have better tenants and are more forgiving of mistakes.
What kind of cash flow should I look for in a single family investment (I've heard $250/mnth minimum) also will my operating expenses (including management) really run 45-50% of the gross rents on a single family rental?
If you do EVERYTHING right, you can expect a positive cash flow of $100 per unit per month. Of course, there are better deals out there, but they are few and far between. Yes, you can expect operating expenses to run 50% of the gross rents (again, if you’re doing things right). Make newbie mistakes and you can count on the operating expenses being a lot higher.
Good Luck,
Mike
Thanks Mike,
I’m already a member of the Columbus REIA but I’ll admit I haven’t been going as of late so I’ll have to get back to it and try and make some contacts. Maybe I will see you there? Can you help me with some of the specifics.
- What areas/neighborhoods of central Ohio are you finding work for you?
- What type of deal do you look for?
- What type of deals do you like?
- What are you parameters?
- What price range?
The reason I ask is that I ran some scenarios last night with a 75K 3 bedroom house renting a $900/mnth with 50% ($5,400) expenses. Putting 10% down that leaves me with a yearly loss of - $134? Comparing this to your advice I know I’m making a mistake here Im just not sure where it is?
A single family home will only command a certain level of rent before the renter says " I can own a home for what I’m paying in rent." Therefore, If you have SF homes that haven’t sold, you can rent them out until you do. If you have $75 to spend, I suggest you purchase multi-fams and rent them out. With 20% down and a good price should get you decent cashflow.