I’ve been looking for my first investment property for a month or so now, and it is frustrating to say the least. Condos do not create positive cashflow between paying maint. and taxes, and taxes create the same situation with a multi family property. By me, yearly property taxes are 2% of the price you bought it for.
This means if I buy a duplex for $200,000 besides the expense of mortgage and insurance, I’d need an additional $333 a month just for taxes! That kills the profit. How do you guys do it? I’m becoming quickly disuaded from REI ???
First, let me say that if you’re getting “disuaded” after only a month or so, maybe you ought to rethink your decision about investing in the first place. No offense meant, but REI is a LONG term commitment. It has taken some people years before they had the knowledge, know-all, and confidence to buy investment property. At the very least, I’d seriously study your market and your REI investment strategy for a minimum of 6 months before even attempting to make a foray into actual investing.
Second, I don’t know what area your in, but your taxes are HIGH. Suggestions to overcome that problem is to either find better deals or MOVE. By moving, you could move yourself into a better market for your strategy or you could move just your investing into a better market for your strategy. Now, long distance investing is a riskier venture, and thus would/should require more knowledge/learning before jumping in, but has been very profitable for a number of people.
Third, to answer the question “How do you guys do it?” it’s pretty simple really. The answer is a number of different ways. Simple also doesn’t mean easy, though I feel that you’re learning that from your posts.
I’m assuming that your basic strategy is to buy and hold. I’m also assuming that your intent is to buy properties that have a good positive cashflow. ANYTHING can cashflow IF it’s bought at the right price to do so. I’m going to push you through 3 months of street learning with one little statement. Ready?
Stop looking for deals and START looking for sellers. More specific, start looking for desperate sellers. Now desperate doesn’t have to mean someone in foreclosure. What you want is a seller that DOES NOT want the property anymore. Sellers that view that property as a PAIN or a PROBLEM are much more motivated to simply get rid of it. And another learning push here: Gurus say to look for the “motivated seller.” The term is really stupid. EVERY seller is motivated. What you’re looking for is a seller that simply motivated to get rid of the property as fast as and as painless as possible.
Jas…unfortunately there are many markets where cashflow is almost impossible based on what your probably looking to do, and that is invest in real estate using no money out of pocket and securing a loan for 100% of the purchase price or even 95% with 5% down…
You mention taxes at 2% well I live in Fl and its the same here. And to make matters worse, in Jan 07, it goes to 3% for the next 10yrs to cover the insurance deficite for the state backed insurance company Citizens which just happens to really be owned and runned by the family of the Governor (can you say SCAM)
If I want to buy and hold with cashflow in my market, or any expensive market, be prepared to put down 30-50% of the purchase price. And plenty of investors do it, of course with the market slowly depreciating it can become alittle risky. Many investors are using option arm loans with 10% down who have 680FICOS so they can cashflow, but still can end up negative in the home if they are no carefull with the market slowing.
For years I have turned to rehabs in my market since the rentals just do not pay anymore…I find that plenty of buyers want a house that is just done and really do not want to have to deal with any work…
Maybe you will want to look into rehabs in your market…
I feel your pain brother. Read some of my posts. Clearly, you are not alone. It has been about, I’d say 5 months. I’m a “newb”. In five months, I’ve been up/down and all over the f*&^in place!
I still am to an extent.
SLOW DOWN DUDE.
As I see it, you have MANY options, but all your options break down to two basic courses.
You can read a book, watch either all or just a few of some tapes you either bought or got from a friend, and just jump in and start scrambling to “find a deal” - get involved in something, not get involved in something, get frustrated and quit or get to be a motivated BUYER and get broke, or skim by the seat of your pants and somehow get through that first investment, learn from it, wipe the sweat of your brow and start all over.
or
Relax. Spend time reading multiple books. Study markets and compare markets. Gather demographic info, contacts, forms, legal advise, CPA advise etc. Talk to people who do it. Invest in learning about financing and business finances. Learn terms like gross margins, cost of goods, variable costs, fixed costs, etc. Learn how to raise money, start a business entity to hold your properties, market your business, create partnerhips, speak eloquently about rei, build your salesmanship skills etc. And goto a function held by your nearest REI club - see what you think and join it if you think it’s good. Attend a local Chamber of Commerce meeting or two. Attend Foreclosure auctions to learn faces, procedures etc. Have fun building your knowledge. As you increase your knowledge, you’ll still be frustrated and somewhat scared, but you will definitely be able to think clearly and absorb what fellow investors say and do.
One month ain’t gonna get you there.
After five months - The company I am a managing member of, bought its first property - vacant land - cheap, wholesale (with a retail-view) with an exit strategy of selling it in less than 90 days. If it doesn’t sell that fast - it’s OKAY, because we started small.
Give it time, DON’T GIVE UP.
We are in a rough market as well, given our operating funds. Long Island, NY ain’t for the kiddies. Any op funds less than 150,000, and you’re a joke. But I’m still looking! I’m just not a “motivated buyer”. I’m a motivated member of a company that is driven to succeed! [I like the sound of that… ]
I’ve bitched about this board in the past, but what some of these guys/gals say, is good stuff.
don’t go into this with no money either. If you have limited funds, BE CAREFUL.
Thanks for the replies guys. Yeah, you guessed it exactly, I’m in Florida. Also, I’m originally from Long Island, so I know what BOTH of you are talking about 100%. I guess the only option is to keep reading and learning and saving up so I can put a larger percentage down on a property. I thought about pay option arm-ing a property and making the minimums hoping the market will outpace the negative amm. but now with the market slowing down, who knows.
i got a call from a realtor this morning about a “great investment”.
he’s in florida and he’s a friend of mine. he told me about this four unit on the water in FL. Asking Price - 650,000
he told me that the rents probably go for “easy 850 each”.
okay so that’s 3400 a month.
do the math. even at a negotiated price as low as 550,000 purchase - this bad boy doesn’t even come close to a positive cash flow, unless you have major players with money.
but to make my point - my friend says to me that with an Interest Only loan - this is a good deal with 100% FINANCING.
that’s ludicrous. 3400 a month rents with 550,000 mortgage, even at 8% is just not going to get you there under any circumstances.
this real estate thing is out of control. i predict that people are going to be falling flat on their faces with this fast money approach. foreclosures across the country are booming NOW. a year from now - they’ll probably will have doubled in quantity across the country!
unreal - clearly, the emerging market is reo investments. it’s always been a lucrative business, but man o man, now more than ever and more to come…hint hint.
This has been a great topic for reading. I’ve been in REI for about 4yrs. I’ve only done 2 deals. One rental, which i just sold because the small cashflow wasn’t worth holding on to it. It was a 2 bedroom TH. However, the appreciation was tremendous ;D The other was a flip that I picked up at the courthouse. Erned about 35k on it after just 1 month hold.
Anyways, I have read the post and I have a question. I am in Prince George’s county Maryland. Right outside of DC. The prices are way overblown and the foreclosure rate is increasing. However, with such high prices on such small properties, there is no way a small investor can do anything with the foreclosures/pre-foreclosures???
I guess the only thing to do is take RogerJ’s advice and relocate
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