Duplex 120k, $3500 a year tax, gross rent $1600-$1700
Duplex 140k, $3800 a tear tax, gross rent $1800-$2000
This is what I thought was a good investment before coming here and reading. This is what they are going for in my area. Should I go after these or look specificaly for foerclosures and distress duplexes. I am looking for positive cash flow.
All real estate is local. I don’t know what a good deal is in your town. A person in San Francisco would die for this price but the rents would be higher. In Jacksonville, Illinois it would be overpriced. What I generally look for is a property that is distressed. I would look for these properties that need fixing up and thus are discounted. If they go for $120k or $140k in your town I would look to pay $60k to $70 with only cosmetic repairs. That is no structure, A/C, roof, plumbing, etc. Just paint and carpet. I would buy it if there are some operational issues. The landlord may keep getting people in there that won’t pay his rent or keep selling drugs out of it or some problem that you can fix. You can always find a property to buy for retail. The deal is when you get them to discount it.
not enough info
So would it be accurate to say that your general rule of thumb is to find properties at half their market value, and even more if there are major structural problems, i.e. new roof, subflooring, upgrades to kitchens and bathrooms?
How do the sellers that you find to make these deals break down: Are they heirs to a recently deceased property owner? People who are about to go into foreclosure?
I’ve never understood how or why anyone, even those who need to get out of a property quickly, would ever agree to sell their house for that much less than market value.
You look for the 4 "D’s. Death Disease Divorce and Destitution. By far foreclosure is the number one way I get my houses (Destitution) I have had one come up by estate (Death), and 1 by divorce. My current residence I got a good deal because the guy had gotten hit in the head and became disabled (Disease). His income dropped so that he couldn’t afford the property anymore.
This is NOT a good deal and is not cash flow positive. A very accurate way to determine cash flow is to take half of the gross rent and subtract the mortgage payment. I agree 100% with Bluemoon - find a property at a BIG discount. Anyone can buy retail!!!
Mike
Learn something new every day…
-Mike
Thanks guys. Now all I have to do is find these properties at a discount. I guess they are out there just not on the surface like the ratail sale properties.
Mike…I really feel finding properties with your formula is very tough in bigger cities, almost impossible at times. I already live in an area where there is no cashflow unless you generally put down 40% and thats small cashflow with I/O loans. I know in smaller cities and towns you can find those deals.
I would love to find them again in my city, but i think impossible with our high taxes and crazy insurance premiums.
It doesn’t matter if it is tough or not. If you want to make money with rentals, then you’ve got to find properties that are cash flow positive. The good news is that the cycle is changing. In many markdet, inventory has greatly increased and prices are heading down. Historically, this downward cycle takes 2 years. I figure that it will bottom out sometime in 2008. Millions of newbies bought rentals at these ridiculous prices, The vast majority of them will be out of business by then after being forced to sell (or being foreclosed upon). This will be an excellent buying opportunity.
Good Luck,
Mike
I really feel finding properties with your formula is very tough in bigger cities, almost impossible at times.Some body is making money on real estate in your town now. Find out how and do it too. Remember what Gordon Gekko said in the movie Wall Street "I look at a hundred deals a day...I only pick one” You have to kiss a lot of frogs but don't marry one unless it turns into a princess.
Ok, do you try to track down people in default and buy them out before they go to auction (pre-foreclosures)? Or are do you mainly just go to the courthouse steps and bid on them?
Also, how do you judge the risk factors for foreclosures since you can’t inspect them beforehand? Suppose you win a bid on a house that’s about to crumble to the ground?
I get houses that the bank already owns. What the bank does is foreclose on the house put the people out and place the house in their REO department the REO guys hire a management company to keep up the property (cut grass, keep the doors and windows intact so bums and animals don’t start living in it), they also hire an agent to list it on MLS. They usually list it for a pretty good price (lower retail). If I find one that is priced about what I think is a good deal, I do comps on it. I get the retail price for the house. I then determine the most I can offer on that house. I look at the rehab costs and rental income for the neighborhood to come up with that number. I offer that. The number I offer has nothing to do with the asking price. In other words, I want the house real bad at that price but I don’t want it at all at one penny more than that. I will buy it and send flowers to your daughter’s wedding at my price, but I won’t buy it if it is the only thing that can bring world peace at one penny higher. What they usually do is turn down the offer and sell it to an out of state investor who pays way too much for it. But sometimes the REO department gets with the mitigation department and they decide that it is better to take my offer than sit on it for another month. I get 5 to 10 days to do inspections and if it passes I buy the house.
If I find one that is priced about what I think is a good deal, I do comps on it.
Bluemoon…
What is your exact technique…for pulling comps.
Do you go thru a realtor…do you have access to the info yourself?
Thanks,
-Mike
I purchased access to the sold data for my county and the surrounding counties via the internet. This website access was obtained through my real estate investor’s club.
Property worth $55-60K. Rents for 500-550/month. Need $5K in work. Worth buying for $25K?
Who would or would not and why? Not a warzone, just a low income rental in a low incoime city.
If I can rent a $30K property for $500-550, I’d be all over it!
Keith