I am currently working overseas in Afghanistan to save up money to buy investments. I am looking at investing around $50k over the next 6 months. I also have two good friends that work with me and will be looking at investing $50k each over the next year. We are in the process of starting a TX LLC.
Does anyone have good advice on buying and holding?
I own two properties in WA, as does one of my friends. Has anyone personally bought in SA lately? I am new to the area.
Please help! Any advice would be much appreciated!
With 50k here is what I would do and why.
I would buy two houses here in Michigan and own them free and clear and hire a management Co to manage them as you are out of state.
Here is why
With two houses free and clear at a rental rate of 500/mo =1000-expenses of taxes, insurance,management and maintainence or about 400/mo if you chose wisely and rehabbed correctly,leaving a positive cash flow of 600/mo.
Now lets compare that with what you will do in the ones that you describe.
Purchase price of 190,000-50k down =140k
2750 rent- 1375 expenses=50%rule ( works real close)
=1375 for debt service
1087 payment on 140k @ 7% / 20 years
1375-1087=288/mo
Now lets look at appreciation. In Michigan it is 0 and will be for the foreseeable future other states are on the same path and the commercial market is devaluing quickly. Single family homes have stablized. I can buy a 3 bedroom 2 bath home and the repair for 25k and it will be worth approx 50k when complete. The only way I would invest in these types of properties that you describe is if I was going to purchase 50 of them at very distressed prices so that the cash flow would be there, and I owned a management Co.So that my view, I welcome others.
Redhawk
cjameson, if your preference is a “set and forget” approach with minimal repairs and turnover, I don’t think that large multifamily properties are the way to go. They are usually just the opposite.
Well, there are also new builds and preconstruction homes. We looked at a new development just outside USAA headquarters and near UTSA (college with around 30,000 students). Duplexes listed for $200k and 4plexes for $400k. Rents were $1100 per unit. There was absolutley no maintanence needed soon or for the forseeable future, just not the best return. So, they are out there. A good property manager will take care of everything while we are overseas.
That is not necessarily a good mentality. Why? You WILL have some big expenses, problems, etc. That’s just a part of any business, including investing in real estate. So just be prepared for it.
Most people who get into something, whether it’s a small business to real estate, get into it thinking it’s easier than it really is.
You can think positive, and should remain a positive thinker, but just be prepared for the unexpected especially when you are just getting started in a new venture.
Newer properties will have far less maintenance than older properties. But you will have people who break stuff and things that break on their own, still. And in the older properties, you will have all kinds of things happen - just because they are old and starting to fall apart.
So if $50k is all you have, I would only spend $40k and leave the $10k in reserve.
Going into Real Estate with a ‘set and forget’ menatility will set you up to fail…there’s no such thing. There’s ALWAYS something.
Especially with larger multi-families, the maintenance is near-constant…if you have 10 units, some percentage of items will fail - be that A/C units, heaters, plumbing, roofs, water heaters, etc., etc., etc. I had four units (all SFH) and lost two water heaters - the SAME DAY! Stuff happens. Thinking that you can buy units and collect rents is a bad going-in position.
Your margins on these units ($100K per with $1100 rents) is VERY thin, especially when you add on the necessary PM costs.
Thanks all for the reality check. I should have not got so far out of the box. I own 2 other properties that have yet to cause major issues. One was built in 2009. One was an older buy, fix, and hold, so most of everything is new. I shouldn’t think it will always be this peachy.
I guess, we are hoping that nothing major will come up between the time we buy (February-ish) and the time I get back (July). An older property has a higher probabilty of something major happening. The “set-and-forget” is idealogical in our situation, but not a reality. Thanks again everyone.
If I were you I’d build a portfolio of “subject-to” properties with equity. No large down payments to come up with, no banks to deal with, no lenders to suck up to, etc. Plus there’s technically no limit to the number of houses you can buy subject-to…if you use bank financing they’ll cut you off sooner or later.
Sell them on lease purchase, work for equity, and/or owner financing. Multiple paydays, no management headaches, plus they’re responsible for all maintenance and repairs. When/if they default, evict or foreclose them out, mark the price up appropriately, and sell it again.
Don’t worry about small rate fluctuations…buy right and it’s not a huge factor. If you’re worried about 1/4% rate increases, you’re not buying low enough!
I agree. What you should be more concerned with is PRICE increases. I hope you return (safely of course) before the real estate market turns around. The getting is real good right now but this won’t last forever.
