dwj,
I have been following your posts and I have to say the property managers I have come in contact with upstate don’t want anything to do with homes under $50k…The reasoning behind this most of these low priced homes are dumps that no one would live in or they are located in very high crime/drug areas…I have thought this out alot and I can say the forumlas I learned here make you realize that sometimes these low priced homes are actually quite expensive after factoring real world expenses…One more topic that gets no real attention is the ridiculous cost of property taxes in these bargain areas…Buy a 40k house and have taxes of $1800?,what the heck is that like 4.5% of the sale price…Then couple in huge vacancy rates,damage by the dreamy tenants who wish to occupy that 30k clapboard shack in New Jack City,% for the property manager,throw in some violations from the city,travel expenses and time,water,snow removal,mortgage on your %100 financed deals at %10 and you have a bad investment…It baffles me why anyone gets so happy about getting a paltry %10 ROI…My guess is many times it’s people who do not have money who push these deals on themselves…When you have a substantial amount of money these scenarios are not at all attractive,keep in mind that your money is no longer liquid…But I will say that if you can do these deals with zero of your own dollars and I mean zero then and only then it’s a decent deal…But the numbers I have crunched don’t add up to much…I have yet to find a mortgage broker that will do %100 financing without the rate being astronomical…Another problem I have noticed is that property managers and re brokers don’t want to deal with financed buyers …A cash sale to them means quick money…I might ever buy all cash and tie up my money on a possible break even scenario…
Hi rookie, property taxes are crazy up there in buffalo. I do not invest in buffalo because until they change their locally liberal government it will just stay the way it is. They are anti business in buffalo. I do have a great contact in buffalo that does not mess around. I will put you in contact with him if you like. He only invests in the decent areas in buffalo and knows them well. The problem with the financing you are talking about is that a lot of lenders dont like to do loans under 50k because they just simply dont make enough money on them. Its not worth it to them. I buy properties undervalue using a hard money lender and then refinance them to pull out money to pay off the hard money and put some money in my pocket to use as down payment andclosing costs on the next property I buy. They do not do 100% financed for me either they do 90% on the refi so as an example of a property we are refiing right now. Purchase for around 30k, 9 k rehab and expenses we are refiing for a 50k mortgage amount to pull out the 39k we owe the hard money lender and end up with 11k gross (will be less after expenses) to put into another property, repeat the process and let the tenants pay off the mortgages. Its a simple concept but it does take work and there are things that dont work out the way you wanted but that is ALWAYS the case when you are working with people. Risk is always present when making your money work for you as opposed to working for your money but the payoff is great if you keep at it. I wish I had the cash to buy properties out right because I would buy it RIGHT, fix it if needed, rent it if needed and refi it to pull out my cash to do it again!Best of luck to you.
Just a quick thank you to all of you to take the time and discuss this issue so thoroughly. Obviously there are no silver bullets here but the topic discussed is the exact issue that I think a lot of (new?) readers of this bulletin grapple with.
RookieNYC,
I live in Buffalo and to a large extent I agree with your confusion of the way the city "harasses" both the landlords and property owners. I do however disagree with the idea that the properties in the city are not able to cashflow. Granted, MOST of the city has very run down areas scattered around and the tenants aren't the greatest but the numbers CAN work. I personally deal very extensively with foreclosures and if you check into the local news in Buffalo the foreclosure rate is extremely high. I see those 40,50, even 60k properties go for anywhere from 10-20k on an almost daily basis. Here's a scenario a recently found:
3/3 Dbl, 2630 sq ft, Downtown area
ARV: 85k
Repairs needed:10k
Mtg Balance owing: approx 32k
approx gross monthly rents: 1k (at least)
Total Cost:42k
Equity available (75%):32,250
I found this gentlemen THE DAY the lispendens was filed (I’m a title abstractor/examiner) and immediately contacted him. If you plug the formula’s in the numbers will definetly work. you may not get an AMAZING cash flow, but it will be there in addition to the large amount of equity to basically buy another property straight out. This unfortunately is where I “lost the deal”. Many out of town investors have heard of buffalo and focus on the crime rate a couple blocks away. The funding i needed was not given due to “reports” that the area 3 blocks away was crime ridden. I explained that there are bad areas, but this particular area is a historic designation by the city and is littered with doctors, lawyers, etc. Not to mention a very prestigious Private School around the corner.
Your comment: “It baffles me why anyone gets so happy about getting a paltry %10 ROI…My guess is many times it’s people who do not have money who push these deals on themselves…When you have a substantial amount of money these scenarios are not at all attractive…” is a very valid point but IMHO you have to start somewhere and to someone with nothing 10% is a start. My point is that the opportunities are always there, but depending on your market they becomes harder to find. Its just a matter of knowing your market and how to sort through it. I fortunately have not had any trouble FINDING the deals, but FINANCING the deals has not worked out so well for me.
Good Luck Investing.
Thorwood,
Buffalo and Niagara falls are both in my opinion great areas for investors. Perfect? by all means no, but I challange anyone to find a perfect area. Taxes are through the roof in NY in general, and the other poster made a valid point. It is indeed hard to find another area stupid enough to choke the population to death with taxes, then they scratch their heads wondering why no one wants to do business there.
Having said all that, your problem is your looking to the wrong people for funding. If you go to conventional route you already have 2 strikes against you. (loan under 50k and your fighting the “ghetto zone” mentality). Over the last 12 months I have done many deals in that area. Not always without headaches of course, but they did get done. Keep looking, you will find the right source to fund those deals.
Great points thoward!,Also a return of no investment = an infinite return which you would have no money involved after you pull it out. cash flow is the key, Leverage is the way to get the most bang for your buck. They both go hand in hand. If you buy right you can leverage at 100% and still cash flow. The best of both worlds.
Leveraging at 100% may seem like a fantastic option because you can’t calculate a ROI, which you’d call infinite. However, this is not always the best option.
First, you’ll make less money. There is a sweet spot for every property that will yield the most cash flow to equity. It is a fragile balance between debt and equity that you’ll have to find to truly get the biggest bang for your buck. Unless your buying properties at huge discounts all the time, it is worth it to put some of your money in a property if you have it. If you have some money, and you’d still rather finance at 100%, your losing money by paying financing costs that are unnecessary. You might only cash flow $50-200/ unit not using your own money. By putting down a few thousand, you can increase your cash flow dramatically, easily getting an ROI of 100+%.
It’s easy to say that you’ll always buy properties at huge discounts, and you should always strive for that, but it’s not that easy. The point of using leverage is to make a little bit of money go a long way.
Very good points. You are right sometimes its not the best option but in my case its the only option. I dont have the luxury of putting a bunch of money down and I dont think I would because I know I can do it with no personal money and build a large protfolio of rental properties. In some cases you have to put down a large sum of money to just get a cash flow. I cant buy those properties at the moment as I am purchasing with no money of my own and only money used from credit lines or cash pulls from refis of the properties I do get. I am happy to get 200 per month per property positive after I refi and pull some money out. For instance if you bought a property that you could refi and pull out 7-9k in your pocket and still cash flow 200-300 per month on top of that would you put down a lot of money so you could cash flow another lets say for instance if you put down 10k out of pocket it might give you another 150 per month in cash flow? I would rather have the 7k in my pocket to use for costs associated in getting another property plus the 200 per month net on top of it. Right??
I won’t drag this thread along but just today I spoke with a property manager in Buffalo that manages 500+ units…He basically told me now is not the time to do anything in Buffalo…He brought up the fact about multiple violationsfrom the city,unfavorable political environment for business ,out of town investors are buried in overpriced homes they bought after some guy wrote about the area in some book…He also went on to say that he sees 30 deals a week and maybe 1 of those deals would work but most likely not…The guy was honest and I won’t say who it was but I truly appreciated his honesty…When we spoke he knew that I had done my homework and I was already on the fence about Buffalo being some paradise for easy cashflow…He did say that the properties he bought early on cashflowed great but out of town investors who bidded prices up are making negative cashflow in a huge way…We left off at if he see’s a good oppurtunity to make money off someone’s misfortune to give me call…
Thoward…I’m not saying that there isn’t any good deals out there but the chances of me getting one and having a property manager making me money from it are too slim at the moment…A guy like yourself who is up there seeing these deals is the kind of individual that can make it work…Also there is nothing wrong with a %10 ROI is that’s what floats your boat…For me personally %10 doesn’t get me excited…I can list various places/ways to make much more than %10 without the hassle of being a landlord…%20 plus makes me happy if you really want to know…%10 in my opinion is a blown boiler or caved in roof close enough to negative cashflow…
That is right out of town investors do overbid and up the price of properties because they generally dont know what they are doing. They come from overpriced markets such as california and see these great deals which really arent all that great but as with anything if bought right they will work. Everyone thought people were crazy to buy when carter was president too and interest rates were through the roof and investors still made money off properties, read about jay p decima on this site in the articles section. One of the reasons I backed out of the buffalo market was because of the locally liberal government (as well as much of new york), they are closer to socialists than capitalists and socialism does not work.
a return of no investment = an infinite return
Leveraging at 100% may seem like a fantastic option because you can’t calculate a ROI, which you’d call infinite. However, this is not always the best option.
If I find a penny on the street, I have infinite ROI as well. 
no money down you are correct. Now do it over and over and over 
I had a major argument with a very nice property manager in Saginaw MI a few months back, (may he rest in peace). while he was knowledgable about the area (he knew the “good” areas vs the “bad” ones) he didn’t understand REI. Just because someone manages 500 properties does not make them an expert in the Buffalo market or any other market for that matter. Face facts; if he is an investor he is telling you this to keep you out of the market, if he is not he is not qualified to say that because the fact that he is managing 500 properties flies in the face of what he said, or maybe he just told you that because he cant handle any more rentals at this time.
As for out of town investors in response to Dwj469, out of town investors drive prices up because for the most part they are too cheap to order appraisals, I cant tell you how many I spoke to just this month that dilly dally because they don’t want to spend the 300-400 dollars to know what they are getting into. For my part I would pay 350 so I don’t overpay 15,000 on a property just because it breaks even or produces a cash flow at the selling price. You guys would be surprised how many people lie to me about the value of their homes. (both investors and homeowners).
Steve great points, I too know many “real estate agents” that know absolutely nothing about real estate investing. You can make money there. Just buy in the right areas and have some good contacts you can trust. I know a few investors that are doing quite well in buffalo.
stjepn,
I agree and disagree with you…What I have noticed when speaking with various property managers all over upstate NY is they are never thrilled to find out I live in NY…It’s much easier to put the screws to someone in CA or some other far away state than some Brooklyn boy who can drive up and see whats going on…Also my sources of information do not only come from property managers,I have spoke with a handful of multi property investors/landlords (who live in Buffalo) who have told me to steer clear of using property managers…One property owner made it a point to tell me if I used a PM I would make no money on his particular building…Some salesmen huh,what was he trying to avoid me doing?..Give him money for his building?..Your theory is thin at best and from what I notice you are also in the business of attracting out of town buyers to invest so how is your advice any less bias?..Don’t take this the wrong way but I consider your advice no different than an analyst that is a pumping a stock their firm owns tons of…The people I spoke with had no reason to try and keep me out of their market…Like there isn’t enough blind money coming into Buffalo…I have met more than my share of wannabe smooth talkers,most come in the shape of some sort of guru who has some niche to make cashflow in some far off land…I take every piece of advice with a grain of salt…I only consider the advice that comes from individual with nothing to gain solid…
dwj469…Your comment is too funny also…Pretty amazing that you met someone who is making money in RE in Buffalo…I can’t tell you how many friends I have here in NYC that are making money hand over fist in RE here in NYC…Guess what?..They bought years ago and held onto it…Real Estate is like any other market,you must be in before everyone else and sell when you can not when you have to…
For instance if you bought a property that you could refi and pull out 7-9k in your pocket and still cash flow 200-300 per month on top of that would you put down a lot of money so you could cash flow another lets say for instance if you put down 10k out of pocket it might give you another 150 per month in cash flow? I would rather have the 7k in my pocket to use for costs associated in getting another property plus the 200 per month net on top of it. Right??
I prefer to put my money in the most productive places, as I’m sure everyone would like to given the choice. However, most new investors don’t have a choice but to finance 100%. When you do accumulate some money that you don’t need to live off of, I’d strongly recommend using it to purchase properties. As I said before, every property has an equity- debt sweet spot. This spot will yield the most return on your equity. The sweet spot is never 0% equity -100% debt or 100% equity - 0% debt. To earn the greatest yields, you have to find the balance. When you start making more money than you need, put the excess to work!
Dust off your calculators to figure out how to best spend your money. It may not always be for the acquisition. If you only have 7k to spare, it probably is for things like closing costs, inspections, appraisals, etc. When you get a little more, it’ll probably be for things like repairs and improvements. Then when you get even more, it’ll be for acquistions. A little bit of extra money is best used to avoid the highest financing costs.
How to calculate a Return ON Investment for dwj and NoMoneyDown:
Return/ Investment= ROI
200/ 5,000= Edit: 4% I screwed up the math, thanks for catching the mistake and making me look like an idiot Land Baron 
200/ “?” does not equal infinity
Just as 2+“?” does not equity infinity
An ROI cannot be calculated without the I.
Danny great points, you are right you cant calculate a return on investment when you have no money investment in it. That is why I used the term infinity. Also when I am refering to 100% that does not mean there is no equity left in the property that just means I have none of my own money in the property. Best of luck to you.
I wish…
That would make all of this a LOT easier!
dwj,
I’m the biggest supporter of “churning” equity from one property to another. If your purchasing a property at a 30% discount, you could reasonably finance it 100%, still cash flow, and have a safety net to catch you in a downturn. If the sweet spot on that particular property is 40% equity- 60% debt (given your financing eligiblity), don’t be too hesitant to put in an additional 10% if you’ve got it. The magic of the sweet spot is that you will yield a slightly disproportionate amount of return to your investment.
When I rehab commercial properties, I always make sure my total costs don’t exceed the sweet spot so that I don’t need to store any money for the long term equity. I am just like you in that I don’t want any of my cash sitting in a property for the long term. For the initial purchase and renovation I use all of my own cash. I do this to avoid high construction financing costs and “high risk” loans of vacant properties. Then when I refi to a permanate loan, I cash out all of the money I put in. If the sweet spot on that property is 35% equity - 65% debt and my costs only came to 60%, instead of only refinancing to get my 60% out, I’d pull out another 5% to get to the sweet spot. Since I’d have 100% equity before the refi, I’d cash out as much excess necessary to get me to the sweet spot. Then I’d use that additional 5% for something more productive. This is the only time I’d ever overfinance a property.
You do make a point that I can’t deny in that I do have a bias for out of state investing. However I have never steered anyone to buy a property from me without an appraisal, nor would I ever do a deal without having a property appraised.
I cant shake the feeling you took it personaly, When I said the above I simply meant that you should go by your own opinion of a particular house over someone elses opinion of the market. Isn’t the bottom line making money in this?