I was just thinking about the national nature of this board and it just reinforced my saying that paraphrased a comment from Thomas “Tip” O’Neill—a longtime Speaker of the House in the U.S. Congress when he say all politics is local. I say all real estate is local. I can’t figure out how to make money in real estate in most parts of the country. I say that because the median household income in the USA is $48,200. That is $4,000/month. If you are going to rent the average family a house the rent can’t be more than 20% to 30% of their income so you can’t get more than $1,000 rent without the tenant being overextended on housing. That means that you have to have a house with a PITI of at the MOST $900/month to even think about looking at renting that house out. And that doesn’t include the other costs associated with a rental. That would mean that in most of the country you have to find a house that you can buy and fix up for less than $100,000 that will rent for $1,000/month to make any money at all.
That being said, either the median income where you are is a lot more than the national average or you live in the few cities where the these ratios tend to exist (Columbus OH, Houston, TX, Mobile AL, Cincinnati, OH, Memphis, TN, I mention these because the ratio works and the lifestyle is also really nice) or you work really hard to find deals.
Are any of you guys making money on rentals other than these places? If so how are you doing it?
Are any of you guys making money on rentals other than these places? If so how are you doing it?
I can say that I’m doing decently well in upstate NY…3 hours drive from the Throgs Neck Bridge…I’m doing it by purchasing 2-4 family homes that gross %2-%3 of the purchase price monthly…Taxes vary from $1500-$3000 a year…water is like $250 per year per unit,homeowners insurance is $600 per 2 family and $1300 for my 4 families…%10 management,%10 vacancy,%5 rehab…Tenants pay all heat,electric,gas etc…That’s how I’m doing it…
You just laid out the EXACT reason why SOME of these markets have a LONG, LONG, way to fall.
In the last 5 years the percentage of a persons income to housing costs have gone from an average of 25% in 2002, to 50% in 2007!!! That’s a DOUBLE folks, and that is NOT sustainable. This is the EXACT reason so many people are falling behind on mortgages. credit card payments, and car loans. The number of people behind on these payments is at NEVER BEFORE SEEN LEVELS. Think about that stat.
Economists exist to make Astrologers look legitimate. These guy’s sit there and look into a camera and say “We have a 50/50 shot of a recession!!???”
ARE YOU KIDDING ME???
H E L L O :banghead
WE’RE ALREADY IN ONE!! It’s NATIONAL, and it’s cause is HOUSING BASED. Housing is like poison ivy, it has VERY deep roots and effects many different things nearby. The pyscological effect alone is staggering. Think about what we’re talking about here… Buying a home is THE biggest purchase most people will EVER make. If you constantly see “EXPERTS” on TV telling you that this is getting worse every month, even an absolute moron is going to wait on the sidelines. I hear it from people everyday. “I was going to buy this year but WHY? I don’t want to have a house I owe $180K on that’s worth $150K 2 years after I buy it.” These people are SEEING friends lose homes because of this. This behavior further accelerates the decline.
Remember we live in a market based economy. NEVER forget that. When things get to outta whack CORRECTIONS occur that bring things back in line.
I lived through and invested through EXACTLY what we’re all seeing right now… Just rewind the calender to the early 1990’s.
My brother and I built numerous spec homes during the boom. The market was CRAZY. The last house we built came on market BEFORE it was even finished, NO REALTOR, just a sign out front…end result??? Priced it at $250,000 sold it for $305,000 (1 week after the sign was in the lawn) and I thought there was going to be a fist fight over it. 2 years later in 1990 the owner lost his job and sold that house after 6 months on the market for $199,000!!!
Get ready folks, their gonna play that same movie here again, very soon.
Those rent rolls are telling you how over priced those markets REALLY are. Why would anyone BUY a home that you could rent for half the payment??? ANSWER…THEY DON’T.
Houses will not cash flow at retail price in any market (or almost any market). They certainly won’t cash flow here at close to retail.
I had a guy call yesterday looking to rent a 4 bedroom house with some land (he has houses). My 4 bedrooms are full. He told me about a relatively new 4 bedroom, 2 bath house on 10 acres in a nice area that someone offered to rent to him for $1,150 per month. He asked if I thought that rent was fair. My reply was that the owner was an amateur and that he would be a fool not to take it. That house is worth about $250K and the owner is renting it for $1,150, right here in my area.
When I got the whole story, the problem was obvious. The owner built this as a spec house a couple of years ago and hasn’t been able to sell it at full retail. Instead of selling it at a discount, he thinks that renting it out will help offset some of the rent and mitigate his loss. Good luck with that!
My point is that properties will not cash flow in ANY market if bought at or near retail (certainly not here in Ohio). You’ve got to buy at a HUGE discount and that is never easy. I’m sure that it is especially hard in the former bubble areas, but those are the minority of the surface area of the United States. The deals are out there, you’ve just got to hunt them down!
Yeah, I am living on my rental income in an areas where a $350,000 house rents for $1200. That’s with a big jump in rents. A year ago, tha same house was renting for $900.
That’s because rent is not the only option for making money with real estate. I don’t think rent has even covered mortgages for at least 30 years here, and probably never.
If you want to own rentals, you have to have a source to pay the expenses. If rent won’t do it, you must have another source.
Yo are also setting yourself up for failure if you do not understand how high expenses are with rentals. No one who hasn’t been a landlord can understand how much a tenant can tear a place up, how they break things, and how eager they are to steal rent.
The average working family in this area, with 2 workers can qualify for $800 rent. So with 3 bed 2 bath houses bringing $1,000-$1200 in rent, they live in aprtments, they double up, 2 families to one house, they rent rooms.
The free market sets prices, but you have to be aware that the market for tenants and rent is not the same market as the market for home owners and buyers. They are different people with different incomes and different wants. Home prices are not going to go down to what renters can afford. Home prices go up and down based upon what BUYERS can afford. They aren’t the same people.
I don’t know if I agree with that. Everyone of the 8 single family homes I bought and sold in 2007 were sold to people who were renting up to the point they purchased.
Having said that, you are 100% correct that a certain percentage of renters will NEVER buy a home of their own. I write these people off. For the most part, they are the reason I sold all my residential rentals and moved into commercial property. 100 times less aggrevation and 5 times the profit.
Home prices ARE going down to what a SEGMENT of that rental population can afford. Those people that have decent credit, and steady income. These people were chased away from housing because (around here) a starter home in 2001 cost $89,000 and that EXACT same home in 2005 was $250,000!!
I just sold a similar home this week for $185,000. This house 2 years ago would have sold for $260,000 and would have been on the market 1 week (I have sales figures for the same street in 2005) Now I’ll ask, is this market more likely to get worse from here or get better??? My money is 100% on worse. There is NOTHING I see in our economic future that leads me to believe people will all of a sudden start bidding up the prices on homes. More likely, we go into recession and THAT will be the final straw. Once people start losing their jobs the party is OVER. That’s coming, just watch.
From 2001 to 2005 New England saw home prices out pace any other time in history!!!
Let me repeat this…NEVER…including real estate appreciation during THE BIGGEST BOOM (post WWII) has this area seen the kind of price increases we’ve had in that 5 year span. These homes increased in value by 300% in a 5 year span…
Oh it’s coming back down, and it’s not stopping on any floors on the way.
My latest deal that I’m currently in contract to close next week with no mortgage is a 2 family 3 over 3 (6 bedrooms total)…After inspection it needs $4,000 in work (but I over estimate thinking it needs $10,000…JUST IN CASE)…taxes are $1710 a year (taxes have been triple verified)…Insurance is $710 a year (my price)…Water on all my 2 families nearby have run $250 per door more less so lets say $600 a year in water…Heat,gas,electric is seperated and paid for by tenants…I’m paying $45,000 and anticipate $10,000 being put into it…So let’s say I’m at $55,000 total out of pocket for this property which it will be much less…More like $50,000 but I will keep that $5,000 cushion available…
$55,000 total out of pocket…All of my 2 families I own nearby (3 bedrooms per apartment are renting for $625/$650 a month) total annual rent roll will be $15,600 annual more or less…
$15,600 annual rent roll
$1,700 taxes
$3,900 %10 vacancy,%10 management,%5 rehab (snow removal,lawn etc)
$710 annual insurance
$600 annual water
$8,690 net cash flow on $55,000 out of pocket…That’s approx %16 ROI…
I will buy these deals all day long if I could…And don’t forget I can refi this property and it will still make great money on %100 financing…That’s exactly what I look for in my investments…Cash flow will be about $150 higher per month for every month I keep it fully occuppied and I have been very fortunate to be running at near %0 for a long time thanks to great screening from my PM…
%100 financing $55,000 at %7.5 --30 year term is $4,614 a year…That leaves $4,086 positive cash flow or $340 a month positive cash flow…
Your gonna have to change your name if you keep putting deals like this up here. NICE!
This is a great example of an investor who MOVED to where the deals were. He didn’t physically MOVE there but his properties are in an area where he can find deals that cash flow.
I couldn’t buy a Mercury contaminated house LOT next to an interstate on ramp for what your paying for that HOUSE in my neck of the woods.
Great example of doing what you have to inorder to make good solid deals.
fdjake,
Thanks for the words of support but I owe alot to Mike (propertymanager) here…He sort of set me straight long ago when I was frustrated trying to find deals that would work…He also helped me on the formulas to figure out cashflow etc…He told me that I needed to expand my area because I likely wasn’t going to find anything near/around my vicinity that would cashflow…
Looking at my area now even with the recent pullback in RE prices a 6 family with annual rent roll of 50k a year is selling for 650-700k still with taxes of about 7k a year…It baffles me who buys this stuff…
Nicely done NYC! You have to love areas where you can buy decent properties for less than 70k and make a nice ROI! I’m very fortunate to live in one of those areas and cannot wait to begin. It is very inspiring to read about someone who is learning the process and is doing quite well due to their hard work and research. Thanks for sharing your deal with the rest of us!