~6 months from my first investment, where i will be getting a 4 unit (with an HUD 203b or k insured loan).
my goal is to get this first property, hold a year (assuming no prepayment at teh 1yr mark through the mortgagee), then sell for a good (…great!) profit, which i will reinvest in something again. i want to do this over and over until i have the property i want, which will be apartments that cash flow heavily.
i am pretty flexible where i end up in the continental US. i am most concerned about how much money i will make when i sell, and how much risk i have. i know i make money by buying at a lower price, but i’d imagine that approach is the same no matter where or what type of market i am in.
sooo, am i looking for a 4 unit in an area that isn’t appreciating, but that cash flows, so that i can improve it and make a profit on the increased property value/rental income?
or do i find property in an area that is appreciating, and then sell a year later? (i can’t imagine that i’d be able to get the requisite discount in this type of market to warrant accounting on appreciation in just 1 year to cover my transaction costs on the way in (on teh way out will be a 1031 exchange)
or do i go wherever i want, and look for a property that has issues where i can seriously increase its value by fixing it? will something in that bad condition be worthy of HUD 203(x) insurance?
any help would be appreciated. i’m really not interested in creative approaches because i spent forever last year trying multiple methods and couldn’t get them to work. i don’t have a problem with them, i just want more experience before playing with advanced stuff i don’t really understand. i want to find a much more ‘solid’ approach, as i have a lot riding on this investment
In my opinion you should NOT look for appreciating markets but you should invest in growing areas that indicate an appreciating market but have been steady and will provide cash flow. As the interest rate goes up, the most appreciating areas now will not be as great, for example Las Vegas. People here were actually paying higher then appraised value for homes and EXPECTED it to appreciate, bad move since they are in foreclosure now… (I get the foreclosure list weekly).
Nobody can predict the future, at least NOBODY I KNOW and there is NO realtor that will put an appreciating clause in the contract so why would you expect it. Appreciate should be the icing on the cake. You can only deal in todays numbers and use history as a guide.
If you have comps to support a value on a property of say $200k for a 4 plex then you can reliably expect to sell the property in a year for $200k. That’s not speculating. All the doom and gloom talk about the ‘bubble’ is suggesting that property values are declining. That’s not accurate, the accurate statement is that the appreciation is declining. In most cases people are not losing money when they sell a house, they just aren’t making as much as the realtor told them they would 1 year ago.
So, by getting reliable comp information (this is critical) and purchasing the property at a discount of that value you are setting yourself up for success. Again, the old addage of ‘you make your money when you buy not when you sell’ has never been more relevant than in an environment of nominal appreciation.
cool, so i would make the most money by finding a property that is cash flowing, purchasing at a discount, and then finding ways to reduce costs and increase rent? am i basically on point here?
any suggestions on areas to look into, or even how to look into them? i guess i don’t even know where to start. i’ve been studyign pretty hard (general / random realty stuff) for about a year now, and have 6 months before my fiance, my younger brother and myself hop into our cars, uhaul in tow, off to wherever in america we can expect to make the most money (well, make hte most money SHORT TERM. we’re starting with 20-30K$ capital among the three of us, so we need to be able to buy somethign with that being largely towards our 5% or less down (through HUD 203(b)/(k) insured loan). after we sell it, 12 months after purchase, we will probably try to find somewhere warm to go mess around with our next property).
should i be looking at economic trends, finding opinions then comparing? i have no idea where to start, as far as i can tell now i would just start on teh east coast, city by city, graphing out all the data. unfortuantely that would be so inefficient that the trends i found would be done by the time i got done studyign the entire country. we’re all young and want to go at this hard. i’m studying like an animal, we’re working dumb retail jobs (management anyways…) and saving like crazy, and are willing to go ANYWHERE in america, we are basing our decision solely on where we think we’ll make the most. ETA is mid january/early february, after christmas rush is over (promises to our companies to deal with holiday rush haha)
also, are my strategies for finding a cheap property basically the same in a sellers or buyers market? after reading your responses it seems i should be looking for a buyers market. in a buyers’ market, would i be looking for light rehabs, foreclosures, etc? god there is soo much to learn!! i’ve been studying like crazy for a year now and still feel clueless about so much; my current book is filling in a lot of the things i was uncertain about, but it is only about real estate in general, not about ways to make profit
IMHO, at the core of sucessful REI strategy is to truly understand your market and thus, KNOW when you are getting a good deal. Surfing the Internet does NOT= an in-depth understanding a market. It is just a TOOL to help you understand.
Why not narrow your focus to places that you have previously lived.
additionally, buying and then selling property in 12 months for a profit is not easy. Just to zeroing out closing cost, selling cost, etc, you will need 10% appreciation.
Lastly, the three-some group investment has the potential problems in a multitude of ways. You really need to think that though.
The essence of what you are saying is that you want to move where there will be appreciation in the market.
That is speculating. Again, it doesn’t matter how much a property appreciates if you buy it at enough of a discount.
For instance, I invest in Texas. Texas is historically (since 1980) one of the worst states for apprecation. Massachusets is the highest (since 1980).
It doesn’t make Texas a bad place to invest though. If properties appreciate at 4% (just a random number) but you buy them at 70% of the retail value (defined as what the property would sell for based on typical comparisions and in a ‘retail-no-repairs-needed’ state) then it’s a fantastic deal if there were no repairs needed for instance.
The same deal is terrible if you buy it at 95% of retail value. The main advantage to buying properties in a market that is experiencing rapid appreciation is that you can buy a property at a higher percentage of the ‘retail value’ and still make money based on this appreciation. That doesn’t make it less risky since appreciation is never guaranteed.
I think that your strategy is based on speculation and in that sense is very risky. If your strategy were to spend more time on a SINGLE market and find deals within that market it would be less risky. There are deals in every real estate market, and I might argue that the slower the appreciation the less competition so you could argue that it might be easier to find better deals.
the last sentence of your quote was very valuable.
i’m definitely not planning on just speculating, i am, as of now, trying to follow this strategy:
-figure out how to make the most on teh tail end (buy low…)
-find areas of the country where this would be easiest
-narrow down those areas based on the markets and how much i want to live there
-begin studying the market
-move there, learn more (albeit briefly), and make my purchase
as far as the threesome goes, i know that isn’t the best approach financially, there are other reasons that three of us are going (my fiance would be coming with me, naturally, and is a co-signer/sharing the down payment. my brother is bringing nothing, except that he recently went to tech school, but i’m not bringing him for financial reasons, just for personal reasons. profit will not be evenly split among the three of us)
(I get the foreclosure list weekly).