Do rental investors have a “cut off” point in which they back out of a rental deal because they feel the house won’t render a high enough profit? Do you only look at houses that will make you 5,000 dollars a year, is it 10,000…?
Also, I was wondering if people invest in property that is outside their driving limits. Do any of you invest in vacation rentals, rental properties in different parts of the country, is this a smart idea?
<<Do rental investors have a “cut off” point in which they back out of a rental deal because they feel the house won’t render a high enough profit? Do you only look at houses that will make you 5,000 dollars a year, is it 10,000…?>>
Yes. I will not even consider a deal where I don’t make at least $125 a month ($1500 a year PCF after EVERYTHING is paid. If you are looking for SFH that will give you a $10K cashflow, I think that you will find that EXTREMELY difficult.
<<Also, I was wondering if people invest in property that is outside their driving limits. Do any of you invest in vacation rentals, rental properties in different parts of the country, is this a smart idea?>>
Some people do, I will not. I want to be involved/engaged in my business…I only invest in my own Parish. Others have other opinions…
Again, Keith is right on.
Investing outside of your immediate region is not recommended unless you have a good property management company already in place.
As for the amount desired to make a deal profitable, it will vary. Large, well financed investors do not need to make nearly as big of return as the guy starting out. Also, the “buffer zone” is often times a percentage amount of profit. I personally aim for a 20% profit margin in a property if it’s a flip or rehab. If it’s a long-term hold I aim for at least $100 profit per month per unit after all expenses, not including equity buildup/principal paydown by tenant. $200 a unit profit is not entirely uncommon, either. In general I’ll also be willing to accept less profit each month to switch from a fixed 30 to a fixed 20 or 15. The difference in the amount of interest paid out during the life of the loan is staggering.
The other 2 replies seem a little low to me. I won’t consider anything unless my after tax cash flow is $50,000 a year. A couple hundred bucks a month isn’t worth the time to me. I don’t deal in residential property though. Theres less competition in commercial and lenders begin looking at the PROPERTY to pay the debt service instead of the person buying the property. As long as you aren’t afraid of big numbers commercial may be the place to start even without a dollar to your name.
I agree. The residential real estate market has been beaten like a dead horse and has peaked for this cycle. Commercial property is poised for a run-up in price as investors/speculators switch focus from the saturated residential market.
I know this isn’t a tutoring session, nor is it the intension of this forum to cater to people like myself, but for a long time I have been interested in the commercial industry, but l lack a bit of knowledge to get started. I don’t know if you saw my other post, but I have about 20,000 saved to invest in the residential, commercial property. Should I look for investors, or is this kind of capital a good foundation to financially get started? Does commercial property pertain to strip malls, hair salon and business offices? And if so, which area is the best to focus on, especially in the beginning of your career like mine at the age of 27. Perhaps there is someone who can shed some light as to possibly where to start. Thank you VERY much.
As far as where to start I say go as big as your comfortable with. If that means bringing in partners then so be it. I can’t give you a specific location if thats what your looking for because each area is unique. Commercial property is kind of a vague term that typically refers to; multifamily (5 units and over), retail, office buildings, industrial, etc. Anything that’s not residential (1-4) units. Forget about your age being a factor or your inexperience. I started when I was 18 and now am only 24. You will never feel comfortable doing your first deal no matter SFH or 500 apartment complex. Just be smart, be creative and think outside the box.