I have an opputtunity to get out there but my aunt tells me not to because the economny is really bad. Can anyone explain why I should invest in ohio in the larger foreclosure markets?
If you are going to live here, then Ohio is a great place to invest - JUST LIKE 90% of the rest of the country (flyover country, that is). However, it is VERY unwise to invest out of state. In my area of Ohio, we have a lot of absentee California landlords who have lost (and are losing) their butt.
Mike
the root cause of failure of out of state landlords is the following:
- not REALLY understanding the market and thus over paying
- poor property management and/or failure to detect rpoblems.
That is not to say that local buyers are immune from these probelms either, but usually the pain starts eariler for Item #2 such they sell out to someone at a discount and knows how to operate properties. Item #1 is the down fall of many new landlords regardless of their residency…
To that end, I quickly discovered the “California effect” when I started investng back in my home state of VA several years ago. That effect is seller will try to get a higher price with you becuase they think you have more money. I learned very quickly to just describe myself as an “out of area” investor and dust off my Southern Drawl that normally in hiberation.
To that end, one seller told me “locals will pay more” in response to my low-ball. My reponse was “the numbers tell me what to offer” and I justed moved on to other deal and the property sat on the market for another 6 months before sold for a little bit over what I had offered.
What makes it a good market to invest in?
Ohio and most of the rest of the country is a good place to invest because you can pick up equity AND have a positive cash flow IF YOU BUY CORRECTLY AND DON’T SPEND ALL YOUR MONEY ON MANAGEMENT AND MAINTENANCE.
Mike
Mike,
Would you cash flow at all on some of your properties with outsourced or hired management and maintenance? If not, it would be safe to say your only investment return thus far is in the form of equity, equity accumulation, and appreciation. In this case, the cash flow would be better described as a management wage or something. I’m sure it’ll be a different story when the debt service disappears. :biggrinparty
Danny,
Yes, my rentals will cash flow on average a little better than $100 per unit with paid management and paid maintenance. However, that’s with an estimated 10% management fee and estimated 10% maintenance fee. However, my management company (me) and my maintenance company (me) are very efficient, which is not normally true of paid maintenance. My management doesn’t charge a month’s rent for placing tenants. My management company doesn’t pay retail for maintenance. My management company doesn’t charge for scheduling maintenance. My maintenance company doesn’t charge $75 for a 5 minute job to fix a leaking toilet.
Therefore, I make the $100 positive cash flow per unit plus another $100 - $120 per unit for management and maintenance. Most out-of-town absentee landlords are not as lucky as I am to have very efficient management and maintenance. Management and maintenance that is solely interested in seeing my business succeed.
Mike
Mike,
Would you mind elaborating on how and where to invest in Ohio? Or at least some areas with some redeeming qualities or long term potential.
Thanks
Aarron
adayatatime,
You wouldn’t really consider investing on one particular area just because someone on the internet said so…would you? I know I wouldn’t.
I’m not here promoting Ohio or any other area. The point was that you can invest successfully in the VAST MAJORITY of the United States. What’s the best area? Look out the window. That’s probably the very best area UNLESS you see a bunch of socialists walking down the street or there’s a showing of “An Inconvenient Truth” just down the street. If you live in one of those areas where people stood in line just for the chance to bid on a pre-construction project, I’d move! Move where? Pick any non-coastal area that’s not a big city or a resort area. In other words, boring flyover country.
If you can’t do it yourself, send me a BIG check and I’ll buy a bunch of Ohio properties for you. By the time the paid management and horrible tenants get through with you as an absentee landlord, I’ll buy the property back from you for 30 cents on the dollar (and you’ll thank me for doing so).
Mike
man, harsh words from propman… :banghead
harsh words that are so necessary in forums like this.
what i like from propman’s posts is the picture he painted of the mgt and maint of rentals.
i have a friend who bought properties down south. he has a management company take care of all of them. when he flies down there every month and does some work on them, he thinks he’s saving money on management fees/maintenance…
HELLO!! THAT’S RIDICULOUS.
whether you do the work or another company does it, it’s still a cost to you!
mgt and maint are the single most misjudged expense of rentals.
but i must say i do know a few people who do own long distance properties, some VERY LONG DISTANCE, in like Belize and Costa Rica. they own them - they pay a company to manage them entirely - and every month, they receive checks. that’s no crap shoot. these guys know what they’re doing and they accept the fact of having to pay a management company to eat up 10 to 20% of their revenue, but that’s operating costs.
a person who owns rentals locally, busts his butt to fix everything and considers his “cash flow” of 150 a month a profit, is kidding himself.
it’s exactly what propmanager pointed out - he considers the maint and mgt a cost WHICH HE PAYS HIMSELF.
a person who owns rentals locally, busts his butt to fix everything and considers his “cash flow” of 150 a month a profit, is kidding himself.
Then when they go to sell because the third tenant in a year went on a rampage and destroyed the place, they make nothing from their investment. They are so proud of being the big bad “landlord” they forget they made an investment that needs to make money also. Most will be lucky to squeeze out a management wage every month and when a disaster happens that they need to sell at a heavy discount, they have nothing to show for their effort. Most will have negative cash flows on the investment and only keep the place afloat because they are making a menial wage from their management. If you can’t make money with management, your really not making any money without it.
Most will be lucky to squeeze out a management wage every month and when a disaster happens that they need to sell at a heavy discount, they have nothing to show for their effort.
As we all know, most are not lucky enough to squeeze out anything but a big monthly loss. They take the gross rent, subtract the mortgage, and think what’s left is their cash flow. If they only have one or two rentals, they might go a few months deluding themselves into thinking that they are making money. In reality, all the time they are taking money out of pocket to pay for the things that keep coming up. After a couple of nightmare tenants, they are in such misery that they will do ANYTHING to get out of their “investment”. That includes selling at pennies on the dollar to a real investor who will only pay a discounted price for the property.
Having said all that, earning the management and maintenance fees myself is very important. With the average cash flow for a property bought at a huge discount being only about $100 per month per unit, even with several dozen rentals that isn’t a great income. By earning the extra $100-$120, I double the money I take in each month which is important. It would be difficult to live on less than 100 rentals without earning that extra money. Moreover, that extra money only takes about 3 hours per day to earn.
My goal is different than Danny’s goal. I don’t want to take over the world. My goal is to hit that sweet spot with about 100 rentals that will allow me to make $10,000 per month positive cash flow and another $10,000 to $12,000 per month with management and maintenance fees (while the mortgages are still on the rentals). As the rentals are paid off, that will double with the same number of rentals. I have no desire to “retire” and watch tv all day. My goal is to keep doing what I’m doing. Work 3-4 hours each day (with plenty of vacations) and live on the rental income. At some point, I’ll probably be forced to use contractors to help with some of my work, but hopefully not much.
Mike
Mike,
In economics jargon, your sweet spot is called the “ideal firm size”. With that in mind, have you ever considered non-residential commercial properties? If you can manage 100 zoo animal tenants by yourself, you could manage 200 commercial tenants by yourself for 4-5 times as much money. You’d still be within your personal ideal firm size (yourself) with less input (management and maintenance) and more output (2 - 4 times the rent/ sq. ft.). Acquistion would be a lot slower but much more consolidated. Just a thought…
Mike,
No I am genuinely interested in hearing about the market in Ohio. Thanks for you advice. Do you have any opinions about different Ohio markets?
adayatatime,
I think that the market almost everywhere in Ohio, Kentucky, Indiana, Michigan, Texas, Arkansas, and 40+ other states is good for rentals. It is not so much about the market at any given moment, but whether prices are still rational and there is a demand for rentals. You can make money in Ohio if you live here and know what you’re doing. Where is Ohio are you thinking of moving? Do you have a specific question about the market?
Danny,
My ideal firm size is ONE - me! I have considered commercial property and in fact have owned a couple in the past. The problem that I have with commercial is a local problem. There is not much demand for small retail shops in our area and rents are low. Warehouses and that type of commercial properties can stay vacant almost forever and I am concerned about that issue. In my area, there are several multi-million dollar commercial buildings that have been vacant literally for years. I have also considered mini-storage, but my analysis is that they are overbuilt in my area. The economy is not good in Ohio, in large part due to the inept governance of the past few years.
Although dealing with tenants can be a pain in the rear, I am comfortable being a landlord. However, if a good commercial opportunity arises, I would definitely take it.
Mike
I think if you can cashflow and live in the area, then go for it. Be careful of trying to invest in out of state in lower income areas. I thought about diving into the lower income homes b/c the cashflow was so good but after talking to a few people, I’m not ready to take the plunge being from CA.
Mike,
Im interested in the greater cleveland area, are you familiar with it? I have family in that area and I lived there for about a year. HOw abput you where are you in Ohio?