So where is the big money being made?
Big money??? Commercial, or maybe hosting seminars to the masses??? Make sure you get trumps picture on the flyer
The big money over the long term is made with buy and hold.
Mike
You mean buy low, wait then sell high? Or what do you mean with buy and hold?
Simon
What Mike is doing is “CLASSIC” Real Estate investing.
He’s in Ohio, which due to U.S. automakers laying off literally 10’s of thousands of workers (and other factors) his State is getting KILLED right now. By buying homes in this enviroment he is getting great deals WHEN NO ONE ELSE WANTS THEM! Remember that last part, it is the foundation on which ALL investment success is built.
Mike buys at steep discounts and rents these homes out. He doesn’t buy unless he makes money just holding the home. So he has CASH FLOW. That, in it’s self, is beautiful, but the real beauty will be seen 10 years from now when the economy in that State turns around and everyone there forgets there ever was a housing crash. At that point Mike will be selling dozens of these homes into a strong market for many times what he paid for them.
My guess is at that point, like 95% of all Real Estate investors, he will move into commercial properties.
The VELVET HAMMER’S will pay for all of it!!!
I was in Hilton Head playing golf with a couple of guys that they paired us up with. I told them what I did buying and renting out houses and they mentioned that I could sell them for a profit for “big money”. I asked them if they ever learned about the goose that laid the golden eggs. People that want me to sell my property slept through that lesson. Selling my property is like killing the goose that lays the golden eggs.
It all depends on what your goal is. If your goal is to be rich, then you can only get there by buying and holding to rent out. This creates a stream of income that you don’t have to work for. That is my definition of rich. If you are selling your property you get a big pile of money. Then you are hoping you die before you run out of money. That is not rich.
I understand fdjake’s issue about the velvet hammers, but that is remedied by economies of scale. Once you have sufficient volume of property, you hire people to deal with the problems that you see as hammers. If you hire the people then you can work on your business instead of working in your business. I am not talking about property managers, I am talking about employees.
FDJake,
You have somewhat mischaracterized my area and my plan. I know that there are parts of Ohio that had significant auto related businesses, but I am not in such an area. While I agree with you that Ohio has some problems (mainly the anti-business policies of our last two governors), we have not had any significant swings due to the bubble (either before the bubble, during the bubble, or after the bubble). There was a modest increase in prices during the bubble and a corresponding modest decrease after the bubble. The biggest change since the national real estate bubble burst has been the increase in foreclosures and the increase in inventory. This is certainly not Michigan (AMEN) and the population is still increasing slightly. In my area, we are predominately a service economy, dominated by low paying service jobs. In short, my investment strategy is almost exactly the same now as during the bubble years of 2004 and 2005. The only thing that has changed is that the GREAT deals are getting easier to find and I and being very picky about the price I will pay (currently 50% of market value). In fact, I have a friend that has been to a couple of auctions where he was the ONLY bidder.
I also have no plans to ever sell my rentals, because I really enjoy the 12-16 hour work week and cash flow . However, I certainly wouldn’t rule out getting into commercial at some point in the future.
Mike
Ok, I think its a smart way to get rich, but buing houses without selling them? How many houses can a guy with a normal income buy in a lifetime 2-3?
I think Bluemoon missed part of my point. You never sell something that makes you money UNLESS your REPLACING it with something that makes you MORE! ie. Commercial Real Estate.
There’s a reason Sam Zell doesn’t own & rent 2000 single family homes.
He could easily afford it, but compared to the bang he gets for his buck in commercial property it isn’t worth it. That’s why you don’t see people doing it on a large scale. The hassles you encounter would bury you financially. Hiring employees isn’t going to do it. It’s the fact that single family homes are SPREAD OUT that creates loss of ecomonies of scale. That is why people buy commercial apartment buildings. A small staff can live in and handle most of the day to day problems. When you get to a certain point owning single family homes for rentals is a lot more hassle than just selling them and rolling that money into a single structure that generates the same income as 25 single family homes.
Think about it… 25 tax bills to a dozen different towns or cities, VS ONE. 25 Different structures all different ages and all needing different levels of maintainance, 25 different tenants all spread out, all paying rents at different levels. 25 different utlities to reconnent, dis-connect, ect. Ever drive by an apartment building with a giant FOR RENT sign on it??? Of course you have, The building is a giant billboard. Not so with single family homes.
There is no practical limit to how many single family houses you can buy on a normal income. The income that goes on the mortgage applications for the subsequent houses is increased by the rents from the house that you have at that time. They usually take 80% of the rents added onto our income. That means that the limiting factor is not income. That means if you have 20 houses renting for $1000/month, you put an additional $20,000/month or $240,000/year of which they give you credit for an additional $190,000/year. That is enough to get another mortgage. You usually are self limiting. I have a day job that is a lot of fun. I am getting pretty close to the point that to buy more houses will cause me to seriously consider quitting my day job.
If you have a 10% vacancy and you have 10 houses then you have a house empty and you are doing a make ready at any given time. If you have 20 houses you are getting 2 houses ready at any given time. I am at that point now.
I always say that real estate is local. In your market you evidently can’t hire people to manage single family homes. We can do it here in Houston. I have entertained multifamily property, but at this time single family is still best for me.
Bluemoon,
The bottom line here is you found a profitable niche in your market!!
That alone is a beautiful thing. The best part of it is YOU decide where to take it from here.
Nice problem to have!
Ok, I think it`s a smart way to get rich, but buing houses without selling them? How many house`s can a guy with a normal income buy in a lifetime 2-3?
Hi Simon,
I have bought several dozen rentals in the past 4 years. My initial goal was to buy 10 rentals per year, but I have been fortunate enough to exceed that. If you buy right (so that the houses/apartments will have REAL cash flow), then every house you buy increases your monthly income and your ability to buy more properties. Why would I sell, when selling would lower my monthly “passive” income and I would have to pay the government a bunch in taxes?
Mike
Not to mention that your mayor can’t throw a baseball more than 10 feet!! (with reference to the Reds opening day first pitch by the mayor, which was shown all over national TV) :bdaysmile