which strategies work best for which areas?

hey all…when doing your investment how do you determine the area to invest in? and which strategies do you find best for which areas? ex, are there areas better suited for sub2 and lease options vs. maybe landlording?

im located in nj, doing some research and everyone says something different, how do I, with my limited experience, know what to go for?

the only thing i can probably afford with my own cash is somewhere low income, but i can also get a pretty decent cash flow. but with a low income area comes high crime, etc. someone told me don’t worry about the area as everyone needs a place to live, whereas someone else says don’t invest were you won’t live.

niuvya,
You can buy a duplex as your first investment. You live in the worser or smaller side, while you fix it up. Your tenant pays you rent and you learn how to be a landlord. You do this in the first neighborhood that you can afford and feel safe in.

Let us know how your search goes.

Furnishedowner

First you need to decide what you like to do. Rentals, Rehab, Flip (wholesaling). Once you know what your goals are in REI then you can work on area’s of interest. A recommendation.

If you are a renter, go out an look for an affordable duplex or tri-plex or 4plex. Live in one unit and rent others out. This will help pay down the mortgage and you will see what it is like to be a landlord from the few tenants living side by side. Renters can be a pain and demanding honestly. Maybe get one that needs light rehab so you can get the feel of fixing or upgrading the unit. If you want, buy at least a tri plex. Upgrade the unit your living in while other 2 are rented. Once it is nicely upgraded, look to rent it out for increased value. Maybe one of your current tenants be interested in an upgrade for a small rent increase, then go into that unit and upgrade and repeat.

Warzones can be great cashflow but a lot of headaches. working family area’s that have a lot of section8 are good investments, but make sure you regulate amount of people who can live in the house. Pets are your homes enemy remember that, even with tile or wood floors.

have you even figured out my financing options yet? Spoken to a mortgage broker? Built a power team? Contractor? Landscaper? Lawyer? Accountant? Title Company? Banker?

really good advice with updating the units and moving into one of the non upgraded units. i never even thought about that. right now i am looking into 3 units or a 4 unit building. none of that is in place yet, as im going through a first time home buying program, so at the moment im doing the whole qualification process AGAIN…as my first deal fell through…thanks for the advice will update as i make some progress

High end blue collar areas are the best areas for flips, rentals and lease options. If the area is too nice that competition will bid the price up and cash flow will be low. War zones are to be avoided. You do not have to live there, you just have to do your due diligence and make good informed decisions. No matter what anyone says, justify your decisions with facts as it is you that is taking the risk. Once you gather the facts, you will find a ton of areas to profit. Keep it simple at first and focus on one strategy and specific areas.

Now, the high end blue collar areas will have a large difference between REO and distressed sales vs retail sales. We find REOs in the 20s and 30s and retail sales 70-120K. That is a big difference. Make sure there are around the same number of sold comps as for sale properties. Make sure you are in a max 70% LTV and the property cash flows so you have backup plans, multiple exits and you can really mitigate risk. I hope this helps, best of luck!!

moellerryan,

I’m new to the REI message boards and I am also new to investing. Why do you say that he should be in a max 70% LTV? Isn’t the goal of financing to leverage your money and risk as little of your own cash as possible? Or do you say this so that he will get a reasonable interest rate in order to reduce the monthly debt service and maximize cash flow?

Leverage is fantastic. You can really skyrocket your cash on cash return and lower your risk with the exception of your credit. But you always want to buy discounted property. And you always want it to cash flow really well. If you have at least 30% equity and strong cash flow then you have multiple exit strategies and your risk is greatly reduced. Not to mention your return is usually very high on deals like that. You never ever want to pay retail value for an investment property. What happens if you want to get rid of it? But the only offers you get are at 70-80% of value? That is what investors expect. You must find great deals, not good deals great deals and find a lot of them so you can cherry pick the best ones. If a deal does not meet your criteria, walk away and find 10+ deals that do. I hope this helps.

Ok yeah that makes sense, thank you. I wasn’t thinking exit strategies, but you’re exactly right. I live in San Diego where home prices are 500k + and I don’t think we’re going to be able to get any where near 30% down. So we were thinking about using FHA and we hold active broker’s licenses so we’ll be able to get 2.5-3% back with purchase. We’re looking for a 3-4 bdrm home with deferred maintenance that we can get for 20-30% under market value, like you said, we’d live it it as an on site property manager and rent out the other 2-3 bdrms while we fixed the place up. Do you think in a neighborhood that has a stable market, it would be a bad idea to use FHA even if we’re buying 20-30% under market value, and our target market upon resale would be home-buyers not investors?

You can live there during rehab but I don’t see how you could rent out the other rooms during rehab. I have lived in San Diego for almost 6 years but I invest in OH. I find the LTV and cash flow to be much better. Better exit strategies, less risk and higher returns.

I do have friends that flip, they use 100% private investor funds who they partner with. I haven’t looked at conventional for years, usually banks want cash.

What areas are you targeting? The nicer areas will have a ton of competition from owner occupants who will be willing to pay retail. The areas you should target are the high end blue collar areas.

Being as young and as inexperienced as we are, I don’t think we would look for any structural rehab or any other significant rehab. Probably just something that needs a face-lift like painting, carpets, appliances, landscaping, etc… stuff that we can actually do ourselves. As far as tenants go, we know friends that are looking to move, and if we had people we knew previously as tenants, then I like the strategy mentioned above about doing some kind of shuffle with rooms and fix one up at a time… I’m not sure how plausible it is, but it may be worth looking into. However, one of my concerns with this investment idea is that if we can’t find any of our friends to be tenants, then i don’t think random people would want to move in and live in a house with strangers. Have you ever heard of this being successful? Right now our target areas (or the areas that we’re watching prices) are UTC, Clairemont, Pacific Beach, Ocean Beach, Mission Hills/Hillcrest/Northpark area. We’re also keeping an eye on the prices of the immediate areas surrounding the 4 major universities because we think those would be good rentals. I’m not sure if any of these qualify as the higher end blue collar neighborhoods that you were talking about - what do you think?

Your friends may be willing to rent but for less. And I caution you about mixing personal with business. You can find deals in any market, but some markets are much harder to find them. PB, OB and the nicer areas you will have a lot of competition from owner occupants willing to pay retail. Northpark and Clairemont may still be a little too nice to get the really good deals you need but possible. Farther inland, north county inland, chula vista and areas inland and south of that you will find the deals with the best numbers. Make sure it is not a warzone but this is investing so you should not be concerned with living there. That is why I caution you about finding a flip that you will also be willing to live in. You are bringing emotions and personal reasons to a business decision. Not advised.

investrix,
I recommend getting a duplex in Clairemont, around Clairemont Square, rather than a single family home. Clairemont is excellent for young marrieds, workers and students.

However you CAN rent out rooms to single, unrelated strangers. We have a house in the Mt. Streets area of Clairemont and have been doing that for years. The 3 current tenants are young working professionals and like having a house and yard instead of a small apartment. We like having them take care of the house and pay off our mortgage.

This plan is not without problems. Our rent is now lower than market, maybe, because once we got a good mix of people we did not want to disturb that equilibrium. Last year we almost lost all tenants because one new resident turned out to be a pervert-- sexual exhibitionist.

Your plan will be easier if you elect to buy a duplex. If you do go the single family route, target UC and foreign language students. There are several English immersion schools and foreign students make great tenants. They don’t have the baggage of lots of local friends to bring over to party.

Furnishedowner

Another thought about foreign language students… there are several language schools in LaJolla, Clairemont and environs.

When we lived there we contracted with a school to house their foreign language students. We provided a nice furnished room (our daughter had gone off to UC Irvine) and 2 meals a day. This was family living and English practice for the students.

We had students from Finland, Italy and Switzerland. They fit right into our then family of 2 small kids, 2 parents, and our daily housekeeper/babysitter. The monthly fee helped out with college expenses, and filled an otherwise empty room in our house. This arrangement could be perfect for a young working couple. You can also advertise on the bulletin boards of foreign-food markets.

Furnishedowner

Great ideas, thanks guys! It’s nice to know that there are a few people on here familiar with the San Diego area.

Moellerryan,
I haven’t really thought of having to compete with owner occupant buyers who will pay full retail, but you’re right we’ll probably have to look elsewhere to find a deal.

Furneshedowner,
I really like your idea regarding foreign students. I don’t think I’ll have the ability or time to provide for them the way you did, but maybe they have students who are more independent… It’s certainly worth looking into. Just out of curiosity, how long did it take you to find tenants to live in harmony with each other for your house in the Mt. streets in Clairemont? And, if you don’t mind me asking, what kind of profit margin are you making after paying the debt service on that property?

Investrix,
The foreign language students were all very independent and the school arranged their transportation to school every day. We basically provided breakfast fixings and cooked dinner every night. They were mostly young adults so they bought lunch at school and were gone all weekend. It was a very workable arrangement.

Finding tenants to live in harmony in the rental has had some problems. The house was basically too large and expensive for most families, so co-tenants worked better. We have had periods of diminished rent due to a tenant or two leaving. The remaining tenants were responsible for all the rent, so they were actively seeking new roommates. We paid advertising.

There is no profit margin on that house. It has broken even in the past, and this year it will be about $1100 in the red. It was bought as our family residence and not as a rental. My spouse is emotional about hanging on to it (must keep a foot in San Diego!) so as long as the tenants pay most of the freight we are okay with it.

Having roommates in a single family home is basically NOT the best plan. Get a duplex, even if you have to live in 1-bedroom. You will have a yard and a non-apartment kind of lifestyle. Too many problems with the other scenario, and problems not under your control (roommates’ sloppy habits, etc.) can drive you nuts.

If you must go the single family route, opt for the foreign language or UC students as roommates.

Furnishedowner

let me introduce my self to you, I am working as a Real Estate investment Adviser in Cleveland.

The question you asked is very basic but important.
i have created some basic questions while selecting area for your investment, Try asking your self some questions like:

  1. why should i invest in to this property or area?
  2. Is it a Large city?
  3. Dose that area contains - white collar employers?, hospitals? etc…
  4. dose it have growing economy?
  5. how many % of population rent? (I think 40% is good enough)
  6. what is the cost of that property (is it low?), how much rent i will get? (should be high), is it high equity property
  7. will i get huge return on investment.
  8. And do not forget to about neighbor.

this and some more questions can help you to find best investment property for you.