The BIG problem with buying/selling houses in the suburbs!

[Account Closed]

I'm a 19-year-old college student in Fort Lauderdale, Florida. I recently talked to a doctor who is aspiring to live in Manhattan, New York about real estate.

When I asked him about how I wanted to start investing in real estate in places like Texas, Florida, or Tennessee, he told me that there are lots of problems with investing in these non-cities. Instead, I should strive to go to Manhattan after becoming a dentist. Here are some things he mentioned that make investing not possible in these non-city states:

1. Houses NEVER sell in the suburbs. You have to wait 2 years for houses to sell at the very least.

2. Houses don't appreciate. You will pay a lot of property tax, but your house won't appreciate that much.

3. It's better to invest in a condo in Manhattan, New York than get several houses in the non-cities. (Less work for good condos in Manhattan)

4. If the contractors and the workers get injured when renovating or flipping a house, I will be responsible for all their medical bills. Yikes!

5. It takes too long to renovate houses. (More than 1 year)

6. You won't get a lot of mortgages approved, and will hit your limit.

7. Stuff breaks too much in traditional houses, and the landlord usually pays for electricity, water, garden maintenance, etc. Condos in Manhattan sell like hotcakes.

In sum, he told me why on earth would I go to the suburbs for real estate when I can just buy a condo in New York, have it appreciate a whole lot, and sell it for a way higher price? Although I would be paying more tax in New York, houses appreciate a hell of a lot faster and sell faster. If I invest in the suburbs, I will end up with non-appreciating houses in Texas or Florida, have to fix things all the time, and never be able to sell a house quickly enough.

I read a few books by Brandon Turner, Josh Dorkin, David Greene, JL Collins, and other authors, and it seems like a lot of people I know make a lot of money by investing in the suburbs, but does anyone have the information they would like to share on his views?

Keep in mind that this person I talked to believes that the only 'city' in the US is Manhattan or perhaps Los Angels in California. He thinks that other states like Florida, Texas, and Virginia are all the countryside with not a lot of big buildings where things are very very far apart. He made me think a little hesitant about pursuing real estate investing in the Suburbs, and I would like to know more about this situation!

I'm open to any feedback or criticism! 

[Joe Funari]

@Account Closed Wow, what a post. First every REI has a different opinion for what exit strategy works for them. But some of the advise the aspiring doctor gave you about REI is wrong. As as actual investor and realtor working for +5 years helping other investors buy and sell in Texas (Specifically in the Dallas/Ft. Worth area)I feel the need to defend investing in the suburbs. So here goes my rebuttal to your points:

1. SFR's in DFW the average days on market is approximately 30 days for a 3/2/2. I have never seen an SFR stay on the market for 2 years here.

2. SFR's "conservatively" appreciate 5% per annum. That is actually a national average too. Here in the DFW area its higher. But I hedge on conservative numbers. Yes property taxes are around 2.9% here in the DFW area. But the tax rate is based on an average tax "valuation" of $325K for a SFR here in the DFW area. There is no state income tax here in Texas. So tenants can actually afford to pay rents. Plus, property taxes on a LTR are tax deductible.

3. I have no experience with Manhattan condos. So I will defer to other BP experts on this one. But my experience with condos here in the DFW area is that Condo HOA's can vote to change the rules to not allow rentals. I have a client that when they purchased a condo they changed the rules on him. So he can't move to another property and lease it out. Better to buy an SFR in the suburbs with no HOA to be honest.

4. Have your contractors sign an agreement that you are not responsible if they get injured rehabbing one of your properties. But recommend you consult a real estate attorney on such a document. Also, if your working with a good insurance carrier you will have a builders risk policy to protect you as well.

5. The longest it has taken me to rehab a property, whether it is a flip or buy-and-hold exit strategy, has been 4 months. This property was vacant for over a decade and needed to be gutted to the studs, cast iron sewage lines demoed out of the property. A full gut job. But if you work with experienced contractors and/or investors you can get the job done quickly.

6. If your working with a lender that is investor friendly, and preferrably a fellow investor, you will get loans approved. I have both hard money lenders and @Andrew Postell is my preferred conventional lender for LTR's. Andrew is also a fellow investor.

7. You need to understand what the market will bear when determining investing in a buy-and-hold property. Here in the DFW area we include in our lease agreements that tenants do their own lawn maintenance, pay their own utilities, and provide their own fridge, washer, and dryer. Yes, things break. Its a part of cost of doing business as an investor. But these appliances we don't provide tend to break the most. So mitigate your risk.

I will end with defending Texas from a LTR prospective. The landlord laws are among the best in the US. So if your looking to buy-and-hold they are much more favorable than NY. Moving forward get advise on an area your considering investing from an actual investor that works in that area. Not from a doctor who is considering an area and hasn't invested.