Should I be scared?

Question

I'm looking to lead up to my first purchase. Likely a long flip (BRRR) or possibly a regular flip with the right deeply discounted property. In my initial target area there were 4 homes sold in the last 3 months according to zillow. Houses are sitting on the market for a long time. It's rural with about 6500 people, surrounded by the state capitol and some minor cities. Even worse the whole state has seen a long term decline in population and it's older. My town went from about 7500 to 6500 in the last 25 years. I see people warning away people from houses built in the 50's. Well an old house here is from the 1850's. There is a hot market here within an hour drive in Portland Maine, but I really think I missed the boat on this cycle. Mostly because about 80% of the losing stories I have heard are from newbies buying into hot markets. I have been planning on getting started where there are cashflow deals reasonably had and position my cash and my skills to be prepared for the next one. An actual flip might be a challenge, but it seems I can reasonably find a distressed 2% rule deal and be patient.

So my question is, with such a slow market should I really reconsider my farm area? I'm somewhat worried about having limited selling options when I find out I don't know what I'm doing.

Amy A. · Answer

I purchased multiunits in 2007 and 2008 in Auburn. They have good cash flow (especially since I fixed them up) but have not appreciated in value at all. Keep that in mind if you buy rentals because your market is similar. If you want to flip single family homes, get licensed so you have access to up-to-date market data and also budget to have a longer holding time than you'd like. If your house is the best at its price point, it will sell eventually. By the way, the only houses that I sold and didn't make a profit on were over 100 years old and they are beautiful. You might lose money on your first investment, but consider it the cost of education. It's tough around here because we have the oldest housing stock in the country!Good luck!

David Marshall · Answer

Hi @Andrew Ware, the market in the Augusta, Maine area is familiar to me. Recently I invested in Harpswell, a small town south of Brunswick. My wife and I found a triplex for a decent price that will cash flow when fully occupied. We are house hacking and living in one of the units. New investors use this strategy as a way to get property with small down payments. Multiunits can make you a lot of money in cash flow even if the appreciation is not growing. When the economy turns, there will be more people looking to rent apartments. From what I have seen in the Lewiston-Auburn and Augusta markets, there is great opportunity for cash flow and forced appreciation. If you are going to try a flip, then look for distressed properties and find someone who knows construction cost estimation. Bring in some partners who can help. Improve the property so you can sell it just below market value for sale that will move somewhat faster. The residential market in Portland, especially on the peninsula, has a bubble effect going on. Properties that sold for hundreds of thousands of dollars a few years ago are now going for millions. The condo market is on top of the balloon. The prices bounced back from a small recession dip and ballooned beyond the last peak of 2007. There is a big demographic shift happening next to the downtown. Rents increased by 17% last year in Portland, Maine; faster than anywhere else in the country with the exception of one, and passed all of the major metro areas. The best time to buy in Portland will be when the market turns and opportunities arise. There are some opportunities and they go really fast. Have your resources lined up so you can go for opportunities when they become available to you.

Andrew Ware · Answer

Thanks all. It helped me clarify some things. Amy A. yes Auburn and Harpswell are definitely similar areas. Long cashflow plays definitely seem to be the way to go in this area. Build some forced appreciation, and take regular appreciation if it comes. And yes David, at this point, with my lack of expertise the idea of Portland terrifies me. I'm patient enough to wait for opportunities on the backside of this bubble.

David C. · Answer

I would be scared :) maybe look closer to the hot market you describe but at it's edges if you can't afford inside. I atleast wouldn't want to buy in a dying town, even if it met the 3% rule you might just be giving it all back when it comes time to sell. But the reality in my market is trying to figure out how much over list it'll take. In 3 days of a property being for sale it will have 20+offers if it's a fixer/dump. So maybe I'm the wrong person to comment.

Andrew Ware · Answer

@Jeanne Thompson of course I can't give you expert advice but everything I've seen points me to saying that every location has real estate opportunities. The key is knowing what type on investment fits your area, budget, personality, etc. Some stages in the cycle like in 2009 were horrible for selling, but were amazing for buying. A friend of mine's uncle has done quite well with rentals in Orono.

Jeanne Thompson · Answer

Hi there! I am new to this sight but already see the benefits of it. My husband and I are also new investors seeking to purchase some rental properties in the Bangor/ Brewer/ Orono area. We were thinking to go multi family, maybe four or six- plexes. My husband keeps wondering if it is possible to make it in this area with real estate. Would you please comment on this? Thinking of rehabbing one or two but with the local market just not sure. Oh and how do you find these older investors

Parker Dresser · Answer

I am in Bangor and I agree with @Amy Arata about appreciation in most of Maine. I have slowly been fixing up my properties and I do not count on any appreciation. I have not reviewed statistics but I have reviewed some specific cases and appreciation is about par with inflation. I count on the profit in the form of principle payment and on my better properties positive cash flow. I think a slower market has its own advantages. There are older investors who are willing to retire. Also you can buy large older properties for less money.

David Marshall · Answer

http://www.pressherald.com/2015/06/23/national-data-confirms-big-jump-in-portland-rents/

Andrew Ware · Answer

I don't live in the super rural area really. We are in what is called midcoast near Augusta. There is a lot of home ownership and a decent mix of rentals. The kinds of houses I'm looking at would retail for 90-120k near the center of town. Those houses were in the 160-190 range during the peak of '06 There is also a lot of waterfront property around, but that gets really expensive. But I should look more closely at that. An old camp that could be converted to a home, or rehabbed. I haven't really considered short term rentals. The idea of dealing with 20 tenants a year doesn't appeal. I know people who do that and end up being maids once a week (yes I know if I get the price right I should just pay someone to do that but I'm a frugal yankee.)

William Collins · Answer

Howdy Andrew- I have driven through Maine, and let me tell you- 1) I love the state 2) Rurrrrral as @Brandon Turner would call it is an understatement. So here is the question- do people own or rent in your "farm"? Is this just something you could afford as opposed to something you would buy? Portland and the Old Orchard Beach area has a high tourism rate, so have you considered short term rentals based on demand?Cheers! Bill - the guy who only live in your state 1 week a year