single family, dueplex, condo, 4 plex .... need help

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single family, dueplex, condo, 4 plex .... need help

Ron Pearson
Anchorage, AK · Member since 2016 · 2 posts · 0 votes

Hello, I am new here and this is my first post.  My ultimate goal is a place to live and cash flow investment properties.  I live in an area that is supported heavily by oil and gas so I am quite sure there will be a non trivial market correction in the comming year unless something with oil drasticly changes.  My question is I am able to find decent single family homes in the 280-320k price range but duplexes go up in cost quite a bit to around 400k but it would give us one rental property right away but then we would be paying a larger mortgage for our primary residence rather than having a separate building we could sell off if need be.  The other option is to just buy the single family home and then buy a 4 plex but the 4 plexs I am finding are not super nice and while the market today in anchorage commands rediculus prices for rent even on marginal condition places, will that trend go on forever?  No one wants to be the guy that over paid for a run down property because todays rent prices were good.  A third option is to buy the house and then just buy random condos sprinkled around town, this option would allow me to either buy the units outright so that I dont have any risk of forclosure if there is a vacancy.  Plus there is more supply of condos and nicer condos.

I like the idea of either putting a ton down on an investment or paying cash becuase everyone says "insert bad thing here" will never happen ... until it does and your standing there being forced to take less rent while you have a fat mortgage you are having to subsidize with a regular job which is negitive cash flow.

I have 40k saved now which will go towards the primary residence and then another 120k worth of raw land I can sell (estate just sold some like lots so I am pretty confident I can get at least 120k).  The land is 10 acres but is out in the country, not the middle of no where but pretty far out, but its 10 acres and new roads are being put in and it has natural gas so maybe I could build rentals on it as I go.

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  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    10y

    I would say be careful. Most that invested in 2004-2007 in most markets lost their money and credit, so if your market is over valued then don't buy. Either invest in a different market or invest your money in a different asset class and wait for the market to dive. What ever you do, don't just buy Real estate to buy, that is how people get burned.

    For analyzing your deals look at the market trends. What have historical prices looked like? If sale prices are higher than ever and rent amounts are higher that ever, you may have a problem. At the same time if you can use the rental price average over the past 10 years and still cash flow on a purchase, then you may want to buy.

    Do your research on the market you're in and decide of it is ready to crash or there for the long term.

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  • James Cash
    Real Estate Broker · Anchorage, AK · Member since 2015 · 170 posts · 46 votes
    10y

    @Ron Pearson nice to meet you!

    I can tell you a few things about being in the industry.

    1. You are correct about rental rates being high.

    2. Duplexes are over-valued right now.

    3. There is a lot of economic uncertainty.

    I would not recommend buying a single family home right now, unless you never plan to leave that home. If your ultimate goal is acquiring rental properties, I would start with a fourplex. The good deals will come and go within 2 days of hitting the market. You can always value-add invest and buy a distressed property, and put some money into it. It sounds like you have some cash in the bank and may be able to do that.

    Ultimately, you need to assess your long term goals, followed by the amount of risk you are willing to / can take, and what your current options are.

    I also think our market is very unique, and unlike a lot of other major cities in the U.S. We are, in my opinion, really the only major metropolis in Alaska. That provides a unique position for us, our inhabitants, and our housing market.

    If you want to assume very little risk, there is no harm in waiting a year to see what pans out. That said, don't try to time the market...it works very scarcely for people.

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  • Ron Pearson
    OP
    Anchorage, AK · Member since 2016 · 2 posts · 0 votes
    10y

    Hello James and Todd,

    I am looking for very low risk cash flow.  I don't mind putting in sweat equity and I know what I am doing when it comes to the repair work.

    My goal is to have enough cash flow to compleatly replace my income in 5-10 years.  I would also like to find properties that pay for themselves in 10 years time.

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  • Jonathon Rodriguez
    Investor · Anchorage, AK · Member since 2014 · 16 posts · 15 votes
    10y

    Ron,

    Your concern over the market, economy and property conditions are all extremely valid concerns and any investor not taking those into consideration are likely not going to last as real estate investors. 

    As James stated, I would not buy a single family home right now. Oil job losses are going to affect that market most significantly. We are already beginning to see that happen. Many home owners are putting their home on the market, even if they didn't lose their job, out of fear of the economy. This typically leads to this market being oversold and will soften home valuations in the near term. The same thing happens in the stock market, people overreact to negative news and sell off over fear. This is why you see the stock market have such high losses and gains over short periods of time. 

    I also recommend staying away from condos if a primary concern of yours is liquidity. Condo associations are subject to unique issues that other properties are not. They can lose government financing if the association is mismanaged or their are too many tenants (for example, FHA loans require an association to be 51% owner occupied throughout the association). Also, certain condos have rules on using it as a rental (to avoid losing financing and other reasons). They can be good investments, but it depends on your goals and strategy.

    I highly recommend a multifamily property. 2-4 unit properties have gone up significantly in value in recent years, however, as long as the property still cash flows, it can still make for a great investment. Interest rates on loans have never been lower, which is offsetting the rising prices. Duplex properties cash flow way less and often don't do much more than break even when fully rented if using owner occupied loans (FHA, VA, 5-10% conventional) where 3-4 unit properties cash flow at a much better rate. The 3-4 unit properties sell very quickly, if they even reach the market. Many of my clients are able to buy these properties before they hit the market because we are made aware of them before MLS or they get the information right when it comes to market.

    Sounds like you have a good idea of what your goals are, but need a better idea on the path and plan to get there. I will message you to discuss further. 

    Jon

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