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Updated over 7 years ago on . Most recent reply
What are your buy and hold criteria?
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Rick
Some food for thought. Here is my way of investing for meaningful cash flow.
For 40+ years in Northern Calif. I did all kinds of real estate investing. I love it all.
But I quickly found that buying one single family house at a time with no "real" cash flow and hoping for appreciation was not a recipe for financial success in my lifetime. Way too slow and boring.
Fast forward. Here is the plan I used to get 250+house rentals at my high mark (they are houses but not like the one mentioned above).
Plan:
-Buy GROUPS of older houses on a single parcel.
-These could be a combination of small houses, cottages, duplexes, conversions, legal non-comforming, small apartment on a SINGLE PARCEL.
-Older parts of town, not dangerous parts.
-Ideally they need fix up, probably because of weak management.
-5 or more units. This makes it ideal for seller financing. Banks will not loan on rundown properties with 5 or more units. The seller knows this and will almost always be open to carry the financing. 85% + of mine had seller financing.
-Seller financing can be terms that are beneficial to you: Term, no payments for awhile, graduated payments. What ever you need to get cash flow.
-I usually put about 10% down.
-Because the units are run down, the rents at time of purchase are almost always below market.
-Because they are run down the GRM (gross rent received from property for a year) is lower than it would be if units were fixed up.
-My goal over a 2 year period was to fix up the units, get better tenants over that period and raise rents by 50%. Remember they were already below market and fix up raises rents. Because I fixed the units up I will raise the GRM that an investor will pay( IF I were to sell) by 2 points.
-Raising rents by 50% and the GRM by 2 just about DOUBLES the value of the property. Very doable.
-I manage them. I developed this to keep my sanity in the property management part of the business. Way less personal contacts with tenants.
-Years later when it came time to sell, I INSISTED ON CARRYING BACK THE FINANCING. I call this PAJAMA MONEY. Remember I forced up appreciation at the beginning by fix up and have many many years of general market appreciation (if no market appreciation, I still do very well). At the beginning of each month I can go to my mailbox, pick up the checks for the buyers of my properties..........I can do this in my PAJAMAS.
-Buying groups of houses is way safer than just buying one. A vacancy with 1 house is 100% vacancy. If I have vacancy with 5 houses, it is only 20% vacancy. 80% of other rent keeps rolling in each month.