Baltimore Cash Flow Rentals

[Nick Bowes]

I have a property manager and contractor in place I trust who is able to video properties for me and recommend areas to avoid.  I've seen his cash flow numbers with Section 8 tenants in place on properties he own directly and it appears to be a home-run from that perspective.  I'm starting to understand the “pocket” neighborhood thing in Baltimore but lets assume I make smart buys in in the 21215 and 21216 zips. My biggest fear is eventually pulling my equity out. Lets say on average I buy row homes at 15K, put 25K into each and install my tenants who have vouchers anywhere from $1,200 - $1,325.  On top of the cash flow I’m being told each unit can appraise at 70K after renovation is complete.

1. Does anyone have an opinion on the 70K valuation?
2. If I buy 5-10 row homes is there a decent market for portfolio buys whether straight up or at auction?
3. Anyone know what the owner occupied home rate in that area is? or how to find it?

4. Why aren't more people doing this?  This goes back to the "if it sounds too good to be true it usually is" theory

Thanks for any and all input

Nick

[Sebastian E.]

@Nick Bowes These are just my thoughts based on my experience. 

The Zillow numbers are basically useless in Baltimore City. You would either need to establish a relationship with a local lender and sell them your vision of what you are doing or a lender who has no clue and hope it slips the cracks IF you get a favorable appraisal. There is just a lot of variability on the appraisal side. Of course if you could find a portfolio lender who would lend using an income approach that could work. You would most likely need to season them though and as @Jarred Sleeth mentioned those are not so easy to come by. 

As for section 8 they also won't be all that helpful. There are areas where rentals won't get approved because of too much blight but your bigger concern is finding section 8 tenants who are going to want to live in a 50-70k house when they have the option to live in a 100 - 130k house. Section 8 tenants have certain demands since the market rate tenant pool is not very reliable. You generally will need updated heating, central air, granite kitchen, updated bathrooms, and be on a decent block. 

So lots to take into consideration. Generally speaking I think out of state investing is a bad idea but I think out of state investing that you are talking about is a terrible idea. If you are ok with 5-7% cap rates then I think you will be safe but you are talking about which are 20% + cap rates you will get your lunch eaten.