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Updated over 7 years ago on . Most recent reply
How to start in expensive areas
Good afternoon!
I have been reading books/forums and have attended some local Investment info. groups near me, I know that investing in rental properties (owner occupied to start with an FHA loan most likely) is what I want to do (rather than spend the same amount on a house...) - I have also been perusing zillow, trulia, and a few others sites just keeping tabs on multi family units in Vermont.
Here's the thing. In Vermont, real estate is pretty expensive, along with taxes, plus there's winter, so heat and other costs come into play. When I try to analyze multi-family units, it's not uncommon for the monthly incomes to be near break-even or even negative in a lot of cases, or the properties are just TOO expensive. Minimum price in any "decent" area near where I work is 250k+, most are closer to 300k+.
Do people in expensive real estate markets have advice, or is it simply suck it up, and save money until I can afford something in that price range?
Thanks!
Most Popular Reply
Thanks Tom, great info! I do check out other areas, the only issue is I'm planning on using owner occupied/FHA for the first deal so I won't need as much for the down payment, so it needs to be at least commutable for now. There are always cheaper properties in Barre it seems, what's the tenant quality around there? I'd love to chat about your investment strategies and how you got started over a nice VT beer sometime! Thanks again.
Interested to hear the replies to this question as well. Seems like a similar situation here in the Tampa area as well, but maybe not quite as expensive as it is there.
Megan Phillips
"Do people in expensive real estate markets have advice, or is it simply suck it up, and save money until I can afford something in that price range?"
Here are a few things you can do if your market has a high entry point:
Wholesale deals.
Fix n flip using short term hard money.
Invest in another market.
You can make money in any market. It all depends on your approach and strategy.
Trying to find cashflow in San Francisco is nearly impossible. So would trying to do 2 million dollar flips in downtown Detroit. But reverse those two strategies and now they work.
You may not even have to venture across the country to find what works for you. Using the above example 30 mins from Detroit proper you will find lavish homes that could be flipped. 2 hrs outside SF you'll find properties that will cashflow.
If your local market doesn't fit your model, find a market that works with what you're passionate about.
Take a look around your area and you may be surprised to find something you can afford. Good luck!
Thanks Eric - I was considering other markets, but with it being the first property, I think I want it local until I have a better understanding how it all works before I would want to invest in an area I'm unfamiliar with/wouldn't be local to.
But - point taken!
@Megan Phillips Welcome to BP! Try expanding your radius. I've come across cheaper (under $75k) properties in the past in Northfield and Waterbury. In Barre Town I found a house for $25k last summer. It was a fixer for sure but had potential. I bought a duplex out in Lyndonville 7 years ago all in for $70k, $500/mo mortgage payment and income of $1400 for the duplex. Check Middlebury too, especially with the new natural gas line going there it will greatly reduce heating costs.
Good luck,
-Tom
Thanks Tom, great info! I do check out other areas, the only issue is I'm planning on using owner occupied/FHA for the first deal so I won't need as much for the down payment, so it needs to be at least commutable for now. There are always cheaper properties in Barre it seems, what's the tenant quality around there? I'd love to chat about your investment strategies and how you got started over a nice VT beer sometime! Thanks again.
I have rentals in Barre, it just depends on the property location amd condition. We live in the town and my husband commutes to Colchester. Its all highway, not a bad drive at all. Waterbury is a decent area, but multis can be hard to find. I have my RE license if you ever want to take a look at a few.
I would definitely be interested in that! A couple people that work with me in Burlington commute from Barre/Montpelier area. Definitely do-able.
@Megan Phillips my partner and I are in the same situation -- starting out in San Jose, wanting to do things locally while we learn the ropes. But things are so expensive here that it's hard to imagine we won't end up going into other markets eventually, as even significant cash reserves are going to get eaten up before too long.
Yeah, I think it's more mental than anything - the 300k properties are in better shape and generally in higher populated areas, but if the income isn't there (it generally isn't twice cheaper properties to justify price) , it just isn't going to make sense to get something out of budget and just hope it works. However, the cheaper properties that potentially need work and don't look as nice are scary in their own way as a first time buyer!
Hi,
I ran into a similar problem in Burlington (started by purchasing a condo for just under $150k in Burlington and rented out a room). Eventually life and real estate investing took me to St Albans-- I commute to Williston every day and it's manageable.
I find the properties in St A have much stronger numbers and returns- plus they aren't typically anywhere near the 300k mark. We also had our worst tenants in my condo in Burlington. Finding tenants is more about having a sound and consistent screening process then the area, as long as you have a rental that is decent.
Feel free to reach out with any questions. We have a few duplexes in the St Albans area and have explored other markers in Vermont as well.
Amy
Would there be any potential for you to find employment in a more desirable investment location?
Hi Austin - I make above average pay for my position where I am, I would be taking a significant pay cut moving somewhere else doing the same work.
@Megan Phillips I've purchased exclusively in Burlington up until this point. I like the tenant class and the ease of commute to the properties. I don't like the price tags or the age of the properties. That being said I'm seriously considering heading north for my next purchase. I think for your first purchase your goal on a duplex in the Burlington/Winooski area would be to get the rents from the other side to cover your mortgage. You won't cash flow in Burlington if you live in the building. To me quality of life was a big factor on my first purchase. If I'm going to live in it I want it to be somewhere I want to live.
For pure investment, all my friends/acquaintances are in Bare (@Reuben Stone @Samantha Hiscock ) and St Albans @Amy Paradis @Jay Mitiguy @Chris Kelly and Winooski (@Matthew Parisi )
Speaking of which! @Reuben Stone when we are going to next get back together for investor club!? ;-)
@Megan Phillips happy to meet up for coffee if you want to share thoughts.
@Blair Knowles what about the meetings at kw ? i went to one with ben d. and Brian Armstrong spoke , i thought it was great . there was no selling of blackrock stuff , it was a good group of like minded investors .
@Peter Amour
@Samantha Hiscock
Hi all -
If purchasing a multi family in Vermont (FHA and owner occupying), are there "repercussions" if I move out of the property after a year (I'm assuming that's the minimum requirement) to gain more rental income? Like mortgage changes or anything like that to consider? I just don't want surprises that I hadn't considered...
Any advice is appreciated!
Nope! It must be your primary for 365 days, after that you can do as you please with it.
The only change is with your homeowners insurance and your homestead declaration for property taxes.
Thank you, Samantha! That's what I thought, but I was looking at properties earlier and the realtor questioned it and I just wanted verification.
If your Realtor questioned it you should probably find one that is more knowledgeable about investment properties!!
Blair is a superstar Realtor and someday I will be as great as her, but I'm sure either one of us could help you find something suitable and provide plenty of info on house hacking and how to make it work for you. We both bought multis as our first homes.
I hear you, I kind of thought the same thing, but they actually own multis themselves. I'm assuming never as owner occupied, so perhaps they just hadn't considered the idea that you technically only have to occupy for one year (this is my benefit of the doubt here), but I agree that they should've known -- I was referred to them by the original realtor group I wanted to work with because they are more familiar with the area I was looking in. I think it was more of a warning than a blatant lack of knowledge, you know "you'll want to make sure it doesn't affect your FHA financing if you leave."
I've looked at some properties (no broker/buyer signed yet, though) and I pretty much have it narrowed down to two that I'm interested in. Just weighing the pros/cons of each at this point.
When you guys are deciding on a property, are there one or two things that will trump your decision to finally sway it one way or the other?
Prop 1 that I'm looking at is more expensive, needs work (not a ton, but definitely some), some I can do, some I would have to hire, but overall is in decent condition. Better location than prop 2.
Prop 2 is less expensive and doesn't really *need* work, but is a more rural.
Is it really that simple to just be like - yep, property two is the one? I feel like I have analysis paralysis. Plus I'm just nervous because it's my first purchase and I want to make the best choice.
I really do appreciate the feedback and advice.
@Samantha Hiscock is correct. The FHA paperwork only says you must live in the property for a year. Ha and @Samantha Hiscock thanks for the vote of confidence! My first duplex was purchased as an owner occupied duplex and I moved out after a year with no repercussions. That's a good question. I'm not surprised that your agent didn't know. It's a very specialized question that won't come up in most transactions and an agent likely wouldn't know unless they had an FHA loan themselves.
@Megan Phillips my questions would be how much work and how rural? (Fairfield? St. Albans Town? East Fiarfield? Swanton?)
And then my next question is ---are you long term investing for cash flow or appreciation or both? Will you resell? How soon? It's hard to know the answers to all of these questions (especially when you are just starting your investment portfolio). The more rural the less appreciation (typically). The more rural the harder to resell quickly (typically).
That said, with no other information, I would say go for the one that needs less work. As a newbie, you always underestimate and undervalue how much work will be and how much time it will take and it can drain you especially since you have a full-time job. Nothing turns you off of investing and wears you down faster than a property that sucks all your money and time. The majority of multi-families that I sell are folks that bought one property, never developed systems for maintenance or vetting/managing renters, got sick of the property (It became a headache rather than a money stream) gave up and sold. I call them the "One-offers". If you buy a first property that needs less maintenance you will be setting yourself up for a better chance and not becoming a "one offer" ;-) And I want that because we need more girl investors! :)
Last but not least- FHA is actually pretty picky about what properties they will finance. If your property that "needs work" is in really rough shape you could run into issues when your bank sends an appraiser out to the property. For example, I had some single family purchasers use an FHA loan (against my recommendation). The house they purchased needed paint- the paint on the siding was peeling. The FHA appraiser flagged the chipping paint and said the entire house had to be painted in order for the bank to lend the money. The seller was unwilling/unable to paint the house. My buyers ended up painting the entire house (A home they didn't own yet-- logistical nightmare) in order to make the deal go through. Yikes!
Hope this helps. Good luck!
@Peter Amour --- I'll check the next one out. I'm glad to hear it wasn't sales-y. That was my fear.
Another thing you may not have considered is the AirBnB option. Since VT and the Burlington area is a popular vacation area. Check out the recent BP podcast about it. Not sure what VT local laws are about short term vacation rentals though.
@Blair Knowles -- Thanks for the response.
As far as work on prop 1 - some interior cosmetics, replacing/removing carpets and laminates, painting, etc -- not too worried about it. One of the apts also doesn't have stove/fridge/washer/dryer, so that's an expense to consider. Outside needs a bit more, the paint is peeling all around on the trim below the roofline, and you can tell the it's about time for replacing it all, and one corner definitely shows some potential for some rot/mold/water issues, but I don't think it's really something major, but that's at least a decent sized project. It's essentially in the main area of St. Albans. I don't love it, but I like it. Also I don't know that I mentioned the sellers are "very motivated" --- How motivated? I don't know.
The more rural property is still what I'm leaning towards, it's in Enosburg, so pretty rural even by Vermont standards (I don't know why I'm calling Enosburg rural, I'm from Westford). I think I just like the cheaper price tag, and also the idea of not immediately tallying up a check list of "to-dos" for a property, because it's in decent shape. You can tell the owner put some of the rent back into the building unlike most of the properties I've visited in St. A (that say they cash flow like crazy, but they are such dumps!).
My overall investment strategy - I'm not planning on re-selling any time soon. I want to FHA, move after a year, pay down to less than 80% of the loan so I could refi, then get another FHA and repeat (unless there's an easier strategy?) I also plan on using property management for dealing with tenant vetting and all that jazz, it takes up some of the rental income, but after seeing the people renting the places that I've been checking out - I have to imagine it's worth it. Any Franklin county management recommendations?
Thanks for the advice!
Megan
@megan Phillips
Feel free to give me a shout if you want to discuss the St Albans market more. I have a duplex on the corner of Lincoln/Bishop right above the park (owner occupied) and another a few houses north on Lincoln St.
We also looked into the FHA program as the owner occupied duplex was my first multi family purchase. I chose to go with the NEFCU arm loan instead which only required 5% down with no hoops to jump through. I can put you in touch with my loan officer there, if you have any interest-he's fantastic.
I've looked into Enosburg as well due to the low purchase price. My fear in that market is demand for housing and finding qualified tenants as there is not an overwhelming amount of employers in the area. We might venture into that market at some point but right now we are sticking to investing in St Albans. Anyway, I'm available on here or I'm always down for a pint at 14th Star to talk shop!
Sigh. So an update - the owner of the Enosburg property isn't willing to wait until my scheduled second visit on Thursday to lease the third unit of the property, therefore, won't let me buy it as owner occupied unless I put in an offer by 5pm Monday (was informed of this while out of state Saturday afternoon) -- I'm not sure why the brand new lease wouldn't allow for month to month renting because the outs on the market already but apparently they don't care. @Amy Paradis, I would LOVE to meet an discuss St. A properties!
Any advice on this situation?