Averaging $500/door, scale up for lower margins or stay course

[Jason Woodson]

Hey BP Community,

I'm finishing up a rehab on a duplex and have another under contract.  So far things have been going well; these are my second and third properties, and my primary residence is also a duplex.  I believe I've discovered a profitable niche in my market (mid-range units outside of high density areas) and combined these units will average $500/door cash flow (this would also hold try if I rented out my unit in the owner occupied duplex).  I would love to hear others thoughts on whether I should focus on this highly profitable market for a bit longer, or look to scale into a higher number of units/property for lower returns.  The problem is that I live in a small college town in NH that has very limited inventory.

Thanks All!! :)

Jason

[Ann Bellamy]

@Jason Woodson, if you haven't included CapEx, Maintenance, or vacancy, then you are not really getting $500 per door. Because these will happen. I've had NH rentals since 1996, and looked at over the long term, the picture is quite different from what it may be when you first acquire them.

Now, to your question.  I'd stay in Keene and not go for the lower return in more remote areas.  For several reasons:

1. The further out, the harder to manage
2. The further out, the harder to get (and keep) good tenants
3. When the economy is strong, people are forced further out into the more remote areas, which is fine while they still have jobs.  when the economy contracts, there are more vacancies, and people gravitate closer in.  So the remote areas are the hardest hit.  While Keene is hardly a large metropolis, it is the most populated area in western NH and the hub of that part of the state, so the same holds.  IMHO

I'd keep acquiring quality properties, while keeping a significant cash reserve for contingencies.