Should you buy A properties in A neighbourhoods...

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Should you buy A properties in A neighbourhoods...

Jamie Montpellier
Investor · Aurora, Ontario · Member since 2014 · 48 posts · 2 votes

Dear BP members,

Here's the thing, we constantly hear about buying value right from the get-go and so I wish to know if buying turnkey properties in A neighbourhoods is a no-no because the value is already priced in...

Or should we be bargain hunting and looking for :

B type property in A type neighbourhood

C type property in B type neighbourhood

What do you think?

Jamie

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Terry HershbergerPro Member
Investor · Nipomo, CA · Member since 2011 · 227 posts · 76 votes
12y

@Jamie Montpellier  I own all three. All will work depending on your goals. You should really be looking for deals. You make money when you BUY! So if you buy right, you will make money. Also if it's a buy and hold long term property, you will want to make sure it will cash flow. I generally like to get at least 25% Return on my cash in from the cash flow. Hope this helps you.

Happy Investing!

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  • Terry HershbergerPro Member
    Investor · Nipomo, CA · Member since 2011 · 227 posts · 76 votes
    12y

    @Jamie Montpellier  I own all three. All will work depending on your goals. You should really be looking for deals. You make money when you BUY! So if you buy right, you will make money. Also if it's a buy and hold long term property, you will want to make sure it will cash flow. I generally like to get at least 25% Return on my cash in from the cash flow. Hope this helps you.

    Happy Investing!

    4Reply
  • Jamie Montpellier
    OP
    Investor · Aurora, Ontario · Member since 2014 · 48 posts · 2 votes
    12y

    @Terry Hershberger 

    Well from the numbers I'm looking at the COC% is near a little over 21% that's considering a 7% vacancy rate and 7% maintenance based on rent. Do you use a higher percentage when running your numbers for cashflow numbers?

    0Reply
  • Terry HershbergerPro Member
    Investor · Nipomo, CA · Member since 2011 · 227 posts · 76 votes
    12y

    @Jamie Montpellier 

    No, you are in the ballpark. Some use 10% for both. For me, it varies depending on the type of home construction and age of home. 

    Happy Investing!

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Jamie Montpellier   prime A can run lower than those numbers.. I have 11 what I call A's and they are always full so I have no vacancy factor.. maintenance costs 2 to 3% and that is just filters ... but these homes I brought brand new 5 and 6 years ago.. same cannot be said for used homes generally

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    0Reply
  • James Park
    Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
    12y
    Jamie,
    Everyone has their own real estate portfolio goals and you have to figure out what strategy works best for you.

    Currently, I have one B type SFR property in a C type neighborhood
    one B type SFR property in a B neighborhood, and I have
    5 A type SFR properties in an A neighborhood where the schools are all rated 10/10/10 and were all acquired brand new in the last 5 years. 

    When the opportunity arises I plan to trade up my 2 C and B SFRs for two more A SFRs. My goal is to own 10 A type SFRs free and clear. I find that the management of my A SFRs are truly passive and easy to manage and attracts 700 credit / 100k+ income tenants who pay rent before the 1st of the month, takes great care of your property, calls you perhaps 2-4 times a year. These A type assets seem to appreciate much faster than my B and C type assets and it is not uncommon to see multiple applications arrive at your email within the 1st week of listing the home for rent.

    For my buy and hold I like to buy A type assets from motivated sellers at a 10-20% discount less than 10 years old.

    For fix and flip, my criteria is look for homes built in the 1990s in the A type neighborhood where I know homes in the neighborhood will turn quickly.

    James
      

    Originally posted by @Jamie Montpellier:

    Dear BP members,

    Here's the thing, we constantly hear about buying value right from the get-go and so I wish to know if buying turnkey properties in A neighbourhoods is a no-no because the value is already priced in...

    Or should we be bargain hunting and looking for :

    B type property in A type neighbourhood

    C type property in B type neighbourhood

    What do you think?

    Jamie

    2Reply
  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    12y

    @Jamie Montpellier You should buy in a B or C neighborhood that is on its way to the next higher letter. The house doesn't matter so much because in a good area the value is in the land.

    Are you looking to just park money then buy A properties and forget them for a lot of years. If the economy survives the long haul then inflation will have been present and you should gain in both rents and value.

    If you can't afford A properties then don't buy them. If financed they could eat you alive for possibly longer than you can take.

    1Reply
  • Engelo RumoraBusiness Member
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    12y
    Originally posted by @Jamie Montpellier:

    Dear BP members,

    Here's the thing, we constantly hear about buying value right from the get-go and so I wish to know if buying turnkey properties in A neighbourhoods is a no-no because the value is already priced in...

    Or should we be bargain hunting and looking for :

    B type property in A type neighbourhood

    C type property in B type neighbourhood

    What do you think?

    Jamie

     Hi Jamie,

    Solid B class is the way to go in my opinion.

    Please see link to a recent blog I write for BP in asset classes.

    http://www.biggerpockets.com/renewsblog/2014/06/28/abcs-real-estate-asset-classes/

    Thanks and I hope you find it useful.

    Have a great day.

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    1Reply
  • Joey Budka
    Real Estate Investor · Santa Cruz, CA · Member since 2009 · 267 posts · 73 votes
    12y
    It is a No-No. Never buy retail priced investments.
    1Reply
  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    12y

    Our entire business model is buying class A- properties in A+ neighborhoods. We have bought them undervalue using short sales or foreclosures. They allow us to manage ourselves long distance do to the clientele. We have had no vacancy costs, since we usually have multiple strong applicants per house. 

    1Reply
  • Pete T.
    Real estate investor · Las Vegas · Member since 2013 · 798 posts · 171 votes
    12y

    I agree w/ the comments above about the benefits of A properties being generally better than the paper advantages of lower classes, however, at least where I am at and what I would consider A neighborhoods, no one would be able to CF or find an investment.

    1Reply
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