1 property for 120k all-in. What's the best ROI you can expect?

Question

Hi guys,

Sorry this is essentially the same question I asked in another thread yesterday, but I think my title was dumb and unclear. So I am trying again...

Hypothetically you have a construction loan allowing you to purchase and rehab one property all-in at 120k, what is the best rent/return you can expect in your market for a B neighborhood or C+ neighborhood that's transitioning. You can reduce that all-in number to as low as 80k, I'd just like to find the best % ROI for this price range.

Happy to hear about anywhere (since this is hypothetical after all ;)) but for my purposes I'll really only be considering Houston, Dallas, Chicago, Atlanta, Jacksonville, Orlando, Tampa, South Florida.

TIA!

Meghan McCallum · Answer

MAX! INFINITE!!! The answer is INFINITE.

If you do the BRRRR method that is so often talked about here anything is possible.

Considering Chicago, you won't find anything for $120k all in in a B class neighborhood. But, if you aim for your ROI to be infinite...if you fail...there's nothing wrong w 20% right?

I have done deals successfully at an infinite return. You ARE looking a large cities that there is a TON of competition in right now and we are just kick starting buyer's retail sales season.

Look in your backyard to start...just my two cents...

Maxwell Lee · Answer

Inevitably, few people want to just answer a question and instead will inject their own spin on what they think you need to hear. Lol...I just want straight answers and I never know whether to include more or less info. In any case, I may be guilty of it as well whenever I answer someone's questions.

@Meghan McCallum I agree with almost all of what you say, except that I am fine with hot markets and finding the transitioning neighborhoods. Going into smaller cities and towns is slightly worrisome for me, although I admit I've considered Chattanooga, Fort Wayne and similar markets in the past.

@Ethan Atkinson Thanks for sharing, Ethan. I have been watching Decatur, College Park and West End quite a bit. My question was for rentals, but nevertheless nice to hear your thoughts on the flip market there.

@Frank Sanchez Thanks for your reply. You're jumping to some conclusions, but yes, of course I will do my own research. I just like to hear other folks' opinions. As for the cities I'm focusing on in my question, I already invest in three of those markets (and two markets not listed there) so I do have some idea of what I'm jumping into. I selected those cities because I know enough people to get a team up and running relatively quickly and I have a relative who specifically underwrites in those states and has a program for me to do deals there.

Tyler Ansell · Answer

You could easily pick up a $120k house in parts of Tampa that would rent in the $1100-1400 range with builders grade rehab.

Jeff B. · Answer

IMO, it's too easy to get OCD on the CoC number.  I always have focused on the actual NOI and asked, "will I be happy seeing that in my bank account?"

Actual dollars changes the perspective :)

Frank S. · Answer

@Maxwell Lee , Alright, point taken and good luck.  Chicago is very segregated, is a mix of everything you can possibly imagine.

Frank S. · Answer

You need to do your own research.

First part

Hypothetically you have a construction loan allowing you to purchase and rehab one property all-in at 120k, what is the best rent/return you can expect in your market for a B neighborhood or C+ neighborhood that's transitioning. You can reduce that all-in number to as low as 80k, I'd just like to find the best % ROI for this price range.

In Chicago, you will be at CAP 8, maybe CAP 12 with non conforming units at C- ( not C+).  Your price for MF is more like $140K at C- for 2 flat 2/1s.

You can't buy anything good at B areas for $120.  B areas MF are $350K and up, cap 4 or cap 6 if you are lucky. Otherwise, no cash flow.

Second Part

I'll really only be considering Houston, Dallas, Chicago, Atlanta, Jacksonville, Orlando, Tampa, South Florida.

Dude, how many miles are in between those cities?

It shows you haven't done your research. Keep it up, it's hard work, but do your own due diligence.

Ethan Atkinson · Answer

Inside Atlanta, GA you can find quite a few good deals for $50-$100k and add value with a remodel and turn around and sell it for some big profits if you are in the right transitioning neighborhoods. Some areas have gone up as much as 20-30% in just 2 years or less.  Of course everyone and there brother is looking for deals like this so there is more competition but if you connect with some local good wholesalers that actually know their numbers, and also an agent who knows the markets really well then you can mitigate your risk. Check out College Park, East Atlanta, Decatur, West End.  All are basically Atlanta.  Seems there are plenty of deals for $50-$60 that need 25-30 but can sell for $140k or more.  Then there are also those deals on one street over where the market wont pay more than $75 or $80 even if it's all brand new.

Charles Doehler · Answer

Ok, this is my wheelhouse.  When trying to "normalize" roi between renting and flipping the future value of money comes into play.  Since it is impossible to know until the future it lacks some credibility in the case of renting.  But, when you need to know to make the choice you can make some assumptions  that you can evaluate as you go.  The reason you can is because you can change your decision to rent and sell.

As you gain experience, you need to include another factor hard to value up front.  I call it the "emotional investment" of renting or flipping.  This factor is affected by decisions like using other's money, being a landlord issues, debt ratios and the like.  The "what if" choices can also affect your emotion status if you are in high risk situations.  What ifs are related to your involvement and creativity.

I know many of the contributors here know what I'm adding but dismiss these as the assumptions of the game.  Those who invest without considering the emotional investment and what-ifs usually add them into round two or three of their portfolios.  Get involved to help others.  It's the best.

Meghan McCallum · Answer

@Maxwell Lee if you don't have a team already in a specific market then its best to start in your backyard. Where I am currently, I can only buy properties where I get $1000/m income for every $70k spent all in. I think its silly to be anywhere else. My suggestion to you that I have shared to many others is partner with someone in one of those markets to be your boots on the ground partner in exchange for some equity (15%-20% depending on the value) and have them assist you in finding those purchases. The equity you give up makes them find value in your personal success. Plus, it will likely lead to them constantly bringing you opportunities to partner with other properties in the future.

Where to look are places that aren't hot. Smaller midwest towns with steady jobs, near transportation, in blue collar areas that a re B/C+ properties.

Maxwell Lee · Answer

@Meghan McCallum Fair enough. BRRRR is part of my strategy. But I'm trying to find the market that will consistently give me the highest rents in decent neighborhoods for around 120k all-in. That is the question.

@Mark Allen Thank you for the simple answer. That's the impression I've had for Dallas so probably no reason for me to invest long distance there since I'm looking for cash flow first.

@John Thedford Thanks for your reply. Yes I know it will vary widely I'm just wondering who is finding consistent numbers at 120k all-in and $1500+ rents. I can consistently do ~$80k with $1000+ rents but I'd like to move up a class slightly as I have a lender looking to loan to me in that range. Thanks!

@Michael Haynes Thanks again for your interesting answer. :)

1 property for 120k all-in. What's the best ROI you can expect?

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