Hampton Roads Investors! What is your objective ROI?

Question

Hello everyone. As a new investor I have been calculating offers based off of the 70% rule for flipping and a 1.5% cash over cash for buy and hold. However, I am finding that I am being consistently outbid. Are investors in the Hampton Roads area operating on a smaller objective ROI?

Patti Robertson · Answer

The 60-70% model is generally use for buying flips, not rentals.  These days most people have converted to a minimum profit formula for a flip because the market has gotten so tight.  Unless you are spending significant time and/or money drumming up your own leads the old formula is just not going to work right now.  For rentals most people who are getting mortgages are using a cashflow multiple - minimum monthly cashflow and people who are buying with cash (and there are alot of them) are using a total investment to rent ratio.  Anyone using 30 year mortgages and still cashflow a little, but it is really hard to almost impossible to buy something with equity - unless you are drumming up your own leads.  It's gotten near impossible to even meet the 1% rule, which we use to do way better than in Hampton Roads.  Personally, I've just slowed down my buys.  We do have two rentals under contract right now, but they were off market and I paid more than I ever have, although I am buying with equity and am under the 1% rule.  Be careful out there. I started investing in 2007 and two years later the majority of the investors who were in the market with me when I started were no where to be found.  Don't over leverage and put your financial health at risk just to buy a property.

Kristopher Kyzar · Answer

@Hannah Brown your best option is to network with other investors (potentially JV) and find agents that specialize in working with investors. The deals are out there, but the move quickly. Whatever you do, don’t compromise your goals to make a purchase work. Last year, I flipped 2, wholesaled 1 and bought 1 rental in Hampton Roads, but I sourced the leads myself.

G. Emerson Zollos · Answer

@Hannah Brown

The 1% or 1.5 or 2% rule isnt really a thing tbh. . . Even as a general principal it is pretty useless imho. The MLS in Hampton Roads is very competitive, however if you are in the market for a buy and hold its not too hard to find 10-12% ROI, also there are a number of excellent areas for appreciation including bayview, south norfolk, and buckroe beach.

The increase in housing prices skews numbers but it also means there is a huge oppurtunity coming for investors. The gentrification of lower class neighborhoods will likely accelerate as you average buyer can no longer afford the “middle class” ones. This means that the appreciation over the next few years in these neighborhoods will way outpace even the impressive numbers of the past few years

Its a tough market and dont over leverage but there really is significant money to be made

Ika Sargeant · Answer

@Hannah Brown I agree with Russell. Those who are buying primary homes are likely not pricing the home the same way you are. Most look at the home and decide we need it and them just pay the asking price or more. But investors might be calculating that the cash flow would be better in 3 or 5 years. Honestly very little is making sense right now.

Kevin Minchin · Answer

@Hannah Brown I have been looking for over a year for a suitable investment property and the numbers just don't add up in Virginia Beach or Chesapeake.  Constantly outbid or negative cash flow.  Using MLS and just not getting anywhere.

Russell Beach · Answer

Agree with all of the above.  Currently, just too little inventory and super low interest rates mean investors are fighting against each other AND many actual home buyers looking for permanent housing.  I've been trying to target at least 10% cash-on-cash, and it's nearly impossible going with MLS listings.   Many of my targets have gone under contract within 48 hours and at above list price (and not attractively cash flowing).   I'm still looking actively, but I'm also now shifting to STR in different areas as well as piling up cash for when inventory swings the other way.   I'd rather stay patient than overpay and destroy cash returns.   This won't last forever.   Good luck!

Alan Robert Litz · Answer

Are you searching for properties on the MLS? If so you are probably getting beat out by people actually looking to get into a home and investors that are willing to take less. There is such low inventory it is crazy competitive meaning yes people are buying at lower margins.

Louis Walker · Answer

Seeing how this was three months ago, are there any differing opinions about this now?

Andrew Leedom · Answer

@Hannah Brown depending on which city and area you are looking for, in the Hampton roads area, it is pretty good if you can find a property that meets the 1% rule.

Anthony Vann · Answer

I've only been investing for 3 or 4 years but I am amazed at what people are paying for houses. Not investors but the end buyer. Keep looking, keep learning, keep networking, and eventually it will pay off. I just closed on a deal from a wholesaler last week. I'm not even sure when I met him. Its going to cash flow very well when the reno is done. Deals are still out there just much harder to find.

Hampton Roads Investors! What is your objective ROI?

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