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Updated about 9 years ago,
Buy local or Turnkey
Okay BPers....I need some input.
First - a quick intro. I am new to REI and this will be my first investment. I will be making these purchases through my Solo 401k so the usual tax benefits don't apply and my up front cash requirements will be higher than a traditional, non-qualified purchase.
I live in the Raleigh, NC area and have spent the past two months analyzing more deals than I can remember. I have looked at numerous SFH opportunities locally and have yet to find anything that offers the ROI I require to support the cash investment (especially considering the fact that I have to discount any depreciation or tax benefits).
Here is my current situation:
Behind Door # 1 is a local Triplex with the following stats:
Purchase price $215K
Improvements $15K
Total rents (after improvements) $2475/mo
GRM 94.1
Cap Rate 7.5%
ROI w/o appreciation 11.84%
Cash on Cash 9.5%
Behind Door # 2 are 3 SFH located in Memphis, TN through a turnkey service:
Total Purchase price $249K
Improvements $0 (all improvements are part of the turkey service)
Total rents $2800
GRM 88.8
Cap Rate 8%
ROI w/o appreciation 13%
Cash on Cash 10.5%
I know all the math nerds are going to ask specifics about expense assumptions. Being a math nerd myself, I have a detailed spread sheet that I am pretty confident captures all of the details, which is how I developed the high level results above.
On the triplex I feel like the positives are the fact that it is local. I have driven the neighborhood and the person advising me on the purchase manages multiple MFH's in that area and has been investing locally for 20+ years. The cons for me are having all of my eggs in one basket (building) and the fact the MFH's don't appreciate as quickly as SFH.
For the Memphis properties I think the positives are a reputable company managing the rehabs and property mgmt (I have gotten references and confirmed). The obvious downside is the fact that I have never set foot in Memphis and don't know that market.
I would really appreciate some input/advice on this one. Cash on Cash return is VERY important to me since there are retirement funds I need the money to GROW. Otherwise I can just throw the money into a SPDR fund and forget about it. I would especially like @Brandon Turnerto weigh in (although I'm pretty sure I know what his response will be).
Thanks!
John