Has housing mania hit your market?

[Chris Kane]

I recently lost out on a duplex in an up and coming area of town that had 8 offers, including mine, the first day it hit the market. The duplex is located right next to one of my other properties so I have been sending the owner direct mail over the course of the past few years that I want to purchase his property but did not have any luck. When he listed his property on the MLS I jumped at the chance to buy it. The numbers on the duplex are flat out terrible which blew my mind that there are so many investors chasing this deal. Here is how bad they are.

Final selling price $357,000 cash which was $18k over asking and $95,000 more than what the seller paid for the property in 2014 and he made zero improvements to the property.

Rent: $1000 for one side and $1125 for the other with nine months left until each lease expires. After which, market rent per unit would be $1300.

On top of the low rents the landlord paid for electricity and gas for one of the units (no clue why he would do that since each unit is metered separate) plus took care of all the lawn mowing and yard care for both sides. 

Taxes were really high too at $5300/year. 

These numbers were so incredibly bad I couldn't believe that so many people chased this deal! I find it hard to believe that this duplex will be worth another $100k more in 2-3 years. Has the speculation mania hit your market? If so what are you seeing?

[Michael Swan]

Hi @Chris Kane, @Ray Lai, and @Sam Dogen,

Why are you still looking in pricey California for investments? I am selling my last rental condo in San Diego that I have left. In the last year, I have sold 9 rental condos I purchased originally in 2011-2012 for double the purchase price. I have used the power of the 1031 exchange to purchase 6 apartment complexes is Ohio. My cash flow has risen from $48,000.00 a year to $120,000 a year. Plus, I am no longer at the mercy of comps and am in the process of increasing that cash flow by about another $50,000-$60,000 in the next 6-12 months. At the same time increasing NOI, which increases the value of these apartment complexes exponentially too!! The beauty of moving to a strong cash flowing apartment complex business model is that I am no longer at the mercy of comps on my way from my current 86 front doors to my projected 125-130 front doors likely by October, November, or December. Long term goal $750,000-$1,000,000 in cash flow per year. Plus, $50,000,000 in total RE and $15,000,000 in net worth and approximately 1000 front doors.

 In 2011, buying single family condos in Santee and Lakeside were cash cows for me and appreciation happened wildly and I knew that the party couldn't last forever and started to sell and 1031 exchange in May of 2015, all of 2016 and I will 1031 my last rental condo next month.  I purchased it in the summer of 2011 for $116,000 and am selling for at least $270,000.  That money will 1031 for a 20 unit or greater that will cash flow at least $20,000-$30,000 per year for at least the next 4-5 years.  To think, that little 2br 1ba condo in Santee was getting us only $5,000 a year cash flow.  The kicker is we only invested $34,000 in a down payment and about 10,000 in fix up and repairs since August of 2011.

The key is to do a calculation of your return on equity and get that equity out to earn more cash flow and build your RE empire!!  I have said this before, but if a lowly paid school teacher can have 5.5 million in RE and 2.5 million in net worth after 6 years of investing, anyone can!!

Swanny