First Post! NE Portland Deal - cash flow or appreciation?

Question

Hello BPers -

This is my first post on the forums so a thousand humble apologies if I commit an unspoken faux pas like forget to complement Brandon's beard.

I've been interested in REI for a while but only recently decided to start acting on my intrigue and actually look into what it takes to make money in real estate, that's when I discovered bigger pockets. I know there is so much I don't know so I'm looking to you guys to point out my blind spots and help me see what I'm not seeing. So anyways, here's the deal:

Zillow listing

The House:

1911 3 bed 1 bath bungalow in NE Portland, lots of curb appeal. 1100sq ft. including partial basement (AKA mouse house). Potential to add a second bath in the basement to make the basement room more of a separate unit. 5 blocks from the heart of Alberta, one of the more up-and-coming areas in Portland (7% appreciation).

Here are the numbers:

Listing Price: $350,000

Offer Price: $300,000

Rehab (including basement bath addition): $15,000

ARV: $370,000

Assumptions made based on cash offer @ $300,000 and re-fi at 6 mo.

• Gross Income @ $2100/month (5% vacancy deducted): $23,940
• Expenses: $5,834 (including $3000 for maintenance & repair)
• Cap Rate: 5.82%
• Cash flow @ 4.11% 30 year term 20% down: $4,646

This is obviously not a cash cow but I feel the neighborhood justifies the low initial cashflow since appreciation is skyrocketing.

What are your thoughts? Am I relying too much on appreciation to make this a good deal?

Jeff Stephens · Answer

Hi @Caleb Webster, good to meet you. I'm in NE Portland, and replying to you from just about a mile from this property. The first property I ever bought was straight down Holman at 28th (and I still own it and rent it)!  I am constantly working this neighborhood, and have a pretty good feel for it. Here are a few thoughts:

• Generally speaking, it's going to be very difficult to make any MLS-listed properties in NE Portland work well from a cash flow perspective...unless you significantly change the picture of the property (make it something different than it is now).  Adding a bathroom could do that somewhat, but probably not enough to really change the income stream.
• Personally I wouldn't consider this Alberta Arts; I'd consider it Concordia, edging toward Woodlawn.  Not to split hairs because those are all good neighborhoods, but if it was 8 blocks south it would be a different story.
• From my experience with our current market, it may be unlikely to get the sellers to accept a $300k cash offer. Sellers in this part of town are fairly optimistic and I would be surprised to see them go for that.  You won't know if you don't try, though!
• All in all, it seems like you could make it work, but it feels to me like a "single" (baseball metaphor). I'd encourage you to spend some time and energy doing some off-market marketing and see if you can create a deal where there is more room to add some value.

Good luck!

David Clinton III · Answer

@Caleb Webster, I don't know about your market there, but you mention "driving, mailing or the right contacts".  Driving and Mailing can take a lot of time, but can yield great deals.  If marketing for your own deals isn't your game, buying from wholesalers can be great.

I have spent a lot of time and money marketing for deals that I have flipped, held, and wholesaled out.  I would say, though, that in my 4 years, the most and best deals I have gotten have come from my network.  It is definitely worth your time to make contacts and relationships via BP, local REI's, etc.  Keep in touch with wholesalers, lenders, other investors, and things will begin to come together.

Corby Goade · Answer

Hey Caleb- welcome! Alberta is one of my favorite areas in PDX. I do not go to Portland without getting a dozen donuts from Tonalli's and some blueberry cornmeal cakes at Pine State, but I digress...

No one here can tell you if that is a good deal or not- you have to decide what buying criteria work for your personal situation and act on that. If you have buying criteria and share it, we can help you analyze the deal for sure. From what you have listed here, I would approach the deal like this: After six months and your rehab, you'll be about $315k in to this property, correct? That would make the 75% of LTV on your cash out around $277k, which means you'd be leaving something in the range of $40k in the house.

Now, after your cash out, what would your cash flow look like? $277k at 5.25% would be around $1500 a month, not including escrow, vacancy, capex, etc. That would make it pretty tight with rents at $2100, but you mentioned that this is an appreciation play for you, so maybe you don't care about cash flow- that's for you to decide. In any occasion, best of luck!

Caleb Webster · Answer

@Tara Ballenger Sorry for the terribly late response! I didn't end up making an offer. In fact, I've pretty much given up on finding a buy and hold property that cashflows in the Portland area. I've transitioned my strategy to looking for flips in this area while buy cashflowing properties in the Memphis area.

Megan S. · Answer

Hi @Caleb Webster and @J Warrens!

I own a property in NE, too, near 12th and Ainsworth (though I'm doing some long-term traveling with my partner and reside in Brooklyn at the moment)! I actually drove by the house you mentioned in your post during a recent visit to Portland because I, too, was interested in it!

I agree with J that I'd be surprised if they accepted an offer $50k below asking, even if it's all cash. But who knows? I also agree that when I look in Portland (via Redfin), I always ask myself if I could add another rentable unit to make it cashflow better. (Did you see this one pop up this weekend? It's being sold by a friend of a friend and I wonder about that garage and how much work it would take to turn it into an ADU - https://www.redfin.com/OR/Portland/6125-NE-Beech-S...)

I bought in 2013 at near-market price (I found my house through a friend, and negotiated a slightly discounted price because I didn't use a realtor). I lived in my home for 3 years until we started traveling, and have been renting it since early 2016.

I'm also new to REI and am looking for a second property, in Portland or elsewhere (I've been looking at places in upstate NY while I'm over on this side of the country).

Just wanted to say hello, and Caleb - if you have any questions I can answer or if you ever want to talk through anything (even though I'm quite the newbie myself), hit me up! Happy hunting!

Jeff Stephens · Answer

@Caleb Webster Thanks for your response! Yes, I'd love to grab a beer or coffee soon and talk shop further.  PM me and we can find a time and place!

If you decide you want to explore Spokane, I've got a real estate contact there and would be happy to introduce you.

One assumption I will challenge you on (in an encouraging way!) is that mailing, driving, etc are only for wholesalers. I disagree; I believe those are the strategies of committed real estate entrepreneurs, whether they wholesale or not. I'm a buy and hold investor, and every single deal I buy is from those off-market strategies. I only occasionally wholesale deals, and I consider wholesale opportunities to simply be the by-product of being good at finding off-market leads for my own portfolio.

Lane Kawaoka · Answer

@Caleb Webster I stated buying turnkeys in indy, birmingham, and atlanta but now doing value add in tx, ok, LA.

Corby Goade · Answer

Hi @Caleb Webster, I don't use cap rates since I only invest in residential real estate. There are deals here to be had, depending on what your goals are. In Boise, it's tough, but possible to cash flow a rental. However, in some of the surrounding areas you can still find 1% deals, especially if you BRRRR. Let me know if I can help you explore the market at all. Best of luck!

Caleb Webster · Answer

@Corby Goade No I haven't, I'll check it out! What cap rates are you seeing on average?

Corby Goade · Answer

@Caleb Webster- have you looked at the Boise area? It's not too far from you, fastest growing metro area in the country right now. Things here cash flow a bit better than in Portland and appreciation has been good.

First Post! NE Portland Deal - cash flow or appreciation?

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