All Forum Posts by: Alexa K.

Bottom line is I'm trying to see if this is a horrible idea, or perhaps I'm overthinking things. I live and invest primarily in the rust belt.

I have a rental that is currently being rehabbed. Property across the street recently popped up for sale, and so I immediately put in an offer because (1) close proximity to an existing property, and (2) the numbers made sense. The property is very, very nice and belonged to an elderly gentlemen who kept up the place, but does have two major items that will need addressed in the near future: Roof replacement within the next 5 or so years, and a new AC condenser by Spring 2023. Based on my contractor estimates, I'm roughly looking at around $6.5k The property is already rent ready, save for a couple minor things (new man door on the garage, snake some drains, etc).

I own a handful of properties but am not an expert when it comes to giving information, but here are the numbers I'm working with:

Purchase Price: $55,000
Cash In: $12,000 (15% down payment + minor rent ready repairs + misc.)
Rent: $800-900/month
Expenses: $538/month (PITI + $120 set aside for maintenance, vacancies, etc.)
Net Cash Flow: $262-$362/mo. (26-36% CoC Return)

The cons that I'm hung up on are (1) that the home is certainly not being purchased at 75% ARV or anything like that, but then again the house itself save for the two items I mentioned are in great condition; (2) comps in this particular neighborhood are nearly impossible to place... a few years ago these houses sold for $4,000-7,000 each, but the real estate boom has certainly brought some change. It's a decent neighborhood close to main roads and shops that's been improving year over year, which is nice, however I feel kinda dumb buying such a (previously cheap) house for $55k. Also, (3) Properties around here aren't known to appreciate well... but that's part of living and investing in the rust belt, baby.

The pros that I'm considering are (1) regarding comps, to be fair, others in the area have been purchasing up properties in the neighborhood for anywhere from 50k-65k, many of which aren't as nice as the one in question. (2) I plan on holding onto this property for at least 15+ years, and I don't expect it to necessarily LOSE any appreciation, so appreciation isn't the biggest deal, and I imagine at the very least I should be able to recoup my original investment several times over. It's more likely that it will continue to increase, but I like to assume the absolute worst.

So, with all that said... does this sound like an absolutely asinine deal? Or am I just overthinking things? I'm not used to NOT using the BRRRR method, but I also feel like turning my nose up at a 26-36% CoC Return sounds crazy (although there are those two major items of repair).

Also, I know that $262-$362/mo. in net cash flow might not be a lot to many, especially west coast folks, but to help paint a picture of my current situation: My own monthly expenses are only $750/mo (PITI, utilities, phone/cable), so $262/mo. is almost 1/3 of my monthly living expenses.

EDIT: I updated the numbers because I realized I was using old info.

Every long-term stay I've booked for FL (about 10) I've absolutely refused to even consider booking a place that doesn't have a pool. Hell, even when I lived in FL, I wouldn't rent a place that didn't have a pool.

The only real answer is to sell at a price that others are willing to quickly purchase. This might mean you take a loss.

Youngstown is already oversaturated with landlords.

Youngstown is becoming far too saturated with out-of-state investors causing massive increases in rent, imo. They see low prices for houses listed on the MLS or from wholesalers off-market, don't realize they're actually over-paying, and then in turn have to charge higher rents to make up for the cost of their investments. People are really struggling to afford to live here now in many neighborhoods, even ones that not even local residents would ever touch with a 50ft pole if they could avoid it. So, be extra careful what you pay for in Youngstown in this day and age. Just my two cents.

I used a HELOC to fund two all cash SFH purchases, and a 0% interest credit card to fund updates and repairs. Refinanced the properties 6 months later and was able to pay off the full amount of the HELOC and credit card, so in the end I got two properties basically for "free." Feels scary when dealing with big numbers, but totally doable, especially if you're cautious and run your numbers extra conservative to be on the safe side.

I'm in favor of this, actually. I think the fees charged are absolutely insane, though. Lower the fees, add in perhaps a "first offender get-out-of-jail-free" card for landlords who honestly didn't know any better, and keep the practice as far as I'm concerned. If you're going to enter the landlord game, then learn the rules and learn to play by them.

In response to the original post, I'm a part of the <$30k club. 

I've spent my life split between a LCOL and H(ish)COL area, and decided to invest in the LCOL area because of the accessibility. I'm comfortable in both areas. I was able to purchase the home and complete necessary cosmetic repairs with no money down (personal loan), and eventually refinanced it into conventional loan. 

The home is older, but is otherwise in great condition. The tenants love it, which is nice -- I never have a problem with them. They had some minor requests (like updating a shower fixture and installing a side porch light) which I am planning on getting taken care of ASAP when the weather warms. I do expect to need to replace the HWT and furnace within the next few years, but that is an expense that I am prepared for with money allocated toward maintenance from rent. Roof and vinyl siding are newer. I'm thankful to have decent connections that will save me a lot of money for repairs if need be.

I live within the neighborhood that I invest in, so I believe that I definitely have a leg up over OOS investors. I also do not look at managing my rental as a "job" as I truly do enjoy it. PITI + maintenance run me $330/mo. The rest is profit.

There are many OOS investors in my area and it's upsetting, not because they purchase up the properties, but because they do not take care of them and let taxes go delinquent. Many of them are from California, I've noticed. 

Eventually I'm sure it'd be nice to purchase 3 or 4 multi-families in areas that are more "in demand," but for now, I am very comfortable and content in my area.

It's all about what you can handle.

EDIT: I'd also like to add that I feel much more comfortable in these types of areas because of gentrification. I am not a fan of it, and do not wish to partake in anything that pushes "poor" people out of the communities. I feel better providing safe, comfortable homes comparable to ones in the neighborhood so I don't need to jack up rents and the like.

Not sure if it helps, as I'm in the Youngstown area, but I found insurance through Foremost for a pretty good price. Home cost me $18.5k, policy is for 52k, and the premium is $510/year. They can also have multiple homes under a single policy, keeping the cost low. When I was planning on adding a second home to the policy, the premium only jumped to $570, so that was nice to know in advance. Not really sure if that's standard for landlord policies, but working for a top 3 insurance company myself, I've never seen that, ever. It's a subsidiary of Farmers insurance, not sure on the reviews for them, but they gave me what I was looking for so I can't complain. 

I've had to deal with a similar issue in Ohio on a family-owned rental property. The water bill follows the property where I live, and not the person, so utilities can be in the tenants name but if they rack up a bill and don't pay, it ultimately falls back on the landlord -- granted, if the tenant then tries to get water anywhere else in the town, they first have to pay back the landlord, according to the water department, but I'd rather not rely on that. My mother (who owned the property) would stipulate in the lease, and make it clear to the tenant, that the water bill can stay in the landlord's name to avoid the $85~ service fee for turning utilities on if the tenant so wished, but also that the landlord had the right to turn off the water if bill went unpaid for a certain number of days until it's paid, regardless of whose name the water bill is in. Not sure how kosher the practice is, but it's worked well so far. It'd be nice if the water bill actually followed the tenant and not the property!