All Forum Posts by: Ron Averill

@Aaron Horn I like your plan. You are wise to take some time to learn before jumping in, though you might find that two years is a bit long. If you read diligently, study your market and talk to lots of people along the way, you will climb the learning curve rapidly. Learning about your market as you go will help to frame your thinking as you read and plan.

Things to ask your realtor:

1. What neighborhoods are in high demand by renters, both now and in the future?

2. What areas have the best schools, lowest crime rates, highest appreciation rates, etc.? The answers to these questions will probably match up with the answer to the first question. 

3. What sort of properties and amenities do renters prefer?

4. What is the current cap rate in the area and what direction is it moving? This is needed to analyze deals. 

I'm sure there a hundred other questions, but these are the first ones that come to mind. 

Good luck!

If you expect a really strong appreciation rate over the next few years, then I might refinance to a 30 year note and hold the property. Otherwise, I would sell the property and invest the proceeds into cash flowing properties.

@Brandon Thomas Having cash reserves is way more important than avoiding a $300 per month utility bill. Keep at least 6 months PITI plus some extra for capex in a bank account, and sleep better at night. Use what's leftover toward your next property.

If these are indeed student rentals, I would recommend a sandless finish process. It is approximately $1.00-$1.50 per square foot. The results are not as nice as sanding and refinishing, but the final look is more than sufficient for student rentals. Besides, I like wood floors with a little bit of personality.

I used this process recently on a student rental after taking up the carpet, and I was pleased with the look and the price. I will eventually sand and refinish the floors, but now I can postpone that for a while.

@Keith A.   As noted by @Jim Robertson, maintenance and management are generally lower when you have fewer units at a higher rent level versus more units at a lower rent level. So, everything else being equal, I would go for fewer units. 

The key bragging metric should be cash in your pocket, not number of units. I don't suggest bragging about either, though.

The searching part is continuous and never-ending. The best deals don't necessarily wait for your timing to be perfect. 

If an amazing deal appears while your cash is tied up, it's time to get creative. Can the closing be delayed a month or two while you get your cash in order? Can you find a partner to provide the cash? Can you wholesale the property to another investor and make a smaller paycheck?  Etc. 

Waiting for your perfect timing puts you at the mercy of the market. I prefer to exert some amount of control, but always within my risk tolerance limit. The greater your knowledge and experience, the lower the risk in a creative deal.

@Ben Leybovich   I think you like to cause trouble when you get bored. But in this case I agree with your assessment.

I have purchased properties now in four different states. The rent/price ratio that makes sense in each of these areas is very different, and not close to 2% in any of them. The factors that affect a deal vary drastically from place to place, and using a fixed rule of thumb can be very misleading to say the least. 

In my primary buying area, I have developed (through lots of detailed analyses) a ratio that I can use as a rough estimator to screen deals. But I always do a more thorough analysis of each property before making an offer. And  I throw that ratio out the window when I'm looking at a property in a different area.

@Trevor Ewen   I agree with your assessment. In addition, there are some people with high paying jobs who lost their house during the recent downturn and are not able to buy for a few more years.

As you note, the downside risk is considerable in this part of the market, but so is the potential upside! That's why I'm curious about the trends and whether this is sustainable.

My tendency is to stay away from higher risk ventures like this, but I like to explore them thoroughly in hopes of finding a creative approach or a secret to reducing that risk.

My realtor is seeing an increase in renters who are looking for high end rental properties. That is, properties in the best neighborhoods that rent at rates more than double that of a nice rental property in other neighborhoods. 

I can build a list of pros and cons regarding this small segment of the market, but I'm more curious right now about the current trends and the forecast. Is anyone else noticing a higher demand in this niche, and what do you think the future holds?

@Loren Thomas This is a really creative idea, and it seems to solve multiple existing challenges (space, commute, pets, etc.) while also providing an entrance into REI. So I absolutely love the idea in principle.

But I am not excited at all about the numbers. You are taking on a huge amount of risk based on the numbers you provided. I don't mind a bit of business risk, but only after my family's situation is stable and protected.

You sound not only creative but also determined, so I think you will be able to find a deal that substantially reduces your risk while providing the benefits you seek. Be patient but diligent.