All Forum Posts by: Becca F.

Quote from @Shelby McKean:

Becca-Thanks for explaining this. I was mis-using the term "turnkey" and did not realize there was this type of property. I was actually referring to rent-ready properties and trying to decide if there are still benefits to buying something at its peak value. It is helpful to know that many HOA's don't allow STRs…I am also trying to source information about the STR regulations in this area to target the right small house. Appreciate the info, though!!

I think the word "turnkey" can mean:
1) property purchased through a turnkey company with a tenant in place
2)  property purchased through a turnkey company, no tenant, but they may have in house property management or refer you to PM companies
3) property bought off the MLS, usually with an agent, that is move-in ready/rent ready

With #3 I bought what was almost turnkey/move-in ready but after the inspection it needed about $1500 worth of repairs. An important point is that if you didn't do the renovation or weren't on site checking frequently as the property was renovated, you never know how good the repairs done were by the seller or previous owners (this requires a good bit of construction knowledge).  I bought sight unseen out of state (Indianapolis) - I don't recommend this but I do know experienced investors who buy OOS and never see the property in person but they have a  higher risk tolerance than me. 

This "almost turnkey" house has had the tenant calling for repairs most months, was -$300 to -$500 a month. A number of contractors have told me though even if a house can pass most points of an inspection, but once an occupant (the tenant) is living there and putting daily stress on the house, things start to malfunction. And get a sewer line scope - if the house is newer and you have proof that it has PVC pipes, you might be able to skip this but to be cautious always get a  scope. It's around $250. 

@Kyle Fitch

I'd recommended attending local RE meet ups in the Detroit area. You'll get to talk to investors and have conversations. If you decide to house hack or start off by buying a rental property you'll need to know different areas, which are Class A, B, C or D (definitely don't do Class D as new investor). Would also recommend talking to property management companies who know the neighborhoods, median rents, tenant base etc. even if you decide to self manage. 

Right now, we're a bunch of strangers commenting on your post - we don't know your background, financial situation, W2 job, lifestyle (single, married, kids, etc), risk tolerance etc (not that you should share all that information on a public forum). Since this is a RE forum many of the responses will be tilted towards RE. Many of us started way before 2023 and 2024. The market isn't as forgiving buying in 2024 with high prices and higher interest rates as it was buying in 2008 (deals to be had back then), 2013 or 2020. 

@Travis Biziorek has invested in Detroit. Maybe he can shed some light on this? 

Quote from @John Clark:

My thoughts on turnkeys is simple: get your head examined. Peruse all of the threads/posts here on BP about turn key properties that weren’t turn key. Never buy any property without physically inspecting it and its neighborhood yourself, AND having it thoroughly inspected by a great inspector who YOU select and pay for. Don’t forget to get title insurance to, and get the owner’s paperwork showing that all contractors, subcontractors, and materialmen have been paid.

As for short term rental of a condo you buy, most condominium associations don’t allow that, and for good reason. Also, it can be very difficult to get financing for a unit in an association where a percentage of units are not used as primary residences full time.

I completely agree.  I considered buying turnkey (meaning renovated home with a tenant placed in there) with a company that buys properties in Detroit area, Cleveland, and a few in St. Louis and got on a call with them. The numbers look good on paper and I still get their emails - one of them said "stress free ownership". There's nothing stress free about real estate investing. I decided against it because I didn't know those markets or neighborhoods in those cities. Since then I've heard mixed reviews about that company. I've heard turn key companies can range from terrible to good. I wouldn't buy a property based on numbers from a turnkey company, agent or wholesaler, but fly or drive out and look at the property and neighborhoods. Seeing it in person looks much different than video tours and Google map images 
 

I also agree on buying a condo. HOA fees can increase with no limit and you can have special assessments. I sold a condo in the San Francisco Bay Area, really wanted to keep it but the badly managed HOA and all their HOA increases with a large special assessment, decided to get out of it. And most HOAs won't allow STRs.

Quote from @Nicholas L.:

i will say though that i am actually heartened when a new investor does some math and figures out, correctly, that a miscellaneous deal with conventional debt will NOT cash flow.  this is better than using rosy projections of $10.50 a month for capex and 6% rent increases every year until 3100, and pretending there is no such thing as closing costs or rent ready costs.

100% agree. When someone tells me that "you won't have repairs or cap ex for a while since the seller just renovated it"... well that property is -$300 to $-500 a month from repairs called in by the tenant most months. And the stolen AC unit. This was a 0.88% rule (close to 1% rule = I really dislike that guideline now). As an aside, a contractor told me that a property can pass an inspection but once someone is living there and putting daily stress on the house, things can start to malfunction. I hope this house is finally stabilizing after owning it for over 18 months, no repairs called in for 2 months so far. 

To the OP, if you're considering buying out of state (not sure where you're located), there are risks with OOS investing if you're looking for a lower priced market. You're not on site or within driving distance and even with a property manager, lots of things can happen. I can give numerous examples of California investors I know losing money from buying in "cheaper cash flow on paper markets." 

Quote from @Dan H.

On a long term hold, the rent growth is much more important than the initial rent growth.

If I invested $100k in the year 2000 using the same leverage and no extraction of value in both San Diego and Cleveland, which investments do you think would have the better cash flow over the hold? Which do you think would have appreciated more? If the answer is not obvious, remember the relationship between appreciation and rent growth so the answer is the same for both questions.

 The point is that San Francisco RE is likely to do outstanding overs long hold period.  

good luck

I completely agree. Coastal CA (Bay Area, LA, San Diego) has land constraints and it's very difficult to build new and continues to have high demand, despite the 300,000+ people who have left CA. The property values have dipped with San Francisco since COVID when people left to move to the suburbs, but the prices are still high. There are some people coming back because there's a segment of the population who love living in the city and being walking distance to restaurants, stores etc. 

San Jose and Santa Clara are in high demand since they're in Silicon Valley. Prices will be extremely high - I don't think most investors are buying in these areas unless you have a lot of money and plan to house hack.  In general the Peninsula will be higher priced than the East Bay. Some East Bay cities I've seen with more reasonable prices are: Concord, San Leandro, Hayward, El Cerrito, Pinole. These are all on the BART line to S.F. The last two cities I did see move in ready SFHs listed for around $650,000 to $700,000 in 2022 or early 2023. They were snapped up quickly by primary home buyers, I would guess. 

I'm keeping my Bay Area properties because of the appreciation and passing on generational wealth to my kids. My kids are old enough to understand RE investing. When I die, they can keep renting out the properties or move into the SFH, or take the step up basis and sell it with not as high of a capital gains tax hit (I hope they wouldn't choose the 3rd option). I may consider selling off my Indianapolis area SFHs to 1031 exchange to Nevada (Reno or Vegas, looking at those 2 markets) - I think my kids would rather have another home in Nevada (future primary, vacation home or rental) vs dealing with rentals 2000 miles away. Those goals are very specific to my situation and not necessarily applicable to other investors.

I recently talked to a Bay Area investor who sold her SFHs around 2020 to buy OOS (I think her markets were Dallas, Atlanta, and a few other cities) and now she's regretting the selling those. Most of the CA investors (Bay Area and SoCal) I know have kept their properties. There are a few that sold them and bought OOS. My own thoughts are that you can own fewer properties in CA to built long term wealth vs. buy a lot more properties in other states. There's not one right answer for everyone since we all have different financial situations, different ages, timelines, family situations, risk tolerances etc..

I haven't driven out to Manteca/Lathrop or Roseville or looked at any data on them so I would be guessing like you.  I don't know those markets so I don't want to give you inaccurate information on which one would be better for you to invest in. 

Maybe talk to some property management companies out there so to see what rents they're getting compared to prices? Also they can give you information on any local landlord-tenant laws you should be aware of. Then drive out to those cities and get to know the neighborhoods and which are Class A, B and C. 

Hi Adriana. If you're house hacking a condo could be a good move like splitting the rent with a friend. The only thing is the HOA fees go up and they can do special assessments and you have no control over it. If you're able to look further out for a SFH and rent the rooms out, that might be better. It's hard to say without knowing more about your financial situation (not that you should post that on a public forum). Also if you ever decide to move out and rent the entire condo, the HOA might have restrictions like limiting the percent of long term rentals. Many of them don't allow STRs

If you work remotely some days, would consider buying outside of San Francisco? The East Bay is more affordable than S.F. - I would caution against Oakland or Berkeley because they have very pro-tenant laws. 

Quote from @John Salcedo:

I’m also looking to invest in Indianapolis and Ohio markets.   If you have your core 4 it’s not as risky.   looking to make more connections.  

I actually consider the property management company is one of the main members of the Core 4. They will be your long term business partner. They know the tenant base, median rents of different areas, how much to increase rent each year, ranges of repair costs (ex: tenant calls and says AC isn't working, no hot water, faucet is leaking, the HVAC system goes out). I would talk to them as one of your first points of contact. And also the contractors - they know what it costs to replace a floor with LVP per sq ft. If I had done that I would have made very different decisions on where I bought in Indianapolis. 

I'm not sure if you're OOS but definitely fly to Indiana or Ohio multiple times and get to know the areas on a detailed level before making offers. I could write a 10 page essay. OOS investing is definitely not as easy as it looks - it's not click on the Zillow button like you're buying index funds (it may have been in 2008 to 2021 but not in 2023 going forward). 

Quote from @John Salcedo:

@Becca F. are you still investing in Indy?   I’ve been searching for properties there for a few months   Got a few duplexes under contract but then the GC gave me estimates for a lot more than I had expected and I didn’t move forward   

I'm not buying anymore in Indy. Mine were SFHs (keeping two of them for now, sold one). I looked for duplexes but there were very few. The PMs I talked to said tenants tend to stay longer in SFHs since most value privacy over living right next door to someone even though "cash flow" might be higher with a duplex. I'm no longer of the mindset of "acquiring doors" and "cash flow on paper" so I'm re-evaluating my entire strategy. I think long term appreciation and quality over quantity is better for my situation. My advice to people prioritizing cash flow is to start a business, which I would do but that's adding another job onto my W2 job. 

Feel free to DM me if you have more questions :)

Kyle, I do both. My portfolio is heavily weighted towards real estate, largely because of California appreciation. I'm now putting a lot more into public markets (index funds, stocks, Master Limited Partnerships, Business Development Companies, bonds). You can also own REITs, which are shares of real estate (ex: apartment complexes, self storage, etc). This is what I'm doing, not advising anyone to do this. 

Pros of RE:

- leverage (can house hack and put 3.5% down FHA, 5% or 10% down conventional loan if you live in one of the units, 2 to 4 unit or buy single family, live in it and rent out each room and buy a $500,000 or $1 million asset). Can't buy $500k worth of stock (for most people) at one time.

- tax benefits, can 1031 exchange (kick the capital gains tax can down the road for years until you die)

- generational wealth and step up basis (if you die, the value of the property is stepped up to current market value for your heirs. Ex: if I bought a CA property in 2008 for $200,000. If I die in 2024 and it's worth $2 million and my kids can keep the property, live in it or rent it out or they sell it for $2.5 million in 2026. They pay capital gains tax on the difference between $2.5 million and $2 million, not what I purchased the home for at $200,000). I'm not sure if there's a step up basis with liquid forms of investment. 

- more control with selecting properties, property management, can value add with bathrooms, updated kitchen, adding an ADU (more of West Coast thing).

Cons of RE:

- it takes a lot more work to get good at analyzing deals and you will make mistakes that may question your sanity. Some investors decide to push forward and others decide RE isn't for them - it's entirely individual, no right answer.  And it's perfectly fine whatever decision someone makes. The market in 2023 to 2024 is a lot more challenging than buying in 2008 (or going back before that) to 2021. 

- very illiquid, had buyers remorse with Class C property (Indianapolis). Takes a lot more work to course correct and stop the money bleed than selling off a stock the next day that I changed my mind on. Do I proceed with continuing to rent it out and sell later, or sell now? I chose the 2nd choice since it was vacant.

- if buying out of state, this brings about more risk since you're not there on site. This is even more so if you attempt to do a major renovation from far away. If you pick a random OOS city to buy in, based on numbers an agent or wholesaler is telling you or "it's a great market to invest in" and don't know the area, prepare to have lots of cash reserves and to lose money especially Class C. 

- what's a great market to invest in for one person isn't for another investor. For me it's CA since I live here but the prices are extremely high for a new investor. I've had the most headaches with my Indiana properties since I'm 2000 miles away. Other people love OOS investing and do well with it. 

My own personal experience is that a huge stressor has been lifted since I've stopped spending hours looking for and analyzing deals and my index funds/stocks are doing well (just hope it doesn't decline in value when retire from my W2 job). In my circle of family and friends, I will say that anyone that owns RE especially in CA has over at least several million in networth and they weren't high W2 earners (no surgeons or attorneys, but librarians, accountants, etc) but this takes years 15 to 30+ years.. The few lucky were able to scale quickly, meaning 7 to 10 years.