All Forum Posts by: Erik Hitzelberger

@Joanna Dennis It can be done, but it's not as simple as some people may lead you to believe.  As mentioned above, there are often seasoning periods (6-12 months). Large national banks are particularly challenging. I like River City, West Point Bank and Century Bank of Kentucky especially for the rehab portion.  You can attempt a cash-out refi with them or try Republic/Stockyards/Central Kentucky Bank.

Sajan,

There isn't enough info here for anyone to give you accurate advice. In order to evaluate the income side, you need to know the tax rate, insurance cost, prop mgmt rate and utility costs. In addition to these 'known' costs, you should include a vacancy and maintenance reserve allocation. These last factors need to be based on both current and long-term conditions. Sample things to account for included....Do the units have multiple HVAC systems? Are they wood or brick? Are they in a historic district?

You also need to look at potential cap-ex.  Everything needs to be replaced eventually, but are the big ticket items new or are they near the end-of-life.

Most importantly, you need to understand why you are buying these properties. You state that the units are 3 blocks from a trendy neighborhood. That can mean a variety of things here as you well know. If you are picking a long shot, that's fine. If you've ever been to Churchill Downs, you know that speculating pays off in big ways...occasionally. However, if your goal is to invest rather than speculate and you are looking for consistent passive returns, you can do better... easily.   

@Natalya Whitaker Thanks for the shout-out!

@Alex K. If I understand your goals correctly, you want single family that produce both income and wealth. It's wise to seek properties that will have low-maintenance and low-turnover rates. These factors are the biggest drivers in your overall success. As such, I recommend 3-bedroom brick ranches. I particularly like 40216, 40258, 40272, 40229, 40291 and 40299 (tougher to find).  40214, 40218 and 40219 also work, but you need to be selective.

The areas up and down Dixie Highway as well as 40214, 40218 and will produce a little better cashflow while Okolona, Fern Creek and J-Town will have slightly better appreciation.

Reasonable numbers for leveraged & managed properties would be $200-350 per month in cash flow and  2-4% expected appreciation (long-term). The properties have appreciated more than that over the last few years due to inventory shortage and limited appreciation the previous several. That being said, home values are still around 80% of the national average so  you (and the tenants) get good value.  

Good Luck!

@Micah Mcarthur

With long-term financing at current interest rates and our low tax rates, cash flow at $200 per month is very easy to find. My bigger concern is that you haven’t fully defined your goals. If you buy a property that doesn’t support your goals, it’s a bad investment regardless of the numbers. 

Rental properties are capable of producing wealth and/or net income. The balance you want to achieve should dictate the type of property and area you but in. On top of that, you need to decide whether you want value conscious tenants or price-sensitive tenants. This will let you know the level of finish you need in the home. Finally, you need to determine how much time you have to allocate to real estate each month. Be very, very realistic about this last point. 

Here’s some guidance on the first part. I group properties by goals rather than some arbitrary opinion of neighborhoods. 

(A)ppreciation - primary goal is long-term wealth building. Expected appreciation in the 5-6% range, net income is $0-100 per month. These type properties often require you have a good reserve fund

(B)oth - lower appreciation (4), but more cash flow ($100-200)

(C)ashflow - still appreciate (1-3%) and produce ($200-300) in net income

(D)isposable - no expected appreciation, $300+ Cash flow

Of course you will find some variance, especially with level of rehab. Certain niches like student rentals or Airbnb may also generate more cash in the A/B ranges. It just takes more effort. Overall though, these numbers are easily attainable in Louisville. 

@Account Closed if you are using ‘actuals’, you aren’t being conservative. That being said, your insurance number seems a bit high. 

Regardless, I want to address your last few lines. The CoC (no debt) appears to be a Cap Rate. You can do better than this here in Louisville.

Since the above is a based on a pure cash purchase, I’m not sure why you have debt service.  If you are getting a loan, the cash on cash calculation should be based on your down payment not the purchase price. That being said, it absolutely should not be negative. It’s too easy to find better deals.  

@Mason Carter There are a lot of good answers above describing the value that agents provide.  I'd like to challenge you to rephrase the question though.  Instead of asking whether you can do something, you need to ask whether you should do it.  You have a (presumably) full-time job as well as other commitments for your time (family, friends, etc).  If you want to be successful with the limited time that you (and everyone else) has, there are a lot of things that you can do, but not many that you should.  

Developing and implementing business strategies, finding deals, negotiating, providing direction to contractors, etc. are all things that an investor/business owner should do.  These activities generate 100s if not 1000s of dollars an hour.  Painting, installing flooring, cleaning toilets and handling the transactional details are things you absolutely can do but absolutely should not.  They do not save you money.  Rather they cost you money as they prevent you from taking care of the truly important.  

We all need to think about the highest and best use of our time.  Most often, the best thing to do is hire/train the appropriate professional and then get out of their way.

Good Luck!! 

@Jay Leisten  - The big dogs are here.  Private Equity / REITs have been buying homes at an accelerated pace here for over almost 2 years now.  In addition, national players are picking up buildings and land in the commercial and development arenas. 

Below the median price (~$155), inventory continues to be low. For properties with an overall return like the one mentioned in the article ($90-140 ARV), there is 1-3 months of inventory in key zip codes. Despite the recent price increases, in-filling is barely profitable. Further, Louisville continues to be one of the most affordable cities on this list.

In addition, we continue to have population growth both within the city limits and throughout the MSA.  The workforce is well-diversified (Healthcare, Food and Bev, Military, Distribution, Manufacturing) and backed by several Fortune 500 companies.  The city is certainly making a play for Amazon HQ2, but Louisville has lower odds than several other cities. 

For these reasons and others, expect existing home prices in this range to continue to increase. 

@Zachary Peacock I posted my thoughts on Portland on your other post.  In short, I agree with you.  

I'd be more than happy to talk to you about turnkey properties here in town. 

The list of things I don't like about investing for appreciation in Portland right now is fairly lengthy, but it essentially boils down to this question.  Do I believe the area will develop?

Demand raises home prices.  Per Louisville Magazine, the average income in the area is something around $10,000..... per YEAR.  Where are the owner occupants going to come from?  Why would someone leave the Highlands, Germantown, St Matthews, J-Town or Shively for that matter to move to Portland?  Where are the bars, restaurants and jobs?  Even if the waterfront is developed, why would someone want to live on that side of downtown when so much exists on the other side?  

I can't answer these questions, so my answer to the initial one is a resounding 'No.'  I may be wrong and someone may make out well.  Most of the city offers good cash flow and appreciation.  It may not be 'home run' quality, but its better than many places.  I'm take the base hits all day long.       

There are several local banks and lenders here that will fund the purchase plus rehab if you want. You can later convert to long-term financing.  Twenty, twenty-five and thirty year products exist.

I don't know where this deal is, but make sure you understand the underlying fundamentals of growth.  Germantown had infrastructure (bars, restaurants, etc) as well as proximity to high-demand locations and it is conveniently located.  Based on your statements, I'm not sure these same principles exist where you might be buying.  Thus, banking on rapid appreciation is questionable.  There are people who are buying based on what they may hope will happen.  I prefer to do that at Churchill Downs.  The results are quicker.  

More importantly, it does not seem as though you are on the same page as your business partners.  This is a recipe for disaster.  You want to be in agreement before you buy the first house.  Unwinding the mess once you are a few deals in can be complicated and costly.