All Forum Posts by: Mike Tikh

Thanks for all the comments! Some great advice in there. The takeaways I'm getting are:

- Analyze the areas more in depth, looking at things like prices, rental ratio, housing availability, vacancy rates. Start with locations I'm most familiar with 

- Spend some time on Youtube learning about the different areas, and seeing which ones I'd be comfortable living in

- When narrowed down, rent an Airbnb and try to spend a week in each place

- From there, start talking to some property managers and networking in the area to find opportunities

I grew up around the metro Detroit area, so that would be a good starting point for the research, expanding out to nearby spots in the midwest like Ohio. I also lived in NV and TX for some time, and would prefer that climate, but need to make sure the financials make sense there. 

@Patrick Drury, I hadn't considered the different criteria for 4 units (and from what I can tell, it also applies to triplexes), so that's definitely something I'll have to consider. I'll also check out some of the guides listed here by @Austin Wolff@Austin Wolff

Appreciate everyone taking the time to help out!

Currently stuck in analysis paralysis on trying to find the right location for a first property, with a willingness to move anywhere in the US. 

Goal

My objective would be to go with a MFH, 2-4 units, higher would be better. I'd house hack and live in one of the units the first year, and use an FHA 3.5% loan. For amount, it would likely be in the $500-700k range.

My expectations are to have a negative cash flow while living there, and possibly a slight negative cash flow after moving out (until interest rates lower or rents increase). For example, a $650k 3-4 unit where each can rent out at $1,500, allowing for a negative cash flow of $2-2.5k/month the first year.

Possibilities

Given those goals, it would rule out the more expensive places (California, Seattle area, Austin). However, I have no idea how to choose from the remaining cities, it seems there are a lot of potential options:

- Midwest - Michigan (ie: Grand Rapids) seems to have options, also seeing Columbus Ohio and Indianapolis coming up

- Reno - I've seen mentioned several times on here

- Pittsburgh / Philadelphia / Twin Cities - All mentioned as lower cost to get started, and seem to be experiencing growth

I'd ideally like to find a place that has strong potential for future growth, a diversified economy, and I don't mind living in (being close to nature would be a plus). 

Any thoughts on how to choose - what metrics to evaluate, resources to read to help?

From your experience, how much do you have to "manage the management teams?" Are there any issues you've found them to be bad at handling?

To clarify, I'm not trying to insinuate that it is a piece of cake and everyone can make money, I'm asking why it's not. On the surface it seems easy, but I'm sure many of you have experiences that would say otherwise. Obviously things don't always work out like they do on paper. I'd be glad to hear more about those and pitfalls and unexpected expenses you have encountered.

Bill, a lot of those sound like tenant pitfalls. Can those be prevented by more careful screening or buying in different areas? For example, I'm sure I'd have most of those issues buying in Detroit, but in the family populated suburbs 30 minutes away we probably have less meth cooks. Also, if the tenant's dog bites someone, isn't that their problem? I'd think a dog isn't a house fixture.

Steve, initial down payment is hard, but I'd assume later in the game you can start using your properties as equity for loans to secure better rates, no?

Matt, the 8.6% is a conservative on cash return. If you can get a loan, you also get a return from paying off the mortgage, and then any appreciation in the house/rent gets magnified. If you pay 25% down and the house increases 2%, that's an 8% on cash increase. I feel like most analysis include a 1-2% annual appreciation assumption. Although if giving private loans pays 10-12%, that would make an 8% return in RE seem less attractive.

Matt, from what I've read, many people use the 50% rule to include property taxes, insurance, vacancies, repairs and property management - all of the issues you mentioned.

If I calculate that way, then mortgage only = $300 + $450 (50% rent) = $750, making the expenses even cheaper than I originally calculated.

Assuming that the expenses end up coming out to $850/month, let's change my filter to an $80,000 property that rents for $1,000/month, or a $50,000 property that rents for $650. Both would pass the 50% test while still generating a decent cash flow and respectable return, and it seems like people on this forum are finding those in many areas.

It seems to me that if you find the right combination of rental income (1%+ monthly) / cash paid, it's very hard not to make money.

Example: an $80,000 property, 25% down at 4.5%, and rented at $900/month.

You invest $20,000 cash.

The costs would be:
about $450 mortgage after taxes and insurance (assuming 2.5% property tax)
let's throw in another $200 in monthly repairs
let's assume I live remotely and have it managed by an outside company - $150/mo

$900 rent - $800 expenses = $100/mo cash flow

That comes out to 6% a year interest from cash flow and another 4%+ interest from paying off the mortgage over 30 years. That's all assuming no appreciation, no rent increases, not managing the property yourself, and what I think are pretty conservative expense numbers.

10%+/year for no work aside from buying a property and finding a management company sounds insane, and the return goes way up if you add a small % rent increase or appreciation. Where are my assumptions wrong?

Is it that hard to find properties you can rent for more than 1%/mo? People on here talk about finding properties in Michigan that rent 1.5% and higher all the time. Is it that hard to get financing? Are the expenses even more than I assume?

What is it I'm missing here? Because if all it takes is finding properties that aren't broken down and can rent for 1%+/monthly, then having someone manage them, I don't understand why everyone's not doing it. The return seems very high compared to many things out there.

Bumping this topic, I was about to ask the same question.

Patrick, I see you're in Lansing. I'm just starting to consider Michigan because of the absurdly low property values and abundance of college towns. It's definitely possible to find some deals here. The question is whether to focus on:

Cities with very low prices and potential deals: Detroit, Miami, Phoenix, Vegas... all have significantly more foreclosures but also more risk of poor future growth. I don't see a whole lot of reason for Detroit or Vegas to ever start picking up again

or

Strong cities like most of the ones in Texas, which already carry very high prices since the market never got hit, but also continue to grow at very fast rates. Sort of the opposite for Detroit, Austin's prices are through the roof but I also can't see any reason for it to stop growing.

How would you make a decision if you're choosing from the whole US? What resources would you use to study and compare demographic information and real estate trends in different markets?