All Forum Posts by: Isaac Geller

Yup i had 350 C class SFRs which is what your talking about.. I had a partner buy me out almost 5 years ago.. and i had another 20 or so A class 150 to 250k each homes.. have sold all of those and have exactly one left.. on the A class I was able to sell half of them to my tenants thats why i like A class they can actually qualify to buy a home.. and you save THOUSANDS in fix up costs and sales cost when you dont have a vacancy and or any updating.. any rental that is going to be sold retail unless its in the Bay area or other very high priced areas will need extensive updating to get Fair market value.  

I am not trying to be discouraging just stating facts.. buying one home 5 states away in the C class which is what your describing takes on a level of risk.. buying 10 gives you the chance to average them out.. And buying anything cheaper than what you describing in a major metro MSA brings on a high degree of risk for the out of area investor.

If you want a rental I like to advise this one little formula.. at the end of the day making 200 a month on a rental will just get spent on something.. you wont really see it.. so what is the play.. the play is some tax benefits although small on low priced homes.  but its the tenant paying for your home getting that sucker paid for so you cash flow goes way up and you have a true asset.. putting 20% down on these homes Is NO equity.. you would never see that money back if you needed to sell in the next 5 to 10 years.. becasue we know those areas dont appreciate.. as well as you ONLY have one buyer and that is another investor.. who is going to drive a hard bargain.. That investor is going to back into the numbers the same way you are.. the value is simply what an investor will pay for a given cash flow.  So if rents remain stable and in those markets they are incredibly stable.. you values pretty much stay the same. 

So I would look at what is the median price point in an MSA  take Indy its about 130k that means half are under half are over.. also means that homeowners are generally buying 130k and up.. you want to own a rental that can have an exit to an investor or be dragged up in value becasue homeowners want to live there..  in areas of high density rentals the only way values get pushed is by the wholesaler and then by the turn key or investment company buying them and reselling them.. but there is a ceiling.. and that ceiling is basically the 1% rule for most folks.  So take your 50k use 35k of it and buy a 130k house that rents for 1200 to 1400 in Memphis.. thats much safer. Run the numbers on that one.. Also keep in mind the stability of the tenant. 

Tenant stability is important. The 700 to 850 tenant  needs 3X to qualify for the rental you will see that universally.. so a 700 rent tenant will make 2100 a month. and not much more other wise they will rent something higher..  take the rent Utls phone and your at 1000 a month that leaves that tenant 1100 a month to live their life.. do they have kids.. ?  do they own a car ?  if they own a car and most will thats another lets say 200 month for car note and gas and insurance..  so down to 900 a month less than 250 a week to feed cloth and do some other things.. this is why most have very little savings if any and one speed bump and you dont get your rent.. just remember when the federal govmit shut down what stress that put on workers who went one month with out a check.

Now do the math and that 1400 dollar rental to get in the door your at 4200 a month combined.  your net after rent is 2800.. and say you have another 800 in fixed expenses now you have 500 a week to live on .. big difference and you might even be able to put a few bucks in an emergency fund.. you will find credit to be better etc.  

Now as for the 6% fund  I mentioned thats simple is interest only  50k for a year would net you 3k / 12 = or 250 a month.. you can buy first position notes that are pretty solid to that will pay 7 to 10% let the landlord take the risk and you become the bank.. so there are many ways to make money in this game.. of course the rental is the most talked about and easiest concept to understand.. 

Having been a HML in the mid west for going on 20 years.. having owned more than 350 of the C class.. these are my experiences.. those A class homes I owned for instance.. My secretary managed those from our Oregon office.. I hire agent to place tenant pay them their fee. and we had a good handy man on speed dial.. but since they were brand new and we had full blown top of the market tenants we had very little calls for maintenance. Cash flow was something i did not even look at it was so inconsequential.. And any extra i got I just paid more on the mortgage I made my money when i bought them for GOZONE tax benefits and equity build up when I sold.. I cant stress enough that even though people thinks your going to buy these rentals for ever .. things happen and you must think about how your going to exit.. IE liquidity..