@Matthew Irish
@Matthew Irish-Jones Ive been seeing article that say Buffalo is going to be a great place to invest in 2024. Do you see the market still trending up? Are homes cash flowing well there. Im down in Westchester County and money sure doesn't go as far down here. Im looking to start investing upstate if it makes sense. thanks
I went to school in Westchester county, great place.
The value of homes in Buffalo are still trending up. The numbers in Buffalo are good, and you can cash flow with property management services built in. You can make more if you self manage, but that takes time to set up and there can be a learning curve that costs money.
Our agents are well versed in providing full financial breakdowns of every property they look at. Cash flow works on an inverse with risk, somewhere in the middle is normally the best place to start.
Which agency are you with? I'm also interested in investing in Buffalo, but don't know too much about it yet, I just like the numbers. :)
Hi, I am with Irish Jones, we specialize in Property Management, Investor focused agents, and investor focused construction services. I will shoot you a DM.
Hello all,
New to the real-estate scene but getting started and excited to see where this goes. I own 1 house and starting the rental process now with a property management company in El Paso, hoping to buy another home next year and expand the business! Any and all advise is welcomed, especially as I get my feet wet and start learning processes, next steps, and so forth.
My advice is to buy good properties in good locations even if you have to forgo cash flow. Low risk properties have predictable returns, predictable returns are better than high risk high returns. Make a plan to build equity over time and avoid chasing cash flow.
Thank you! I will continue to look into that! The thing I am working on now is getting all of my pieces together to understand the roles each person will play in my business. I have a PM company, a broker for the mortgages, and I am wondering if I need to get a dedicated realestate agent to help. I have heard conflicting things on this front, as some say "you can do your own research" but others talk about how this is a key way to get off market deals at a better price before they would hit the market. Thoughts? What other key pieces of your business do you have in place?
A great real estate agent will have all of the players in place for you. They will provide detailed pro forma's on properties, do analysis on your behalf, have trusted vendors, and put deals in front of you.
A crappy RE agent will put you on a drip campaign and tell you to get a hold of them when you see something you like. Then they will meet you at the property and hold the door while you walk through and do all the analysis work.
If you pick a great investment RE agent they will make your life easy. If you pick a crap agent you are better off doing your own research and making offers through list agents.
Hello all,
I'm trying to decide on where I want to purchase my first investment property. I've been looking in both Rochester, NY and Buffalo, NY, but also looking at neighborhoods on the borders of these cities. I am trying to understand if there is an easier way to determine A/B/C/D/F class neighborhoods. I have spent a lot of time comparing different homes and reviewing crime maps of the area, etc. but I feel I'm wasting a lot of time looking in D class areas which I'd like to avoid. I always see people posting to stay away from D/F neighborhoods, but I don't ever see how exactly to determine that - I've read a breakdown of what each class entails, I guess I'm just looking for a tool that tells me that instead of trying to figure it out on my own in an area that is not well known to me. Is it just based off knowledge from experience/visiting with boots on the ground/from speaking with other investors/realtors?
Thanks!
There are a few ways to determine the classification of a neighborhood. Keep in mind classification of a neighborhood is similar to the value of a home, it is subjective. The true value of a home is what a buyer and seller agree too. List price, appraisals, projections and pro forma's are all educated guesses. There is as much art as there is science to all of the above.
Neighborhood classifications are the same way. What my company believes is a C class neighborhood, could be classified a B class by other investors and vice versa.
With all that being said there are a few easy ways to start classifying neighborhoods. Cash on cash returns are, generally speaking, the inverse of risk. The higher the cash on cash returns the higher the risk. When you calculate 12% cash on cash returns on ever house on a street you are in a C class or lower area. If you are in the 20% range, you are better off going to the casino and putting all of your money on black and seeing what happnes.
Since you are out of the area properly calculating cash on cash returns can be difficult because you have variable expenses to calculate. Variable expenses like vacancy, maintenance, and CapEx get more accurate with experience. To get quick and dirty numbers you can use 5% vacancy, 10% Maintenance and 8% CapEx... assuming the building is in OK shape. Valuation of the asset condition is even more important than calculating returns because your calculation of returns comes after asset condition valuation. If you get asset condition wrong, your returns will be wrong.
There is a superior way to all of the above. Get a great team in place. A good investor agent using a good team, will tell you off the top of their head in 3 seconds every neighborhood by class, risk profile, and be able to evaluate asset condition as well.
Your job is to pick a strategy... C class investing, B class light value add, BRRR, etc... once you do that they will put the properties in front of you that fit your strategy. From there your job is to check their work and their assumptions. You take on the role of digging deep into their pro forma and grading it like a teacher instead of writing the paper yourself. Are there future maintenance projections realistic? Did they provide rental comps? Does the property inspection support their asset condition evaluation? Does the insurance company feel comfortable insuring in that area, does the lender want to lend on this property... and so on.
I spoke with them about their VIP program out of curiosity. They claim they do all of the marketing, connect with the leads, negotiate the deal, and close it. After closing they split profits 50/50 with you. The cost of the program is 35K upfront and then approximately $3500/mo for all marketing. They guarantee 200K in revenue per year. I ultimately did not do it but I'd be interested to hear if anyone tried that program or knows of anyone who did.
Unfortunately, the only guarantee in this business, or any business really, is there are no guarantees of outcomes... ever.
I own a condo in BC but live in the US. I had issues with renting out the place earlier, and the current rent doesn't cover even the mortgage interest, let alone other expenses like property tax, insurance etc. The current tenant is about to leave at the end of the month. I'm considering selling the unit instead of finding another tenant. But not sure about it since the market is at a low point right now. At the same time, I fear that a new tenant might stay there for ever and interfere with the sale at a future date. What do you suggest?
Sounds like a deep dive into the numbers is what you need.
1. What are you losing annually with a tenant in place? What are you using for vacancy %? What possible maintenance and or CapEx expenses are coming up? You need to account for debt paydown, tax benefits, and depreciation as well.
2. What is the place appreciating annually?
If the annual appreciation far outweighs the annual cash flow losses, it may be worth holding.
If you have no idea how to set up a pro forma that will answer #1, and #2 your issue may or may not be the numbers on the condo, it may be your analyzing technique.
The answer is a combination of knowing the numbers, your projections of those numbers in the future, and your confidence in your ability to do the analysis.
Hi @Ryan Montbleau, good post and I'll venture forth with some info. It would be helpful to know if you are talking about turn-key properties, or value-add properties. Turn-key is not going to get you much cash flow, as I'm sure you are aware. There are still plenty of neighborhoods where you buy small multi-family in that price range. The problem is that most of them need a significant amount of work. Therefore, you really need to have a great team in place and be able to source labor and materials at "in house" prices. That's just my $.02 but I'm sure others have been operating differently with success.
As for neighborhoods, West Side, South Buffalo, Kaisertown, decent sections of Black Rock and Riverside, pockets of North Buffalo, maybe some sections of Cheektowaga are going to fall into those categories. The other "economical" areas are going to be more management heavy (think cheaper houses that are expensive in the long run) and the A/A+ neighborhoods will be very difficult to get cash flow (think Elmwood Village or Hertel Ave duplexes that are $350-400K but gross $3600/mo on the top end).
To offer you more accurate insight, I'd also need to know your goals. Are you looking to build a larger portfolio and capitalize on velocity of return, or buy a couple solid properties that really pay off in the long run? I myself am a value-add investor that likes projects other people either ignore or can't handle, but are too small for the developers. I've found that to be a sweet spot, but it's taken time, discipline, and a helluva lot of networking to build the team to do it.
Let me know if you 'd like to chat offline. Shameless plug: I just started a consulting business for the exact purpose of helping new investors get off the ground here in Buffalo. I'm not an agent, which means I can say things they can't, and I can also work in tandem with them.
I second pretty much all of what Tim said above. There are micro markets within those examples that further break down per investor. For example Caz park and Babcock district are both part of South Buffalo, however they are very different investment micro markets.
They key to isolating micro markets is knowing the cash on cash return per micro market, that way you know when you are beating the micro market, and hopefully beating the general market.
I agree to an extent that equity sitting in a property is lost equity. However, when the equity sitting in the property is at a lower interest rate, there is a cost to refinance, and the property is producing cash due to the lower mortgage amount, there is also a time to let it sit there.
Being highly leveraged on commercial debt that is on a adjustable rate mortgage increase risk.
Somewhere in the middle is probably the answer. I use leverage and think there is a difference between good debt and bad debt. Anyone saying being highly leveraged is not taking on more risk is wrong in my opinion.
#3 is often the only possible path to #1.
The single biggest metric nobody talks about in real estate is portfolio value in dollars. For your long term success it does not matter as much if you have 10 doors or 100, as if your portfolio value is 500k or 5 million.
Cash flow, principal pay off and of course appreciation are all a function (percentage) of your portfolio value.
For example to illustarte:
3 duplexes valued $1,000,000 (or 30 duplxes $10,000,000)
7% CoC return: $17,500 - or if you have $10m ($175,000)
3% principal pay down: $30,000 ($300,000)
5% appreciation: $50,000 ($500,000)
So the real question is, how do you get from $1 million to $10 million. More doors mean mostly more expenses and more headaches, but most people don't have $2,5 million sitting around, so starting small and with cheaper properties may be the only path to eventually get where you want.
I agree completely with a small clarifying point. New investors have to start small with cheaper properties, but they should (in my opinion), take on less risk and play the long game.
A B-Class property with 4%-6% cash on cash returns is normally a better investment than a C/D property with 10-12% cash on cash returns. The unpredictability of the C and D class returns is too risky when you have very little Capital.
If you get a B class low risk investment that is predictable, you should be able to refinance is 7-10 years and start your snowball. If you are also living below your means, saving, and reinvesting after tax dollars you can get the ball rolling faster.
Nothing ruins an investing career faster than a surprise $20,000 CapEx bill to a new investor who has $2,000 in the bank and just spent every penny they have on a high risk property.
...and the issue is folks want the returns of 3 with the effort of 1.
Exactly right.
All posts have a common theme - they’re based on the posters PERSONAL experience, beliefs, and real estate education/knowledge. Nothing wrong with that - it kinda “plays it safe”. BUT, to accelerate wealth building the investor needs to be open to strategies, tactics, investment types OUTSIDE their “comfort zone”. For example, there’s a lot of “you can’t get cash flow, you can get equity buildup” in this thread. And, if you are buying a property that is already in good condition, or is fairly easily to rehab, you’re probably right. However, there are numerous ways to CREATE investments that have 15% or more cash flow AFTER repairs and allowance for cap ex. The key is CREATE. If you’re relatively passive, then you won’t be able to take advantage of these situations/opportunities.
Here’s a short and incomplete list of ways I’ve either utilized myself or financed investors who utilized to create a high cash flow investment.
1. Bought an auto repair shop for 30% of value because of environmental problem. Solved the problem for $2,300 and had an annual 22% cash return on my investment (purchased for cash).
2. Bought the first lien note on a auto service repair facility for 30% discount, did a deed in lieu with the tenant/owner/borrower, and a long term lease back providing a 20% annual return 3N
3. Financed the purchase of a 12 unit motel in an area with an oil refinery; the buyer/investor rehabbed and turned it into furnished month to month rentals. His financial statements showed a 40% annual cash on cash return.
4. Purchased a 2 building warehouse/service center utilizing a 11% hard money loan to gap over the down payment. Sold the back building which was NOT part of the security for the loan, paid off the 11% mortgage and refinanced with a 20 year fixed 4% mortgage, paying down about $400k. Used the rest of the funds to turn part of the front building into retail store fronts which leased for 150% more on a per square foot basis. Again 20% annual return.
5. Financed an investor who purchased an old, but rehabbed 148 unit holiday Inn which consisted of 2 separate buildings. He turned one into month to month furnished housing, and the other building into low end motel. He sold the motel building and was left with a property yielding him a 18% annual return over the next 8 years.
Your points about passive investors, risk and ability to "create" value are right on point. So is your comment about passive investors wanting ROI that are only achievable (on a SUSTAINABLE basis, and without undo risk) by knowledgable, experienced active investors "in the game".
There seems to be three lines of thinking (they are not mutually exclusive) about how to make better than risk adjusted returns in real estate investing.
1. buy and hold while price appreciation, FUTURE cash flow, and loan amortization increase the investors wealth
2. market timing - load up during market recessions, liquidate during market booms
3. Active investing - CREATE wealth through forced value increases, financial engineering, better operational efficiency.
I think that sums it up perfectly. To be a complete hypocrite I am a #3 active investor while preaching #1 for others LOL.