All Forum Posts by: Ryan Stumbo

 In most of my calculations, I would take a 2 BR 1 Bath for example, and look at the area. If the ABSOLUTE NICEST apartment in the area was going for 1800-2000, I'd use 1900 as my rental income calculation. This still wouldn't bring the deal into the positive return %. It's just baffling to me I've gotten 2 responses from 2 different realtors and their statements were "you don't understand this market" . I guess they are telling me people in the Phoenix market are willing to overpay because it's Phoenix. I also have a very southern accent, so I believe there's a chance they think they're dealing with someone who isn't intelligent or a person who doesn't understand math and numbers, so maybe they think they can get one over on me, who knows the true reasoning behind their statement.

FYI, even if I found a deal where the CoC return was 0% or 2%, but I had room to renovate and increase the rents, obviously I would take that into consideration. But at -50-90%, it's pretty impossible to meet in the middle on that one.

So, recently I have been trying to branch out and buy real estate in other states. I'm currently working in Arizona so I thought "hmm it's nice out here, I should try to get a property or two while I'm out here." I am running into an issue. I'm very big on the numbers. I take every monthly/annual expense and calculate the cash on cash return, and if it isn't at least 8% then it's not worth it to me to even invest. 

I have now went to 2 different realtors, looked at some multi-family properties, typed the numbers in, and I've had 1 deal come back as a -55% CoC return. Then another was at like -90% CoC return. I do my numbers and see what kind of price is doable for me. Now, obviously with the deal being that overpriced, I could just not even attempt it, but when something has been on the market for 120 days, I figure heck why not just make an offer. Even if they view it as lowball, attach my spreadsheet to the offer and show them their property is way overpriced without directly telling them that and maybe they'll come to their senses. Me thinking the realtors would respect math also and see that I'm correct, I've had 2 realtors tell me "you're just not in tune with the Phoenix market." At this point, I will ask them politely to explain what this statement means because my math shows this deal is a terrible deal. They didn't respond. Just the vague "you don't understand Phoenix market." So I guess my question is, is there something I'm missing? One of the realtors also said that if I'm looking for 5% return in this market I may as well go ahead and go back to where I was investing before because that ship has sailed. So is this a case of it's just not possible to find 8% returns in this market in a decent location? Or do they actually have any logic or math behind what they're saying. Is there some deeper, specific reason someone is willing to pay for something that returns them a negative % on their money? This 1 realtor also told me there's a lot of "institutional money" here and that people are willing to use real estate to park their money and just take the loss because it keeps the IRS from getting their money.

I suppose in summary I'm asking, 1) are these realtors just trying to talk me into a bad deal and I just lucked out with the 2 realtors I found

2) Do I truly not understand something about the market down here and these -50-100% returns aren't so bad after all? (lol unlikely, since math is math.)

3) are these realtors just intimidated by making an offer they view as lowball since the listing price is so overpriced?

If someone can explain to me what I'm missing I would be happy and open to learning and understanding. I'm just truly not understanding what it means to instead of critiquing a list price that leaves you with a -50% return, I am instead being the one critiqued for not "understanding the market" .. lol any info on this situation would be greatly appreciated.

Thanks in advance.

@Will Fraser also yes the deal definitely kept getting sweeter haha.. it literally went from being land locked and buying a little townhome for a rental (not the worst thing ever but definitely never ideal being landlocked), to literally the same week I put the townhome under contract the surrounding property that has me landlocked goes up for sale. That is, if everything checks out with the survey and all that.

@Pavan Sandhu see my response to the other guy on the thread and feel free to give any advice you have on this process.

@Pavan Sandhu luckily I still have my 9-5 and can hold as long as I need to. Not really a payment that is going to cripple me. I just really want to take the route that’s going to benefit me long term towards financial freedom. My goal is eventually my passive income overtakes my 9-5 income and I never have to go to a “job” again.

@Will Fraser my goal is definitely long term real estate. I never wanted to get into it to make a quick buck and be done. My goal is financial freedom for life. So to me, with that being my goal, I could take 2 routes.

1) Develop the property myself with my stepdad (who is a great machinery man). At this point take the land and find a contractor who does good construction contracting and build multiple duplexes across this 4 acres and rake in the cash for a lifetime. Only there are some flaws to this route.. flaw a) it’s hard to find a good contractor where I live that is great at building a property from foundation all the way to the roof. The ones who are good at it are booked many months in advance. Flaw b) construction is outrageous right now due to lumber pricing. Unless new construction is much cheaper to do with brick exterior, then it seems like a bad time to build. Not even sure brick is a much cheaper option honestly as I’ve never compared brick to wood.

2) I could subdivide it and sell off the lots individually to be finished developing by other interested buyers, but with this it just makes me some profit and I’m done with the property. Not really a long term outlook. But, maybe that is what I need and can use the profit to buy more rentals, if the profit is nice enough. This is why I asked what the profit is like in creating subdivisions. I wasn’t sure if it’s usually average money or considered very lucrative. My stepdad is also a lumber business owner, so we could also pull the lumber off the land after developing and earn some money from that.

So, I recently bought a townhome with about 5 acres of property surrounding it. My banker was telling me I’m “landlocked” . The way he described it, I really didn’t have any rights outside of owning the townhouse. Before I put the townhouse under contract, the guy who owns all the surrounding land puts up the land for sell. I decided to buy all the surrounding land once I was informed by the land owner that he had already had the land approved by the county to be developed into a subdivision. I’m still going to have a survey to make sure all the land lines are correct and confirm with the county it’s still allowed to be subdivided, but if everything checks out, how should I handle this. Is it most profitable usually for someone to subdivide the land and sell each plot that way? Is it most profitable to develop it for businesses to be placed on it? RV park? Keep the land and put my own duplexes and apartment complexes on the land? I just feel like this could be a sweet deal for me and I want to go the route that could impact my life the most and create the most long term wealth for myself.

Any advice is welcomed especially from someone who has bought land and developed it before.

I will be buying my first rental property within the next week or 2.

Initially, I would like to start out by managing it myself just so I’m in more control of what’s going on. Is this the right or wrong route? If this is not a huge no-no, then where can I find some good copies of leases that people use that hold up in court?

Second, once I do turn the property over to a property manager, is there any way to maintain some level of involvement. I don’t want to step on the property manager’s toes, but there are some methods I’ve picked up along the way that I think work better than your average renting style and I would like to keep using them when finding tenants and maximizing rental income. I have learned a lot through Airbnb we’ll say.

Just tag me if you respond please so I can see that I got a reply. Thanks in advance.

@Karen Rivera there is a very well known realtor in my area who I am looking to get in touch with. She does so well she even has a team working under her. My plan was to ask her to represent me or someone under her (since the books I’m reading say the best realtors are only hiring top talent to work under them).

If she says foreclosures aren’t her specialty, I’m hoping at this point she could refer me to a good foreclosure agent.