Wow, great responses everyone!
To clarify a few things. When I said 50% cost I was referring to lower end properties, really at the very lower end because those are the ones where I seem to be able to find decent returns even at higher costs. With higher grade properties I normally use 40%. Also, that would include property taxes and property management. I also think sometimes people underestimate or don't properly account for longer term cap ex costs so there is some money allocated there as well (maybe more than some people allocate). Having said all that, if someone out there has, say, 10 or more properties in one of the lowest class peoperty/neighborhood types and they are using property management, if they aren't at 50% for their costs they should probably take a second look to be sure they are including everything. Like I said, over 15 years doing this and we have properties all over and with different managers in different states and that is the reality for us anyway. Sometimes we've experienced even higher costs than that! That's just an average!
The other thing is that if I wanted to find a property that met my numbers I am sure I could. Like some of you mentioned it's simply a matter of looking hard enough and being willing to put some reno into the property. I guess what I am really saying is that if somebody needed/wanted to invest bigger sums of money in rentals in a relatively short period of time it would be very difficult to do that and still make a return better than 7.5%. More than likely I would have to purchase out of state, quickly and probably find multiple properties which makes it that much more difficult. 5 years ago or even before the crisis, it was totally possible but now it is more like finding the needle in the haystack and all the extra work limits how many you can accumulate quickly at those return levels.
We actually flipped our entire portfolio recently just because the value no longer made the returns good. The only way we were able to do that was because we found that great deal on a bunch of SFRs. Like someone else said, we sold in a higher value market and 1031'd into one of the few undervalued markets that are left. But we were sort of lucky to have found that deal and I don't want to be any heavier in that particular market.
Oh, and I agree about Detroit. I actually flew there a year ago and met with a number of agents/turn key people and I left without buying anything. If you don't live there and know that market inside and out I think you have to be lucky not to get into trouble.
I think, at least for the near term, I will look into some of the alternative methods of investing in real estate like some mentioned in this thread. But, I still need to invest that 1031 money in like kind property somewhere so hopefully I can find some decent returns in the next month or two.
