Hi Randy, You can do with the following information what you want. I take no sides and have no emotional involvement in real estate other than when I made a purchase and saw the "diamond in the coal" rehab possibilities. I started in the Lehigh Valley in 1984. Been living off the cash flow for about the last 10 years (with little to no direct involvement in the upkeep and managing). And I had used most of the positive return before then to build my portfolio and to put as much room between me owning them and losing them (i.e.: leverage). BUT for a long time, I had other sources of income so the properties could be independent of my need to pay my bills. Early on I decided to make it my life and started a real estate company, management company and a contracting company. (All three are still operational but I no longer own).
And my first purchase on my own was a single-family home VA financing in the 15 hundred block of Liberty St. What you want to do can be done. What happens is during any giving real estate market the rules will change but the principles to follow for the success you hope for never change. The rules are now changing again (correction). So, with that you might want to think about the following:
How old are you and how many years are you willing to wait till you could live off the cash flow? (Based on your financing options, not happening "next few years").
Are you going to sub out all maintenance and repairs or do it yourself? (This can destroy newbies who ignore its effect on income).
If you have 1 house and it's vacant you have a 100% vacancy rate, if you have 10 houses it's 10%. How long can you survive a vacancy rate of at least 10% and possibly 100%? (Basically, do you have enough money set aside to carry a place or places for a few months).
What are you willing to sacrifice in terms of time (to find and run), money (lifestyle and extras)? (RE is not a hobby that can turn into a money maker)
The chances are if anything in the Lehigh Valley (that makes it to the market) can still turn a positive cash flow today, it will be gone (sold) before the listing ink is dry. How are you going to position yourself at the front of the line for the deals that people that have been in the business most of their lives are also looking for? (Being a good person with honest ambition will not work when it comes to sellers).
Good news: there will be units coming to market with this correction with sellers needing to sell. Bad news is that the ability to finance (with rates that my reach 8% by early next year and that is residential owner-occupied rates most likely) will now become a major consideration. For a number of years, mortgages barely made it as a line-item concern. Now they will be back up there with taxes, insurance, vacancy rate and maintenance and repair allowances. So, the best deals will be cash deals. Can you find the cash? Or at least put together 50% of the purchase price in cash? (You cannot afford a mistake in the first couple of purchases involving in 90%+ financing).
I know property managers that spend a fair amount of time helping tenants get free money to pay the rent. I also know that many renters are walking a fine line when it comes to paying their bills. How hard are you willing to work to find good renters, provide a decent habitable rental to paying tenants and kick nonpayers out as soon as possible (Not always bad people but still has to be done). Making sure they see you as one of the most important bills to pay. Like their cell phone, groceries, electric bill. (Emotionally one of the hardest things I had to deal with over the years).
These are questions you need to honestly answer for yourself (not for anyone else). The correction will start with the most highly leveraged people and work its way down the food chain. I do not see this one as bad as 2007-08-09 but people living off borrowed money (in all areas of life not just real estate) will suffer the most. This will be an opportunity for people willing to do the heavy lifting to build a real estate cash flow business. You can do it. Take what you have to work with and go from there. Maybe sell your house, buy a 2 to 4 unit and live in one. Or find a place that you can almost guarantee the rent payments (if they are realistic) in the worse neighborhood and be the best landlord you can. One thing you must do is if anyone that tells you'll can get X rent for a place; subtract at least 25% from that, run the numbers and see if it still works cash on cash wise. An emotional decision: you make the numbers fit what you need to justify the purchase. A non emotional decision: you calculate the worst-case situation and see if you can still hold onto the property.
Best of luck.
