Quote from @Randall Alan:
Quote from @Scott Falvey:
I'm ready to jump in and buy my first actual investment (non-house hack/already doing it). I'm 50+ years old and generally want to purchase cash flow properties as I inch toward retirement. I'm in a fairly transient area in MD and the market is very competitive with primary focus on condos and apartments (longer term goal, in a couple years maybe - MF properties). Like many, I'm finding it difficult to locate properties in my preferred location that'll cashflow. I'm also starting to connect with wholesalers so I'm starting to see off market properties too. I have also come across some that require fixing up (which I'm not afraid to do) but they're a little out of my preferred location. I'm not fluent with classifying assets/markets but would guess my preferred market to be "B" and the "out of my preferred market" opportunities would probably be B-/C+.
However, I just came across several properties that are about an hour and a half away that are in good shape and will actually cash flow. I'm considering a "package" of three condos that are discounted from market rate compared to a similar one in the same community. I would guess the area is class "C/C-". The area also has a higher than State average crime rate. On the flip side, the area is experiencing growth over at least the last three years.
So, I'm stuck at, should I consider purchasing an hour and a half away for a property that seems like it doesn't need much work but will cash flow right out of the gate (planning to self manage) but is in a higher than average crime area but in a growing area, or should I be patient and diligent in seeking the good deals in my local/preferred area?
Should I consider pre-foreclosure and auction properties in my preferred area- though I admit, the idea is intimidating since I'm new and don't know where to start or who to contact at what stage in this arena.
I'm looking forward to and appreciate everybody's comments!
I'm 53, and have 37 units we self manage...Started buying when I was 47
A couple of words of advice and caution. On Condos - be sure you are accounting for the HOA fees in your analysis. Also know that HOAs are a major PITA to deal with at times. Some have rules that you can't rent the unit, or you can't AirBnB the unit. Some limit these by a percentage of the units in the building. They also have many rules that will typically frustrate landlords - like minimum lease term to tenants, the color of the unit, etc, etc, etc. Not to mention assessments that they can charge you. I personally try to avoid HOA properties so that I can be in complete control of my own situation. HOA fees don't go down... only up!
Auctions done through the county where I am at are cash only deals. You bid on a website just like eBay, and if you win the final payment is due the next day by noon or you lose your 5% deposit you already paid. Don't know the deal in MD, but many are similar... just make sure you understand the rules. We have bought 2 properties off the foreclosure market. Your first move after getting the title is to usually kick out whoever is still living there. You also don't know the condition of those properties. One that we bought the guy had 10 cats and 10 litter boxes he hadn't changed in years. Even after stripping all the carpet out, the unit still wreaked of cat urine. We were able to rent the unit back to the tenant though, so that worked out in the short term.
Next - know what a good deal is. For me, after accounting for principle, interest, taxes, insurance, and a $100 maintenance reserve, I want to at least make $300 a month in profit (at a minimum). So cash flow of $75 a month would be a nonstarter. One way to look at this is your ROI. Say you were buying a $100,000 condo and had to put done 25%. In return you are going to net $200 a month after the expenses listed above. You are earning $2,400 in a year, on a $25,000 investment. That's a 9.6% ROI (ignoring anything else that comes along the way). If you were only earning $100/month - your ROI would be 4.8%. Some high yield savings accounts are paying better than 4.8% right now. So $100 a month would be a bad investment in my opinion.
Also, understand that your property taxes will increase once you buy your property. If you are paying 3x what the previous owner paid for the property, your property taxes could in all likelihood triple at the end of the first year of ownership. Your property taxes will be calculated the November following your purchase date and you will get a new bill in the mail that says, "Here is your new tax rate." Keep in mind that if you didn't start escrowing for those higher taxes, you will also get an escrow shortage notice from your lender who will not only increase your payment for the shortage, but increase it again for the coming year to the new tax rate. This can be hundreds of dollars a month in increased expenses - quickly wiping out a $300/month profit.
Finally - know that it is just a really expensive time to try and get started. Both houses and money are expensive, and market pressure should help push housing prices down over the short term. By buying now you are committing in the short term to paying hundreds of dollars extra a month in interest that if you waited a little you could avoid. Sure, you can refi down the road when rates drop, but that comes with a $3,000-$5,000 price tag. Probably 3-4 years worth of mortgage pay down you will lose to a refi. So my advice would to be patient with the market and let both rates and housing prices settle a little. I have read articles that suggest that mortgage rates will drop into the mid 5's by the end of the year (just someones guess, but supposedly educated).
All the best!
Randy
@Scott Falvey
Randy - thank you for the response and advice. I hope to have 10 units in the next 3-5 years and will gladly take on more if I can get them - I can currently only dream of having 35. My current house hack is a condo with an HOA and they definitely have some things to say about renters. That experience made me wise to be sure I know the condo/HOA rules before I purchase.
I also hear the expression that HOA fees don't go down, but how does that compare to maintaining a single family property? That cost doesn't go down either unless you invest the time/money up front to reduce the longer term costs.
For Auctions, or foreclosures/pre-forclosures/bankruptcies, should I have an attorney involved for the first one or two (or all of them) to have the legal guidance? My understanding is that you can contact different parties depending on the financial stage the property is in, but I don't know who to contact when.
Thanks for the advice on the investment. For my first property, I'll be thrilled to get something that cash flows especially in my area where the market is highly competitive. Once I've got something under my belt I can start to seek out the great deal and look forward to greater cash flow and forced appreciation.
"Be patient" - it's difficult to not get frustrated. I'm not going to buy something that doesn't produce cash flow and will wait if I have to (again - it's frustrating where things are today) but if I find something that cash flows, I'm going to try and scoop it up.
I appreciate your input and time spent typing your response. I'm sure you have better things to do, so I value that - thank you!
