I figured it might be something that would be of use to the forum. This really isn't intended to be a AMA thread, but if you have questions I'll be more than happy to answer about what I do with real estate.
I operate in what in my mind is a interesting area, right outside of a major metro city (Columbus Ohio). Far enough for hedge funds not to be overly interested in property, but close enough to get the benefits of the metro's trend towards higher prices.
Most of the properties I buy are in B & C class neighborhoods, although I wouldn't call them C class, I'd call them C+ as they're all low income, but you're not going to get shot or stabbed in the middle of the night most likely. Sure, your house might get vandalized if left empty for a long time, or you might find someone squatting in it, but those occurrences are somewhat rare, and are greatly offset by the amount of money you can make. I've read through several threads and see some of the bigger guys are put off by smaller deals, but in my mind if I can buy a property and make $500-$600 per month off it for less than one hour of management a month, I might as well do it.
So, in this case I bid on a online auction, and for the most part was the only serious bidder who was interested in the property. The auction firm was Williams & Williams, who does a great deal of foreclosure auctions in the mid-west. They typically only advertise through postcards to local residents (And in this case the post cards were sent to a 70% tenant occupied housing area) and through yard signs. The established investors I know in the area don't want the headache of dealing with properties like this, but for me it has been quite a profitable en-devour.
So, in the end I won the auction for $9,000. The second highest bidder bid a whopping $2,700 on the house, however due to my cell phone messing up during the bidding process, I bid against myself at $2,800 when I increased my max bid from $9,000 to $20,000 which was my max spend on this one.
Not surprisingly enough, they charged me all sorts of BS buyer premiums as well as over-priced title work, so the end amount I've got into it is a little over $9,000 but $9k sounds much nicer for a 2,700 square foot duplex.
Here's how the metrics look
$11,500 purchase price
$16,000 repair allowance
$27,500 total investment
$13,200/yr rent revenues
$2,000/yr repair reserves
$2,200/yr tax & insurance allowance
$600/yr vacancy reserves
$8,400/yr net income
So , $8.4k / 27.5k = 30% ROI on investment, clearing $700 a month in net operating income.
Now, investors and people LOVE to make fun of slumlords, investing in bad neighborhoods, dealing with residential tenants/HUD over commercial clients, however as I said above, I figure I have 1 hour per month in actual work I'll do to keep up with the tenant headaches.
Mind you, I have not included debt service, as this is a private partner deal and 100% cash, but here's to show you what it would look like with a cashout refianance strategy, which I absolute LOVE because it's effectively having your cake (Keeping the property) and eating it too (Putting a lump sum of cash in your pocket).
$27,500 total investment
70% LTV @ $65,000 after rehab value
$45,500 total cashout value, putting $18,000 in my pocket
Interest would run 5.25% or so on a commercial-style loan, or right around $2,400 per year of interest. So, the property would *only* clear $6,000 per year, reducing my net income to $500 a month, but putting that $18,000 in my pocket along with the $27.5k initial investment that could be rolled forward.
Sure, I could flip it as-is, since the price I've paid for it is quite low over what it's worth as-is, but with the buy-rehab-rent-refi strategy, I feel I get the best of all worlds.
Now, here's what a $9,000 property looks like.
I operate in what in my mind is a interesting area, right outside of a major metro city (Columbus Ohio). Far enough for hedge funds not to be overly interested in property, but close enough to get the benefits of the metro's trend towards higher prices.
Most of the properties I buy are in B & C class neighborhoods, although I wouldn't call them C class, I'd call them C+ as they're all low income, but you're not going to get shot or stabbed in the middle of the night most likely. Sure, your house might get vandalized if left empty for a long time, or you might find someone squatting in it, but those occurrences are somewhat rare, and are greatly offset by the amount of money you can make. I've read through several threads and see some of the bigger guys are put off by smaller deals, but in my mind if I can buy a property and make $500-$600 per month off it for less than one hour of management a month, I might as well do it.
So, in this case I bid on a online auction, and for the most part was the only serious bidder who was interested in the property. The auction firm was Williams & Williams, who does a great deal of foreclosure auctions in the mid-west. They typically only advertise through postcards to local residents (And in this case the post cards were sent to a 70% tenant occupied housing area) and through yard signs. The established investors I know in the area don't want the headache of dealing with properties like this, but for me it has been quite a profitable en-devour.
So, in the end I won the auction for $9,000. The second highest bidder bid a whopping $2,700 on the house, however due to my cell phone messing up during the bidding process, I bid against myself at $2,800 when I increased my max bid from $9,000 to $20,000 which was my max spend on this one.
Not surprisingly enough, they charged me all sorts of BS buyer premiums as well as over-priced title work, so the end amount I've got into it is a little over $9,000 but $9k sounds much nicer for a 2,700 square foot duplex.
Here's how the metrics look
$11,500 purchase price
$16,000 repair allowance
$27,500 total investment
$13,200/yr rent revenues
$2,000/yr repair reserves
$2,200/yr tax & insurance allowance
$600/yr vacancy reserves
$8,400/yr net income
So , $8.4k / 27.5k = 30% ROI on investment, clearing $700 a month in net operating income.
Now, investors and people LOVE to make fun of slumlords, investing in bad neighborhoods, dealing with residential tenants/HUD over commercial clients, however as I said above, I figure I have 1 hour per month in actual work I'll do to keep up with the tenant headaches.
Mind you, I have not included debt service, as this is a private partner deal and 100% cash, but here's to show you what it would look like with a cashout refianance strategy, which I absolute LOVE because it's effectively having your cake (Keeping the property) and eating it too (Putting a lump sum of cash in your pocket).
$27,500 total investment
70% LTV @ $65,000 after rehab value
$45,500 total cashout value, putting $18,000 in my pocket
Interest would run 5.25% or so on a commercial-style loan, or right around $2,400 per year of interest. So, the property would *only* clear $6,000 per year, reducing my net income to $500 a month, but putting that $18,000 in my pocket along with the $27.5k initial investment that could be rolled forward.
Sure, I could flip it as-is, since the price I've paid for it is quite low over what it's worth as-is, but with the buy-rehab-rent-refi strategy, I feel I get the best of all worlds.
Now, here's what a $9,000 property looks like.
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