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This is exactly why not to rely on 30 yr mortgages to buy investment property. One mishap and you're OUT. Investing in RE requires one to have positive cash flow and reserves to see them through any misfortune. You want to be able keep your property empty for a couple of months and not lose sleep over making payments.
IMHO, these are speculators. Few pull through, most don't.
That is exactly why grocery store employees shouldn't be able to buy 4 homes as they were able to in 2005. Investing in RE certainly does not require one to have positive cash flow nor would a 30 year mortgage put you into negative cash flow. All my leveraged properties are cash flow positive which was really easy to do since I lived in them for a few years and got the owner occupied rate. I completely agree it is definitely is riskier and you should have appropriate reserves and income.
Quote:
Originally Posted by ohio_peasant
Nowise am I somehow predicting a real-estate apocalypse. The US population will keep rising, especially if we dispense with the recently virulent anti-immigrant biases. New households will form. It’s even possible (though only anecdotal) that Millennials’ aversion to home-ownership will be a boon for landlords and real-estate developers.
The problem, as many have already noted, is the local-nature of real estate. In our market, dwellings are cheap, and it is common for mid-career professionals to buy a house in a “gentrifying” neighborhood for $50K, renting it out for $500/month. This works fine, assuming responsible tenants (a topic already thoroughly thrashed here). But then appliances need to be replaced, roof leak, etc. Given the low rent and low property-costs, these “small” maintenance costs add up. Over the years, our amateur landlords find themselves with a risibly small profit – maybe $100/month, maybe less.
But the above isn’t a problem, if the property price keeps up with inflation, let alone if it outstrips it. In our area, this generally doesn’t happen. That $50K house is still $50K 20 years later, or possibly only $40K, if the “gentrification” of the area petered out. The house is still returning $100/month in profit (maybe), but a major benefit to property-ownership (appreciation) is moot.
A conventional strategy does not sound like it would be good in your market, though I'm sure there's a way to kill it somehow. My guess the rent to pricing is not that bad out there, but obviously you know best. While I live in a high appreciation area, you can rent a $1M house for only $4000 a month. I've seen some fly over state landlords getting nearly $1000 rent on sub $100k homes. Of course the kicker is the homes barely appreciate, you're dealing with lower quality tenants and a lot more work if you want to scale.
Location: Formerly Pleasanton Ca, now in Marietta Ga
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Quote:
Originally Posted by 22003yo
That is exactly why grocery store employees shouldn't be able to buy 4 homes as they were able to in 2005. Investing in RE certainly does not require one to have positive cash flow nor would a 30 year mortgage put you into negative cash flow. All my leveraged properties are cash flow positive which was really easy to do since I lived in them for a few years and got the owner occupied rate. I completely agree it is definitely is riskier and you should have appropriate reserves and income.
A conventional strategy does not sound like it would be good in your market, though I'm sure there's a way to kill it somehow. My guess the rent to pricing is not that bad out there, but obviously you know best. While I live in a high appreciation area, you can rent a $1M house for only $4000 a month. I've seen some fly over state landlords getting nearly $1000 rent on sub $100k homes. Of course the kicker is the homes barely appreciate, you're dealing with lower quality tenants and a lot more work if you want to scale.
In the Bay Area in Ca the 1 million house for $4k a month makes a cash flow pretty much impossible.
All my rentals were bought and fixed up in the 40 to 65K in the midwest. Rents run from $1,000 to $1200 a month.
Appreciation is pretty slow compared to Ca and other areas if you are talking about just sitting on them. But he result was increasing their value in fixing them up. That and the little appreciation they got pretty much doubled their value over the last 3 to 4 years from what I paid, so 100% total. Compared to the Ca real estate in the same time period without forced appreciation came out to about 30%
The tenants are a bit more work, but the property manager deals with all that stuff.
You got great financing doing the owner occupied route.
In the Bay Area in Ca the 1 million house for $4k a month makes a cash flow pretty much impossible.
All my rentals were bought and fixed up in the 40 to 65K in the midwest. Rents run from $1,000 to $1200 a month.
Appreciation is pretty slow compared to Ca and other areas if you are talking about just sitting on them. But he result was increasing their value in fixing them up. That and the little appreciation they got pretty much doubled their value over the last 3 to 4 years from what I paid, so 100% total. Compared to the Ca real estate in the same time period without forced appreciation came out to about 30%
The tenants are a bit more work, but the property manager deals with all that stuff.
You got great financing doing the owner occupied route.
So you are saying you had to leave the Bay Area to retire because rentals wouldn’t have worked here (in the Bay Area)?.
As I said, CA is a tenant friendly state. A landlord has it much easier in a landlord friendly state.
I would have lost my gluteus maximus if I had bought rentals in California.
ever see a landlords bill of rights ???? nope , me neither . tenants get all the protections . all landlords get is basic contract law and even that can be on shaky ground in court .
we just made our tenant a final offer at 50 cents on the dollar for the co-op to make buying attractive to them . .
$600,000 ---100% financing for 5 years —30 year amortization --- 3% interest rate. The son can be the buyer as long as mother and father guarantee the loan. $10,000 non refundable deposit to be applied to the initial mortgage payments.
if they can do it they pick up 600k in equity day 1 .
while we did well just because of rent stabilization , you can see how this is really not equitable for landlords . i mean these people are tenants not family .
Location: Formerly Pleasanton Ca, now in Marietta Ga
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Quote:
Originally Posted by Cabound1
So you are saying you had to leave the Bay Area to retire because rentals wouldn’t have worked here (in the Bay Area)?.
That’s pretty much what I’ve observed.
For my purpose and goals leaving the Bay Area worked out well. The Bay Area has always had poor cash flow overall. Appreciation has been extremely high there though. Now you can always get a positive cash flow if you put down enough, say 70% or more, but that generally ties up a lot of cash. The other thing is to carry the negative cash flow for long enough to pay the house off then reap the rewards of rental cash flow and likely high appreciation.
For me I didn't want to carry the non cash flow for that long but wanted it immediately to live on.
The exception is if you were able to buy at the last big recession when everyone thought real estate was not going to go up for a long time. Then values and rents skyrocketed. I don't know if we will ever see that again.
The last rental I sold in California for 350k has gone up to about 450 k in the last 3 years. It could generate 22k a year in profit. I sold it and bought 6 rentals in flyover country. Those generated about 38k a year in rents. Their value had gone up to about 600k. So over a 3 year period flyover beat California 414,000 to 166,000.
Now jumping from 22k to 38k a year may not sound like much, especially if you live in California. But moving to a lower cost of living area one can pretty much live on 38 k a year if they are frugal. For me I had a second California property I lived in and paid about 45k a year in Payments on. I sold that and repeated the process with another 6 rentals. So now the income goes to 76k a year. For a lot of people that is enough money to retire comfortably in many parts of the country so that's what I did.
A house here I can rent for 1600 a month. The same house in Pleasanton in a comparable neighborhood would run about 3500.
In my case with just those two properties in California they cash flowed a net of negative 23k a year. Moving to Atlanta the swing was to positive 56,800 enabling me to not have to work a job.
I'm not saying you won't make money in California real estate, it just usually takes a long time to do it unless you are successful at flipping houses there.
Location: Formerly Pleasanton Ca, now in Marietta Ga
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Quote:
Originally Posted by mathjak107
ever see a landlords bill of rights ???? nope , me neither . tenants get all the protections . all landlords get is basic contract law and even that can be on shaky ground in court .
Deal with section 8 and you'll really see how badly it can be for a landlord.
a questionable property in a sketchy location will not attract good tenants, even at steep discount on rent.
I've found you can get good tenants but you have to find "think outside the box" people. Hippies, hipsters maybe university students. But like Avis you have to "try harder" and the property has to stand out with unique features or location. A bit of extra care to maintenance and you need hardwood or hard surface floors and allow pets. If it is single family look for a garage or fenced in yard where they can park inside the fence. I don't particularly consider single family to be good investments, though.
I have a 4-plex I affectionately call the Crack Alley House, definitely a challenging location. I choose tenants that will look out for each other and try to choose tenants with varying work schedules. A renter who commutes by bike is good as the neighbors can't tell if they are home.
It also helps to be in a market where supply and demand are in balance, I assume that doesn't apply to Ohio.
As for the suggestion of Pittsburgh as a market - I think it would appeal to think outside the box types, don't know about supply and demand. But more importantly, don't be an absentee landlord. That is a recipe for disaster. The good deals will require attention the first year. Can you take a sabbatical? Maybe it would work if you found a good manager and you are looking for a tax write off but it needs to be a city you are wanting to retire to.
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