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Old 07-16-2012, 09:54 AM
 
124 posts, read 240,914 times
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It looks like we'll be in a position to purchase an investment property early in 2013. We've been planning for this for years, and now that we are close to our goal, I am starting to look at a lot of different options, checking out all the possibilities before we commit.

If you were choosing between the following types of properties, what would you pick? Assume ROI etc looks about equal on paper..

1) a multi-family property, in or around the town where we live. We could start with a duplex or triplex and test out being a landlord. We do live in a college town (Chapel HIll, NC,) so rents are relatively high and we would probably be dealing with students and all that that entails. This is the original plan, and I know something about the business of it all - my parents have owned buildings for years and I worked for the family investments business as a way to earn $ when I was younger.

2) a single-family home, in our town. If we choose carefully, we can avoid some of the pitfalls of renting to students (unlike option #1), but prices are higher and the volume is lower.

or 3) a vacation rental property in another state. This is my newest idea, so it might not be all that well thought-out. My parents are planning to spend the winter in Florida, and housing prices are so cheap there. There's a tremendous market for snowbird rentals and now might be the time to pick some properties up and get started in that business. Two obvious challenges: I don't live there and would be managing from out of state, and it's more ongoing work to find and book tenants if you need multiple visits per year for it to work. Also, I don't know as much about vacation rentals as I do about residential investment properties. On the other hand, it would give us a place for the family to spend unbooked time and dh and I would make it part of our retirment plans,so there are additional 'perks' that might make it all worthwhile.

One other variable: we expect to be where we are for about 8-10 years and I'm not sure what we would do with rental properties here after that (depends on a lot of things), we would plan on hanging on to the vacation properties until retirement and beyond (if profitable.)

If you were about to invest enough to purchase either four small rental units (with a high likelihood of student tenants) or one single family home (for professionals, not a student-type property) or two vacation properties, what would you pick and why? would you invest locally or out of state? if out of state, where?

Thanks for any advice! And yes, I'm not completely clueless about this whole business - there's a lot more background and many more variables than I've described above, I'm just wondering if anyone has any good insights or suggestions or advice. I figure it can't hurt to ask, right?

So, anyone got any great real estate investment tips? I'm hoping for the RE equivalent of "buy apple stock" circa 1992...

And thanks.
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Old 07-16-2012, 10:42 AM
 
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I've gone through this exact line of analyzing, and came to the conclusion to buy single-family homes for investment.

The college multi will be wrecked and you will be busy with lots of turnover, repairs, applicants, parking issues, laundry issues, noise issues, etc. Also, think of it like this - your multi will have four kitchens to maintain, lots of toilets, lots of fixtures, etc. Your SFR only has one kitchen to maintain, etc. College town mult-rentals are highly speculative. New investors are drawn to them because of the appeal of the never-ending supply of renters. People also think, Ah multiple tenants = more income, but it doesn't work out that way. Multi-tenant buildings are speculative in nature as well. People buy and sell them frequently, looking to make a profit when markets are up.

The speculative market has been turned on its head, so whatever you buy has to make sense from an income perspective, and not a speculative one.

I have friends with multiple vacation rental properties in different resort areas, mainly purchased speculatively. These are not even break-even in most instances. If you are absentee, then your property manager will siphon off most of the profits, and will not do things the same as if you were managing the property yourself. It's tempting because of the thought that you could use the property yourself, but it doesn't pencil out for most people. Some folks who manage their own may break even or get a bit of profit out of it, but it's a lot more work, time and headache than a nice SFR that you may be able to get long-term tenants into.

Vacation rentals are very attractive to the newbie who thinks, Ah, I could use that beach property whenever I want and others will pay for it for me. But the cold hard fact is that they are not a good investment. If you want a vacation at the beach, spend money to rent a different place at a different beach every time. Many folks end up selling their vacation rental after they find out what money pits they are. Unfortunately in the current market there is a glut of those on the market in all the resort areas - lenders are not lending for these, and people don't have the means. So many folks are stuck now.

As to where - anywhere you can manage the property yourself. Anyone you hire to help you like a management company, handyman service etc. is eating into your income. Also, trusting a management company out of state is a bad idea. I have friends in that situation who have found that their properties are not being maintained well, rented out aggressively etc.

Beginner investment property should be self-maintained to maximize income, so you should stick to areas within comfortable driving distance.

For the most part, small investers like me or yourself are not going to get rich quick in this arena. But it is a great long-term strategy for building income and assets.

Last edited by PureHapa; 07-16-2012 at 10:50 AM.. Reason: adding last paragraphs
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Old 07-16-2012, 01:39 PM
 
Location: Simmering in DFW
6,947 posts, read 18,713,515 times
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My business plan is to always live within ten miles of investment property so that I can manage the properties myself. I have only owned individual single family properties, however the last two houses were villas/patio homes right next door to eachother. So they each rent for $900/month. I have thought I might have been smarter to buy one house at double the price with a $1800/ mo. rent and then only have had to worry about one HVAC system, one hot water heater, one fence, one garage door opener, etc.
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Old 07-16-2012, 01:44 PM
 
491 posts, read 1,975,089 times
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Quote:
Originally Posted by Squirl View Post
My business plan is to always live within ten miles of investment property so that I can manage the properties myself. I have only owned individual single family properties, however the last two houses were villas/patio homes right next door to eachother. So they each rent for $900/month. I have thought I might have been smarter to buy one house at double the price with a $1800/ mo. rent and then only have had to worry about one HVAC system, one hot water heater, one fence, one garage door opener, etc.
Exactly my thinking. I'd rather buy a nicer, more expensive home - after saving the cash needed for that purchase, rather than buy two or three lower-market ones. This has worked out well for me.
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Old 07-16-2012, 02:51 PM
 
Location: Baltimore
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I'd be interested to see where a 3-4 unit MF has the same ROI as a single family home.
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Old 07-16-2012, 03:53 PM
 
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Having managed several rental properties, I would recommend that if you're going to manage the property yourself then it should be close by...so I would nix the vacation rental.

Between a multiple family and a single family property, I would look at what would be easier to sell down the road when you decide to get out of the business (or to treat it as a flip property if you're making significant repairs). In my area, single family properties are easier to sell, so that's what I invested in.

If I had it to do all over again, though, I probably just would have stuck to the stock market and other non-rental investments.
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Old 07-16-2012, 03:54 PM
 
Location: Simmering in DFW
6,947 posts, read 18,713,515 times
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Quote:
Originally Posted by PureHapa View Post
Exactly my thinking. I'd rather buy a nicer, more expensive home - after saving the cash needed for that purchase, rather than buy two or three lower-market ones. This has worked out well for me.
Just to add -- the benefit of buying smaller, less expensive homes for me has been the ease of purchasing. I have been paying cash for houses and saving earnings to purchase. So, the 2 houses I mentioned were not bought at the same time. It is actually easier to buy at very favorable terms as a cash buyer, just FWIW.
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Old 07-16-2012, 04:24 PM
 
4,919 posts, read 19,152,716 times
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Quote:
Originally Posted by Elizabeth_John View Post
or 3) a vacation rental property in another state. This is my newest idea, so it might not be all that well thought-out. My parents are planning to spend the winter in Florida, and housing prices are so cheap there. There's a tremendous market for snowbird rentals and now might be the time to pick some properties up and get started in that business. Two obvious challenges: I don't live there and would be managing from out of state, and it's more ongoing work to find and book tenants if you need multiple visits per year for it to work. Also, I don't know as much about vacation rentals as I do about residential investment properties. On the other hand, it would give us a place for the family to spend unbooked time and dh and I would make it part of our retirment plans,so there are additional 'perks' that might make it all worthwhile.
I have a couple of properties on Hawaii that are for vacation rental purposes and they have provided a positive cash flow with minimum headaches. First, and formost they are Condotel properties. Condos managed like hotels. You can buy and live there with hotels style ammendaties, or make the unit available to renters like at a hotel. You pick the time to rent it, and you pick when you want to be there.

I do not recommend vacation renatals as a general tool for investors to this side of the business unless they have the ability to have someone walk them through the nit grits of the industry.

The key is making sure the property is desirable, fianacially stable, has great marketing, offers ammenaties people want, is in an area where your not dependent on limited traffic, have a management/maintainance staff that is top notch, and generally understand that you are not going to make a fortune, just a steady reliable income.

The biggest downside is that the management company has to be paid to do a great job and that usually means heafty payments off the rental. Most investors are blindsided when they see these sucessful projects and expects some good money to flow their way, yet forget that success cost money and you pay for the ability to have income and that may mean less income than you expected.

Another thing about vacataion rentals is that often, if you do not reside in the state or live further than a certain distance, you may be required to have a PMC handling things for you. Often people (even expereinced investors) get into vacation rentals without checking into PMC requirments and the day something goes wrong, they get slapped forward and backwards in court because they violated a basic principal of being allowed to rent.

Quote:
Originally Posted by Elizabeth_John View Post
1) a multi-family property, in or around the town where we live. We could start with a duplex or triplex and test out being a landlord. We do live in a college town (Chapel HIll, NC,) so rents are relatively high and we would probably be dealing with students and all that that entails. This is the original plan, and I know something about the business of it all - my parents have owned buildings for years and I worked for the family investments business as a way to earn $ when I was younger.
The primary investment property wan't something I even considered or thought of. After relocating I had a property i was moving to but there was a wait of about 5 motnhs. Duringt hat time I decided to rent a place. WOW, that was diffiuclt as there werre really nothing other than some motels, a distant extended stay motel and hpuses or rooms in houses or garages converted to a apartment at someone house. The typical "apartment complex" was no where to be found! After that frustration, my uncle convinced me to look for apartment complex tyope palces and I located a older roadside motel with swiming pool, office and diner that had been closed for awhile. After inspection, we bought iot, obtained al the permits, and converted it to 1 BR efficency apartments with ammendaties.

To our surprise, the demand took off right away and for the last 5 years, we have always operated with a waiting list for availability. The pklace is professionally managed and all i do is get a check in the mail. Very little am I responsible for, taking my uncles advice that Free money is much better than earned money. He said I can make more a month if I took on more of the management role, but if what is coming in is fine with me, let the PMC do their job and just cash the checks.

Since theat time, we are curerntly working on #3 of the same concept and when I retire in a few years, this is just income coming in on top of income with little if any involvment. As a matter of fact, he doen't even call me a landlord, more like an investor even though I own the actual properties and listed on leases as the owner. I know I can make more by getting more involved, but I got to say, why if not being involved still makes me money?
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Old 07-16-2012, 04:38 PM
 
124 posts, read 240,914 times
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Originally Posted by davecj View Post
I'd be interested to see where a 3-4 unit MF has the same ROI as a single family home.
The vast majority of 3-4 unit buildings around here are student-type housing, with relatively low rents and higher costs. the single family homes we would consider are in low supply and rent for good prices relative to the purchase price. The student population here is almost 1/3 of the community and this skews the rental picture which affects the ROI on various types of properties. I picked a couple of examples out of the local MLS and ran some very quick calculations/guesstimates. I'm sure my numbers are not altogether precise, but the ROI looked pretty close to me. I suppose I could look at properties in need of significant upgrades (and I may still do this), but that seems rather complicated for a 'first-timer' like me.

Thank you all for the wonderful suggestions and insights. It's a lot to think about and I'll be trying to crunch some real numbers and watch listings over the next couple of months before I make my move. I appreciate the help!
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