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I don’t know where you’ll find a condo with those numbers, not today at least. A few years back I bought a few condos from 25k to 30k that rent for about 800 each. But now you’ll pay about 65k for those same units. okay, good to know, thanks for this info
I have a cheap property in Alabama. It’s a house in a lower c class area that rents for 625 that I will be selling as it’s the only one I have there and I’ll be buying something else where I have most my rentals. The numbers have been on of my best performers, but I’m looking more local to where I live now.
just being curious, what did you pay for the Alabama place and how much did it go up since?
I would like to get an opinion from the investors out there.
So I own a 6 year old condo free and clear in SoCal. Just bought it for $530k cash. I am renting it out for $3,200/month. HOA is $230/month. Taxes, not sure yet, I guess around $6k/year.
OP,
I have a similar situation except I bought my TH back in 2007 in OC. Your property tax is more likely $650/mo, or $7,800 a year.
You should really get a handle on your current rental finances. You know your monthly rental income, but you'll need to figure out your monthly expenses including PM fee, taxes, HOI, etc. My guess your expenses is at least $1,000 a month.
First, I think you're moving toward the right direction. California is too expensive to make sense in buying rental properties. Looking toward midwest/ south is the right approach.
But you'll need to get your "team" in place, that includes
1) A really good Realtor you can trust. You will not be able to see the property yourself, so you'll need to trust your Realtor who just doesn't make offers but with an eye looking after your interest. There were several time when I called my Realtor all excited about a "good deal", but just by looking at photos on Zillows, she pointed out where there were water damages, cracked ceiling, etc., that brought me back to reality.
2) A good property management firm. You'll be handing over your property to the PM firm. You'll want to know how they screen tenants, handling your funds, and repairs, etc.
A good PM firm also has database on what realistic rent you can get for a property. Do not trust Zillow's estimate. Always build in margins in your numbers because expenses can only go higher, never lower.
Quote:
Would it make sense for me to take out $150k of my equity and buy several little units somewhere in a cheaper state? A friend of a friend said something about having bought units for $30k each and minus taxes, property manager, etc. her return is $600/month.
Which means if I get 5 similar units, I would get $3,000/month. Or even if I spend $50k on each unit, I should get something around $3k, no? Does that make sense, aka does the bank lend money like that?
My income is not big enough to get a loan easily but with the condo I should have leverage.
Thoughts?
Does your "friend of a friend" willing to put her money where her mouth is? NEVER TRUST hearsay! Do your own due diligence.
* Ask her what city, then look it up for yourself
* If necessary, ask her to show you her lease agreement
Next, you'll need to learn how to calculate numbers to see if a property is a good buy. Take a potential rental income, minus expenses (PM fee, tax, HOI, P&I, etc.), multiply by 12 then divided by the purchase price to see if the return on investment (ROI) is what you have in mind.
I'll be wary if the ROI is that good. If it is, it's usually in a bad area, i.e., ghetto. That means the tenants are in the marginal economic scale. Any hiccups in the economic, chances are high that tenants will loss their jobs, unable to pay rent, claim COVIDs, etc. You'll end up with dead-beat tenants and you'll need to pay lawyers to evict them. Also, the bad area will not appreciate as much as good area.
On how to qualify loan for a rental. They take your salary + 75% of rental income divide by your debts (obligations such as property tax, mortgage payments, etc.) to get a Debt-to-Income (DTI) ratio that should be around 45% to see what loan amount you can qualify.
Personally, if you use the $150K as down payment and closing cost, realistically it's good if you can get a monthly net cash flow of $1.5K out. Anything above that you can get is gravy. But then you will be paying the P&I on that $150K. Realistically you will get $800/mo. after it's all said & done, that's a 6% return of your money. You need to crunch the numbers to see if they make sense for all your troubles.
If I were you, I'd be happy with the existing rental. You are getting ~$2,000 a month cash flow out of it. That should help subsidizing your income.
I have a similar situation except I bought my TH back in 2007 in OC. Your property tax is more likely $650/mo, or $7,800 a year.
You should really get a handle on your current rental finances. You know your monthly rental income, but you'll need to figure out your monthly expenses including PM fee, taxes, HOI, etc. My guess your expenses is at least $1,000 a month.
First, I think you're moving toward the right direction. California is too expensive to make sense in buying rental properties. Looking toward midwest/ south is the right approach.
But you'll need to get your "team" in place, that includes
1) A really good Realtor you can trust. You will not be able to see the property yourself, so you'll need to trust your Realtor who just doesn't make offers but with an eye looking after your interest. There were several time when I called my Realtor all excited about a "good deal", but just by looking at photos on Zillows, she pointed out where there were water damages, cracked ceiling, etc., that brought me back to reality.
2) A good property management firm. You'll be handing over your property to the PM firm. You'll want to know how they screen tenants, handling your funds, and repairs, etc.
A good PM firm also has database on what realistic rent you can get for a property. Do not trust Zillow's estimate. Always build in margins in your numbers because expenses can only go higher, never lower.
Does your "friend of a friend" willing to put her money where her mouth is? NEVER TRUST hearsay! Do your own due diligence.
* Ask her what city, then look it up for yourself
* If necessary, ask her to show you her lease agreement
Next, you'll need to learn how to calculate numbers to see if a property is a good buy. Take a potential rental income, minus expenses (PM fee, tax, HOI, P&I, etc.), multiply by 12 then divided by the purchase price to see if the return on investment (ROI) is what you have in mind.
I'll be wary if the ROI is that good. If it is, it's usually in a bad area, i.e., ghetto. That means the tenants are in the marginal economic scale. Any hiccups in the economic, chances are high that tenants will loss their jobs, unable to pay rent, claim COVIDs, etc. You'll end up with dead-beat tenants and you'll need to pay lawyers to evict them. Also, the bad area will not appreciate as much as good area.
On how to qualify loan for a rental. They take your salary + 75% of rental income divide by your debts (obligations such as property tax, mortgage payments, etc.) to get a Debt-to-Income (DTI) ratio that should be around 45% to see what loan amount you can qualify.
Personally, if you use the $150K as down payment and closing cost, realistically it's good if you can get a monthly net cash flow of $1.5K out. Anything above that you can get is gravy. But then you will be paying the P&I on that $150K. Realistically you will get $800/mo. after it's all said & done, that's a 6% return of your money. You need to crunch the numbers to see if they make sense for all your troubles.
If I were you, I'd be happy with the existing rental. You are getting ~$2,000 a month cash flow out of it. That should help subsidizing your income.
You make good points and I have considered most of them already. I am at the beginning stages - planning in my head, wondering IF it is possible aka IF it makes sense. I am nowhere near looking for properties and realtors yet. I have not gotten in contact with the friend of the friend because if I dont have any money or if it doesnt make sense for me, there is no point.
I know my monthly expenses for my current rental very well, except for the taxes.
Thank you for your input. I have decided I will probably not buy anything, you are right. IF there is another recession and prices fall very low, THEN I will buy. But not when the market is high like now
Thank you for your input. I have decided I will probably not buy anything, you are right. IF there is another recession and prices fall very low, THEN I will buy. But not when the market is high like now
I think that's the right move for now. Think back to 2008 when the market was super hot, the tendency is to jump in and buy something. But history has shown us the market eventually cool down. It will be a good time to buy then.
I own properties in Alabama and continue to look for buying opportunities there. But recently I was outbid on several listings. Anything that looks "reasonable" stay on the market for only 2-3 days, and offer was $15K - $25K above listing price. Earlier this year, I was outbid on a property by $20K but the new owner had to lower the rent just to attract tenant, ending in a money-losing proposition. I was glad that I did not go higher on my bid. If it's not meant to be, then it's not meant to be.
If the number doesn't make sense, don't let your emotion take over and over-rule your decision.
I am very safety driven. I am scared of stocks, and crypto and all that other stuff, I only believe in real estate as in investments.
I did not come that far because of my income. I never earned much.
I bought a dump in 2010 for $270k, rented out rooms while I lived in it and turned it into something desirable and sold it last year for $505k. So for me, that is very special and precious and I am too scared to risk it. Real estate feels safe for me.
Your investment...a single CA condo, all cash, that you don't need the equity or returns from, is a safe investment. If the market crashes, you still have the housing shortage in CA which means you'll always have a tenant and you won't need to sell since it's not leveraged. I get why you think it is safe (although I'd caution that the HOA is something to keep an eye on...in 20 years that might become a liability)
Buying cheap properties long distance?? That is decidedly unsafe. If you want to start making risky investments, then sure, consider it, but also consider other investment vehicles as well.
So I have rentals and I won't invest in areas I am not familiar with personally. I want to be within a relatively easy drive to my rentals so that I can drive by them every so often. If you don't know anything about Alabama or Mississippi, then it really increases your risk.
I know a local investor that invested out of state for the same reason and sold both of his units at a loss two years later. Be cautious. Local knowledge just can't be gleaned from the internet.
I agreed with this.
There are legal reasons why a Realtor can not tell you if a neighborhood is good or bad, it's called the Fair Housing Law.
I do invest out of State in Alabama (I live in SoCal), but that's because I used to live in that city for 10 years. I know each area sometime right down to specific street. The Realtor I used sold our house when we lived there. In fact, when we moved out I just handed her the key and 2 days later she sold the house. The was the days where the average DOM is 3-6 months. She looks at houses I was thinking investing as if it's her own house and told me all the issues she's concerned about. If she has any concern, such as the age of roof, she'd call a roofing contractor she trust (free) and get a professional opinion. She goes out of her ways looking after my interest. I am lucky to have her.
Your investment...a single CA condo, all cash, that you don't need the equity or returns from, is a safe investment. If the market crashes, you still have the housing shortage in CA which means you'll always have a tenant and you won't need to sell since it's not leveraged. I get why you think it is safe (although I'd caution that the HOA is something to keep an eye on...in 20 years that might become a liability)
Buying cheap properties long distance?? That is decidedly unsafe. If you want to start making risky investments, then sure, consider it, but also consider other investment vehicles as well.
Right, if the market crashes, I may have to adjust the rent but I am sure it will come up again in the long run. I want to keep it for a long time, it is a perfect rental with no yard, just a patio.
I only bought in this hot market because I was scared of inflation. When I sold my house last year for $$$$$ I did not think the market goes up higher or I would have waited it out. But with all the government help for unemployed and prices going up for EVERYTHING, I was worried my money loses value, so I bought.
I have one of the lowest HOAs out there, and just a few common use green areas around the property, I do not worry about the HOA going up a lot. It is a new development area, up and coming, so I really think that place is working out for a rental.
First, I think you're moving toward the right direction. California is too expensive to make sense in buying rental properties. Looking toward midwest/ south is the right approach.
Why is CA RE too expensive? Because it has the highest returns!!!! 30 year fixed rate mortgage and Prop 13 protected property taxes. High rent per square foot and low capex per rent dollar!
Why is CA RE too expensive? Because it has the highest returns!!!! 30 year fixed rate mortgage and Prop 13 protected property taxes. High rent per square foot and low capex per rent dollar!
High acquisition cost
High property tax (even with prop 13, it's comes down to 1.5% ~ 2% of purchasing price every year)
Even with Prop 13, assessments continue to go up every year.
It's a different story if you had purchased properties 20 years ago and managed to pay for it till today.
Why is CA RE too expensive? Because it has the highest returns!!!! 30 year fixed rate mortgage and Prop 13 protected property taxes. High rent per square foot and low capex per rent dollar!
yes, but if you cannot afford it, you cannot afford it.
And even IF you take on a HUGE loan to buy one of these higher rent places and have a tenant who pays high rent - if you have a vacancy for a few months, are you able to pay $2k a month out of pocket for your mortgage?
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