When to buy?

[Dhappy]

I have two SFR I,m looking at buying, but I keep on thinking I should wait because betters deals are coming. IF I buy these deals it would be all cash and I would keep them for rentals. Deal one is 3/2 and the buy price is 23k. It is in a working class area and needs 4k in work to make it rentable. It will rent for $700 a month and taxes and ins run $160 a month.. Deal two is 3/2 for 30k and is in a working class area and needs no work. It will also rent for $700 a month and taxes and ins are $150 a month.. Both houses sold for in the low 100,s in 2006. One year ago I could of bought the same kind of house for 55k each. This is where I have a problem, If I bought them a year ago when I thought it was a deal I would now be upside down. So if I buy now maybe next year I will be upside down. We have over corrected here back to mid 1980,s prices. Both of these houses sold in the mid 30,s in the 1980,s. Do I buy now or wait and maybe buy them in the teens next year. How low can they go?

 

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[hatterasguy]

Wow, I can't imagin them going much lower. I'd try to buy 10 of them, maybe you can find a local bank that would do a package deal.

Let the tenants pay the loan off and enjoy some cash flow, when the market comes back sell them and walk away with a million bucks.

IMHO when rents cost more than a mortgage for the place the price shouldn't fall anymore.

 

[williell]

I am not advocating that you rush into things, but don't let this opportunity slip away. Atleast try to option the property, then if it goes higher you are buying the property at the price you wanted it for, and you can back out of the option if it falls in value (or just pay up). If you want to be creative, you can back out of the option, and I can do a double closing or option it again to have it assigned to you at the lower price. When I say, "I," I am not meaning me, although that would be cool If I was you, I would just buy them both right now.

 

[yveskleinsky]

This is where I have a problem, If I bought them a year ago when I thought it was a deal I would now be upside down. So if I buy now maybe next year I will be upside down. We have over corrected here back to mid 1980,s prices. Both of these houses sold in the mid 30,s in the 1980,s. Do I buy now or wait and maybe buy them in the teens next year. How low can they go?

A. If you buy now, especially paying all cash, who cares if you are upside down as long as they cashflow?

B. If rents are at $700/month and are holding, they would really, really have to drop for you to be upside down in cashflow.

C.A $30k house with rents of $700? Why are you waiting?! So what if they go lower? Just buy more. People that try to "time" the market, often end up losing out. Reason being, is they are making decisions out of fear. Fear of losing out on a better deal. Fear of looking stupid to friends or family. Fear of not knowing enough. Fear, fear, fear.
On a $30k house that you would buy for cash, that rents for $700, you would be able to ride all the lumps of the real estate investing curve and still sleep at night. Just my 02.

 

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[Yankees338]

I agree with Yves...

As long as you don't need the cash that you'd be putting into these investments, that is some nice cashflow you'd be earning. Barring a complete collapse of our economic system, I can't foresee a situation in which you'd be "upside down" at all. As long as you're earning such significant cashflow, even at around a 20% ROI, you should be in good shape. When the market is ready, you can then sell, or just keep on milking the cash-cow.

 

[MattThomas]

It is impossible to time the market bottom perfectly. You can miss some great opportunities if you try to do that. If you have a long investment horizon, you know that you have some great buys now and your assets will appreciate substantially in value. Unless you are looking to flip the property, I wouldn't worry about short-term price fluctuations as much.

 

[kidgas]

If you truly fear that much, why not buy one now and then buy another in 6 months? However, I agree that in an all cash deal in which you plan on buying and holding, you should pull the trigger.

 

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[yveskleinsky]

I wanted to add a couple of things...

What type of neighborhood are these homes located in?

Are you going to need to pack a gun every time you collect rent?

Can you get a property manager to manage these properties?

 

[Dhappy]

I agree it is fear. I have bought, sold and had many rentals over the years and never had a problem pulling the trigger to buy. With all the doom out there it has started to get to me. I'm not confident in my decision and have become wishy washy. What if the rents don't hold up. Could I make better use of my money. What if the market drops another 40%. Somebody please slap me out of it.

 

[Dhappy]

They are in the average joe blue collar $10 a hour neighborhood that was once all home owners and now is 50% rentals.. You do not need a gun to collect rent and there is very little crime there. I would manage them.

 

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[yveskleinsky]

My dad has a good friend who specializes in trailer parks and low income housing. His whole goal is to provide value, meaning that he repairs places on time, is friendly with his renters, etc. He then turns around and asks his renters for referrals. His vacancy is incredibly low as he provides not only a great place to live, but a great place to live in a community where most of the people know each other.

Just a thought.

Keep us posted.

 

[RealOG]

Sounds like you are going through the same paralysis that millions of other investors are feeling right now.

Sounds like you have some decent experience doing this. Trust your numbers. Build the extra risk into your calculations and let the numbers decide whether this works or not.

 

[MJ DeMarco]

A $30,000 house that rents for $700/mo is getting 28% return on your cash!!

Where can you put 30K and get a 28% yearly return? Not many places. Bank yields are at < 2%. Treasuries < 3%.

If you have faith in the rentability of this home, it sounds like a great investment. And in 2-3 years (after enjoying 28% return) the house will probably be worth > $30K.

I'd buy with the idea of holding mid to long term as a rental. A 28% return is a great yield, and it doesn't include depreciation expense as well. (Of course, I'm assuming you can rent it at $700 with ease)

 

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[rxcknrxll]

Trying to time the market is something best to stay away from. Personally I think re is going to be down for years. But like yveskleinsky said, who cares if you're upside down? It sounds like you may want to get more clear on your goals. Are you shooting to lock in a positive cash flow and a good cash on cash return? If so, this deal seems to fit the bill...don't get paralyzed by peripheral issues like appreciation. It's only one of many ways re makes money. IMO, it's overrated also.

A couple things I'd point out:
1. Pay attention to the fact that in many areas, rents are dropping right now. Don't *assume* rents are solid in this area; verify.
2. Know your exit strategy. I'm NOT buying right now. I'm not selling what I have, but I'm not actively buying more, because I think there's a good chance that rents may continue to drop. High equity positions is the ideal way to hold rental property right now. Paying cash is ideal, like you are. By "know your exit strategy", I mean more specifically that any real asset purchases should be looked at in the long view right now. Be prepared to hold long term.

If you're buying a $30k prop with solid rental history for cash and able to hold it long term, this seems like a no brainer to me. Even if the economy totally crashes out, you'll have valuable property that can come out on the other end and make you rich in the long run.

 

[rxcknrxll]

BTW, I have many sfr and mfr props in my market that fit this type of description right now. For example I have a dup for $20k. No shit. It needs about $5-10k of work to turn it, so you're potentially looking at $15k per unit tops. If you have cash and good credit, I am happy to send anyone details on props if you're actively looking to invest. It's funny, I'm in IN, and MOST of the people I'm talking to right now are in CA, WA and VA. Investors are flooding the Midwest right now, because you can really scoop up rentals cheap.

 

[Dhappy]

Thanks guys, I'm pulling the trigger. The rents have came down over the last few years, but are holding lately. I have other rentals in the same area and I have no problem getting $700 a month. The rents did drop from $800-$850 a month in 2006 to $700 a month today.

rxcknrxll...Thanks for the offer. They sound like some great deals, but I like to invest in my area. I'm in Florida.

 

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[RealOG]

Some food for thought on apartment investing:

http://nreionline.com/property/multifamily/advantage-renters/

This is where I am putting my money.

 

[rxcknrxll]

Thanks guys, I'm pulling the trigger. The rents have came down over the last few years, but are holding lately. I have other rentals in the same area and I have no problem getting $700 a month. The rents did drop from $800-$850 a month in 2006 to $700 a month today.

rxcknrxll...Thanks for the offer. They sound like some great deals, but I like to invest in my area. I'm in Florida.

I know a guy that does a lot in panama city, orlando and couple other places. He's convinced FL is the place to be. He does mostly high end condo stuff and is hoping to hit the affluent boomer market as they begin retiring. I also do not invest outside my own market when it comes to re. If I had the resources I would, but my opinion is that's is a next level type thing.

 

[I85]

Sounds like a good deal to me.
This assumes a lot though.
You have the money to carry the property and any expenses that may occur.
The property is worth well over $30k, giving you plenty of free equity and another exit strategy.
Rents are fairly stable.
How does the house look? Many high $ repairs may not be needed now, but does it like they will be needed soon?
How is the local economy? How is that section of town(many foreclosures that continue to drive prices down).
etc etc

Obviously if you plan to hold, then current market price might not be as important as your cashflow. However, in these time I do not see the point in buying a property that does not comes with loads of instant equity as well as a positive cash flow.

BTW, I have many sfr and mfr props in my market that fit this type of description right now. For example I have a dup for $20k. No shit. It needs about $5-10k of work to turn it, so you're potentially looking at $15k per unit tops. If you have cash and good credit, I am happy to send anyone details on props if you're actively looking to invest. It's funny, I'm in IN, and MOST of the people I'm talking to right now are in CA, WA and VA. Investors are flooding the Midwest right now, because you can really scoop up rentals cheap.

Cheap real estate....the only thing Iowa is good for, well that and some grimes sweet corn .

My dad has a good friend who specializes in trailer parks and low income housing. His whole goal is to provide value, meaning that he repairs places on time, is friendly with his renters, etc. He then turns around and asks his renters for referrals. His vacancy is incredibly low as he provides not only a great place to live, but a great place to live in a community where most of the people know each other.

Is this more of a place with nice modular homes or is this a place with good ole tin boxes?
There are a few nice modular communities around here, though most are for seniors, that I think make some good money. As for owning a tin box village, well...you'll never be short on interesting stories :smx4:.

 

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[hatterasguy]

A $30,000 house that rents for $700/mo is getting 28% return on your cash!!

Where can you put 30K and get a 28% yearly return? Not many places. Bank yields are at < 2%. Treasuries < 3%.

If you have faith in the rentability of this home, it sounds like a great investment. And in 2-3 years (after enjoying 28% return) the house will probably be worth > $30K.

I'd buy with the idea of holding mid to long term as a rental. A 28% return is a great yield, and it doesn't include depreciation expense as well. (Of course, I'm assuming you can rent it at $700 with ease)

Thats what I was thinking. With a steady 28% return I wouldn't be in such a rush to sell them either, thats a damn fine ROI.

 

[msa1]

The market doesnt determine buying time, the numbers do.

I looked at a house in the spring that was priced (foreclosure) at $69k. The layout of the house was terrible and one of the rooms didnt have a closet. Could I have rented it? Probably, but there was much better out there.

That same house came across my e-mail two days ago for $24900.

Maybe some would jump now but for me its still a bad deal.

If your numbers work, go get it. If the numbers dont work now, they likely wont work later. If the price goes down, rents may go down as well.