Real Estate Investment

[ljrtan]

Undeniable, real estate investment is a both realistic and lucrative opportunity for us to retire early with its passive income. But I would like to know, as a newbie in this form, how did you guys chose which house to invest in, especially for the first time? And what obstacles did you guys face and how did you solve them? I know there are many Real Estate searching engine online(Zillow, Trulia, Realtor, foreclosure.com), but I don't quite know the different, the pros and cons, of those sites. How did you guys choose them and why?

Sorry for all the questions, but I really would like to know more before I get into this field.

Thanks, and appreciated all the responds

 

[janazlbc]

Hi ljrtan,
I agree that RE investing is a great way to generate income (although not completely passive) and be assured of keeping pace with inflation. Dh and I jumped into the landlord business over the last 2 years and we are very pleased with how this investment is performing!
In terms of choosing the properties to invest in, we first developed our strategy and goals: Single family homes (broad rental appeal) in newer/nicer neighborhoods (2004+, less major maintenace), 3/2 approx 1500 sq (easy resell), able to generate 8% or greater net income on cash purchase (if you finance, you should be able to better return on cash), good appreciation potential. This strategy has worked very well for us.. very little turn over, tenants keep the property nice, haven't had a deadbeat yet. You can do better financially in rougher neighborhoods, but the hassle factor would likely go up too.
I selected my target neighborhoods by asking 'would I want to live here?' , then used zillow to look at the economics (avg comps vs avg rent).
Here in the phoenix area over the last couple of years, there was plenty of properties that met our strategy and we purchased 5 and the net cash flow is approx $3500/mo.
As a newby myself, I found this blog incredibly helpful, especially in defining/refining strategy before jumping in: http://www.biggerpockets.com/renewsblog/

We made plenty of mistakes, not fatal or excessively expensive, but none were related property selection. All mistakes were related to prepping the property for rent (check everything and when issues don't defer fixing, it is more expensive/hassle to fix once the tenant is in) or tenant marketing/selection (this will make or break you, so important to get it right).

I hope this helps, happy hunting!

J

 

[someguy]

RE investment

janazlbc is pretty on target. Definitely read up on biggerpockets.com. There are several sticky threads that anyone should read before jumping in. Perhaps the biggest take-away is that newbies underestimate the "margin" required to make money in the long run. Real estate agents will tell you to just consider the rent minus the PITI for cashflow. This is just not real life -- many of the experienced guys suggest you need substantially more margin to account for ongoing repairs, fees, and other stuff that just comes up. Also, you may want to not count on appreciation in your analysis. If a property can't cashflow itself immediately, it's probably too expensive to begin with.

Also, if you are marketing properties yourself, trust your instinct and "be lazy". If somone inquires but doesn't follow up to your reply, don't waste your time. In my experience, truly interested renters will beat your door down. I've have interested renters email me their full life history (SSN, full employment history, etc) in a first email responding to a CraigsList ad!

 

[ljrtan]

I selected my target neighborhoods by asking 'would I want to live here?' , then used zillow to look at the economics (avg comps vs avg rent).
Here in the phoenix area over the last couple of years, there was plenty of properties that met our strategy and we purchased 5 and the net cash flow is approx $3500/mo.
As a newby myself, I found this blog incredibly helpful, especially in defining/refining strategy before jumping in: http://www.biggerpockets.com/renewsblog/

J

Thanks so much for your advice! And the site is really helpful as well.
2 years with 5 rental properties that is impressive! How did you manage to do that?

 

[janazlbc]

ljtran,
Yup, it was/is a significant time investment. We both work full time and we found that acquisition/prep/ongoing mgmt was taking most of our free time and we were out of bandwidth to do anything but manage the properties. We had originally planned to acquire up to 10, but hit the wall at 5. Lesson 1: smart outsourcing. We had intended to do *all* of the work ourselves; acquisition, cleaning/prep, repairs, tenant marketing and screening. By our third property we decided to outsource two important but time consuming tasks: Painting and tenant acquisition. Hiring a professional painter is expensive, but the property is ready quicker (3 days vs 2 weeks on our schedule) and we ended up with a better results. Tenant acquisition was tougher for me to get on board with.. I felt that advertising (Craig's list/for rent sign in yard), personally meeting/screening propects, and running/evaluating credit was the way to go. I was against paying a realtor to do things that I can do myself. I was was wrong (at least in my market). I was attracting poor quality prospects, spending 1.5 hrs per showing (with travel time) and experiencing extended vacancy periods. Now, I am using a trusted realtor who brings me high quality, fully vetted prospects. (I still check references and meet with tenants before signing lease) My last vacancy was only 3 days(!). I still do all the month to month management, so no ongoing management fees. Paying $600 for a high quality tenant and reduced vacancy period = smart outsourcing.

We are continually learning and getting better at this new business. We are considering commercial property for diversification... which is a whole new learning curve.

Have you worked out your strategy? If you have, I'd be happy to add my 2 cents... I suspect you would get 10 cents on this forum

 

[growing_older]

Talk to experienced landlords who have been in the business for many years. The once in a long time events (bad tenants, extended vacancy, big maintenance) can make or break your investment returns. A few years of good experience is great but not enough to have long term confidence.

 

[ljrtan]

We are continually learning and getting better at this new business. We are considering commercial property for diversification... which is a whole new learning curve.

Have you worked out your strategy? If you have, I'd be happy to add my 2 cents... I suspect you would get 10 cents on this forum

I am still at the stage of getting to know the field better. Since I don't have a full time job yet (as a senior college student), and the down-payment for properties in NYC is very expensive, I don't think I could afford it within a year. Yet, I do try to learn the location better and to find a good broker for the future. Hopefully, I could buy my first house within the next three years.

Although I thought about moving out of states, so the hosing price won't be too high for me and I can afford it earlier, but due to other family issues, I think it will be more convenient for me to stay in New York. I am planning to buy an one/two family(ies) house in an okay neighborhood that the price is around $800,000. And the projected net cash-return would be 15% or higher, since I will have to get a very heavy loan and financing the down-payment from my family.

There is one more question I want to ask you about, since you are managing 5 properties and about to move into the commercial side, do you manage them under the tittle of LLC, or by yourself? Because I was thinking to invest in real estate under LLC so I am not unlimited liable for them.

 

[janazlbc]

Congrats on your upcoming graduation! Buying a multi-family is certainly a great way to go in a high cost environment and is a nice first purchase. It is great that you are doing your research so far in advance of making a move... you will be ready when everything aligns.

The common wisdom it to put each property into their own LLC. However, LLCs do not provide absolute protection from personal liability. Also, there is certain added costs and complexity with putting each property in an llc. We instead chose to get a hefty umbrella policy, on top of individual property insurance policies. The cost of the policy is considerably less than the start-up and ongoing cost of 5 llcs. I have considered putting all the residential properties under 1 llc for added protection, but I feel very well covered under the umbrella policy. If we acquire a commercial property, we would definitely put that under an llc.

 

[MooreBonds]

While it may not be an issue to some people, there is an added benefit of some level of privacy by titling multiple properties under an LLC. That way, the public doesn't quite know exactly who owns the properties, and perhaps one less bit of incentive to try something. Doing a search and seeing that Joe and Jane Blow own 10 properties as Husband/Wife, Joint Tenants together, can give you a picture of their total assets, versus Dixie Highway LLC owning the properties, and not really knowing who the shareholders are (and for all your renter knows, you are just a rank and file employee of Dixie Highway, versus the sole owner).

 

[pb4uski]

.... I've have interested renters email me their full life history (SSN, full employment history, etc) in a first email responding to a CraigsList ad!

Prospective renters actually will give you a SSN based on a craigslist ad for a rental? I think I would cull them out and favor renting to those who refuse to give me a SSN until after they have seen the place and are sure they are interested.

 

[someguy]

renters!

LOL. That was an extreme, albeit real, example. In our area, SFM 2-3BR rentals are seeing unprecendented demand. I know most of the top RE agents in the area, and they are complaining that they constantly get calls from interested renters now, instead of potential buyers.

Prospective renters actually will give you a SSN based on a craigslist ad for a rental? I think I would cull them out and favor renting to those who refuse to give me a SSN until after they have seen the place and are sure they are interested.