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Question For Residential Real Estate Investors On Investing In Cheap Housing
Posted on 6/22/16 at 3:47 pm
Posted on 6/22/16 at 3:47 pm
So Im not as seasoned a residential RE investor as some of you. I have a couple cheap homes I lease to my employees but I also have 1 rental townhome here in houston and am about to add 3 more properties this friday. Im intrigued at how much lower income housing rents are, frankly they're staggering, there isnt much under $800-1000 anymore even in the parts of houston.
My question is, why dont more people invest in lower income housing? What I mean is, I have a townhome in the river oaks area, close to west gray thats worth close to $500k and all I get is $3050/mo in rent and scouring around north houston in the area of the 3 properties Im buying friday, it seems like you can pay $50-70k for 1100-1800 sq ft and the ones for lease in those areas are getting $1000-1300/mo.
If you can deploy the same $500k and get 8 properties giving you $1k/mo minimum lets say vs 1 property like I have doing $3050 you're talking $8k/mo vs $3050/mo. Why dont more people want lower income housing if your return on invested capital is way higher? Is it bc of the quality of tenant? Does screening not weed out the deadbeats? Im just curious bc there seems to be alot of property in the outskirts of houston that can be had at 1.5-2%/mo cap rates which is amazing but obviously there is a reason it has those cap rates.
Anyways just curious what varying schools of thought are on the matter, obviously capital appreciation isnt going to happen in these cheap housing investments but my thinking from before was acquiring these homes now and then owner financing them later when I want to retire. It would provide cash flow at higher rates than banks give + I could probably sell the homes at higher prices being that Id be doing the financing. Do people invest in more expensive investment properties bc they hope for capital appreciation vs income? Just trying to grasp why im thinking of buying more assets that nobody seems to want.
Just seems like if one deployed $1M in residential RE you would make $6-7k/month in regular housing ie 2 townhomes at $500k/each but if one deployed that same money in low income housing ie 15-18 cheap homes you could do more like $15-20k/mo
My question is, why dont more people invest in lower income housing? What I mean is, I have a townhome in the river oaks area, close to west gray thats worth close to $500k and all I get is $3050/mo in rent and scouring around north houston in the area of the 3 properties Im buying friday, it seems like you can pay $50-70k for 1100-1800 sq ft and the ones for lease in those areas are getting $1000-1300/mo.
If you can deploy the same $500k and get 8 properties giving you $1k/mo minimum lets say vs 1 property like I have doing $3050 you're talking $8k/mo vs $3050/mo. Why dont more people want lower income housing if your return on invested capital is way higher? Is it bc of the quality of tenant? Does screening not weed out the deadbeats? Im just curious bc there seems to be alot of property in the outskirts of houston that can be had at 1.5-2%/mo cap rates which is amazing but obviously there is a reason it has those cap rates.
Anyways just curious what varying schools of thought are on the matter, obviously capital appreciation isnt going to happen in these cheap housing investments but my thinking from before was acquiring these homes now and then owner financing them later when I want to retire. It would provide cash flow at higher rates than banks give + I could probably sell the homes at higher prices being that Id be doing the financing. Do people invest in more expensive investment properties bc they hope for capital appreciation vs income? Just trying to grasp why im thinking of buying more assets that nobody seems to want.
Just seems like if one deployed $1M in residential RE you would make $6-7k/month in regular housing ie 2 townhomes at $500k/each but if one deployed that same money in low income housing ie 15-18 cheap homes you could do more like $15-20k/mo
This post was edited on 6/22/16 at 3:59 pm
1
Posted on 6/22/16 at 6:29 pm to dabigfella
As you've seen from some of the replies on here, you have some people who don't want to own rental properties in neighborhoods that they wouldn't want to live in. My uncle in California was a key figure and mentor in getting me started back in the early 80's. He began buying real estate in SoCal in the late 60's. And his philosophy was and is pretty basic: the properties that he owns in South Central, etc. paid for the homeS that he owns in Palos Verdes.
They can be (but don't have to be) more management intensive. But as I mentioned before, some of the worst tenants that I've ever had have been undegrad college students from wealthy families. While some of the best have been Sect. 8 tenants. You can't generalize too much or judge based on personal biases.
But as you've noticed, while the appreciation might not be there, the net income generally is. As part of a diversified mix of property types, they can be killer.
They can be (but don't have to be) more management intensive. But as I mentioned before, some of the worst tenants that I've ever had have been undegrad college students from wealthy families. While some of the best have been Sect. 8 tenants. You can't generalize too much or judge based on personal biases.
But as you've noticed, while the appreciation might not be there, the net income generally is. As part of a diversified mix of property types, they can be killer.
Posted on 6/23/16 at 7:38 am to Jag_Warrior
quote:
You can't generalize too much
good luck with that on this site.
i only buy class A, B, and C props. I had a killer deal on a class D the other day but i walked away. While it wasn't the hood or a warzone the types of properties around it and the tenants in those properties turned me away not to mention the direction it seemed that area was headed in. SOmetimes more reward =more risk. it was killer cashflow but I deemed it too risky for me at this time. I'm currently holding out for a nice class A property in a certain area so i am cherry picking at this time.
Like you've stated i've never had any major issues with section 8 tenants.
Posted on 6/23/16 at 9:13 am to Fat Bastard
What Im saying is these $50-70k homes dont necessarily have to be section 8 tenants. The idea that all poor people are bad tenants is crazy, these places no lie lease for $1000-1200 on HAR when i look at whats leased in the area. 1500 sq ft is 1500 sq ft. Im just saying why dont more people want to look at these properties bc they cash flow like crazy. Yes my rental townhome in the nice part of town has appreciated nicely, I paid $390k its $500k today, but the rent is only $3,050 and the taxes are ALOT. These $60k homes are appraised at $35k and have minimal taxes and high monthly ROI
It seems like if you can screen the tenants properly there is ENORMOUS money to be made deploying the same cash into lower income housing than higher end housing. Im just curious why that is? The gap is enormous its literally triple almost in terms of percentage I mean where can you find 20% cap rates in this environment? You cant and I dont think its as high risk as people make it. Its easier to screen people today than ever, I do it at work all the time when I hire people.
It seems like if you can screen the tenants properly there is ENORMOUS money to be made deploying the same cash into lower income housing than higher end housing. Im just curious why that is? The gap is enormous its literally triple almost in terms of percentage I mean where can you find 20% cap rates in this environment? You cant and I dont think its as high risk as people make it. Its easier to screen people today than ever, I do it at work all the time when I hire people.
This post was edited on 6/23/16 at 9:14 am
Posted on 6/23/16 at 9:25 am to dabigfella
There just are not a lot of people out there that want to do the work. Most RE investors rent a couple homes and then they realize they would rather flip them for less headache to not deal with tenants.
Theres not a lot of people that have the cash flow that want to put in the work for 8-12% COC. I've found that generally speaking the A properties go really fast but often times are flipped, the B properties are what I am currently mainly looking for, and you are right C grade properties are often on the market for sale for awhile.
My last property I bought closed at 72k, I put 15k into it which included a new 4k HVAC, and I am renting it for $1050. It should sell for about $120k. The first day I put it on craigslist for 1050 I got 9 legit inquiries within 12 hours. I got a great tenant but I should of raised my rent to $1200 and reposted, instead I had it rented in under 24 hours of posting it.
Theres not a lot of people that have the cash flow that want to put in the work for 8-12% COC. I've found that generally speaking the A properties go really fast but often times are flipped, the B properties are what I am currently mainly looking for, and you are right C grade properties are often on the market for sale for awhile.
My last property I bought closed at 72k, I put 15k into it which included a new 4k HVAC, and I am renting it for $1050. It should sell for about $120k. The first day I put it on craigslist for 1050 I got 9 legit inquiries within 12 hours. I got a great tenant but I should of raised my rent to $1200 and reposted, instead I had it rented in under 24 hours of posting it.
This post was edited on 6/23/16 at 9:29 am
Posted on 6/23/16 at 9:40 am to baldona
baldona, the ones im talking about arent fixer uppers or anything. They're in decent shape just in less desirable areas of north houston. Anyways, just curious how much work one needs to do if you hire a property management co to handle say 10 of these places for you? I wouldnt mind selling my city townhome,laying out $650,000 on a portfolio of say 10 of these townhomes that grosses say $10k/mo.
Im talking a property management co like this that says they handle everything top to bottom. Even if they took 15% that would gross $8500/mo on $650k thats a fantastic roi
LINK
Im talking a property management co like this that says they handle everything top to bottom. Even if they took 15% that would gross $8500/mo on $650k thats a fantastic roi
LINK
Posted on 6/23/16 at 10:23 am to dabigfella
Honestly when I get 10 properties and I don't want to do it myself anymore, I'll probably pay someone to do it on the side. Most take 10% or 150/ month. I'm against the norm in that I would never use a property management company. They are not hands on at all preventing issues, I mean how much work is someone going to do for $150/ month especially realtor based companies?
What you are saying is right on track. But I'd find someone that would want to do it on the side somehow personally. You are talking $1500/ month for less than 20 hours of work most likely
Most of my properties take less than 2 hours of work a month, most months its like 20 minutes and then you have the occasional issue. But yes, most guys that don't get into flipping go the management route and just spend their time obtaining properties.
What you are saying is right on track. But I'd find someone that would want to do it on the side somehow personally. You are talking $1500/ month for less than 20 hours of work most likely
Most of my properties take less than 2 hours of work a month, most months its like 20 minutes and then you have the occasional issue. But yes, most guys that don't get into flipping go the management route and just spend their time obtaining properties.
Posted on 6/23/16 at 10:43 am to baldona
I get its not much work but that company I posted has a 24 hour help line, theyll handle everything and bill you later.They handle rent collection, late payments, evictions and just send you an ACH. Im not trying to deal with any of the headaches because I've already got 5 stores that are headache enough. Ive cashed out alot of long term stock holdings I have recently just because Im not a fan of where the market currently is and finding these high cap rate low income houses is intriguing to me, but Im way too busy to be handling all the small things myself. I dont want to try out the management company on the ones I just bought bc the checks come from the government and they wont be helping me find the tenants. The other houses I have, my cashiers live in them so its not difficult for me to handle. Im just interested in adding some more and having this company handle them and see how it goes.
This post was edited on 6/23/16 at 10:45 am
Posted on 6/23/16 at 10:47 am to baldona
quote:
Most take 10%
yep and it is BS. i pay 8% and before long will be 7% once i acquire more properties and my management company does a fantastic job.
quote:
They are not hands on at all preventing issues,
incorrect at least for mine.
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