re: Investing in Residential Real Estate

I'm a small time residential investor and am slowly moving to commercial. The commercial deals I see sometimes are hard for me to even believe.

example: An investor friend of mine just purchased a bank building situated on 2 acres in our central business district. Let me repeat that. 2 ACRES IN THE CBD.

Paid $1,000,000 for it. The existing tenant will cash flow it for him. It was just appraised at $3,000,000.

Once you get some capital you can make moves like that.

This property was on the market for less than 24 hours.

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I'm a small time residential investor

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What types of properties do you typically buy?

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What types of properties do you typically buy?

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I've flipped townhouses and small single family homes. That is pretty easy to be honest. I need to do more of those.

Right now I own a quadplex and a small townhouse I live in.

A family friend of mine specializes in office/warehouse properties and he has agreed to walk me though a few deals till I get the hang of it. He owns over 200 in north Alabama. Just trying to save up a little more capital.

In my opinion, real estate is the easiest way to accumulate wealth. It isn't rocket science. You just have to read and learn. If you can find a mentor who is successful its pretty much fool proof. The people who fail are usually guilty of overextending themselves and not in touch with market conditions.

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I've flipped townhouses and small single family homes. That is pretty easy to be honest. I need to do more of those.

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I think this is where I'm interested starting. There's some properties on the outskirts of Chicago that are very affordable...like $20,000 or so. I'd have to get a feel for the neighborhood (safety, etc) but some of these properties are by public transportation which is a huge plus.

I've been looking at properties on auction.com. Seems to have quite a few out there.

I'm new to it and have been doing it for just about a year. Houston-area. We have 5 rental homes (we're not house flippers). We are aiming for houses around 100K value in the lower priced area of a master-planned community (i.e., good schools, etc). I have found the market to be fairly efficient - i.e., not a lot of margin for the flip/sell currently. I'm sure I'm missing some good deals, but buy and large I try to get a rent of at least 1.05-1.1% of the market value of the house. If you do this, the cash-on-cash return is on the order of 7-8%. The leveraged return (using a mortgage) can be on the order of 10-12%. This is using fairly conservatve assumptions (i.e., no "real" [higher than inflation] appreciation in house value).

We do not use a property management company yet - I'm trying to get the wife to take that on. Figure your all-in costs to include property taxes, insurance, 1.5% of value for maintenance, plus the loan, if applicable. Look for big ticket expense items (roof, HVAC, foundation) that can chew up your investment.

Buy a couple of books. If you're going to rent, use standardized lease forms. For example, I use the Texas Assoc of Realtors for the lease app, etc.

Another thing and one which I learned after we had taken the plunge. If you want to do a conventional mortgage, the most you can reasonably do is 4, including your primary residence. And the terms of the loan, typically require a "healthy" downpayment of about 20-25%.

My main purpose in doing this is to diversify away from stocks/bonds with a tangible investment in an underlying asset (the house) that should at least track inflation. Home prices and interest rates are low (a 15-yr note on a nonoccupied investment home is probably on the order of 4-5%), so it is a good time to enter.