Monday, June 30, 2008 at 06:21AM
Real Estate Investing
The other day I was in someone else's car, listening to XM Radio, when a real estate ad comes on. The pitch was to get you to invest in real estate with just your good credit, and they'll do everything else - it sounded like the Jenae program!
The hucksters are coming out of the woodwork now, tempting you to make huge profits flipping houses. Don't believe it - their plan is to get rich quick selling you books and tapes!
We saw yesterday some investors jumping in around Oceanside where there was some promise of a positve cash flow. Is that all you need to invest in real estate, and can you get rich quick?
No way - and here's advice on how to go about investing in real estate today:
1. Get a good contractor who can give you accurate quotes easily and quickly
2. Decide how to manage the property - do it yourself, or a mgmt. company
3. Look at 100 houses
4. Make at least 20 offers
5. Look to pay 2001 prices, or less
These five simple points are just for starters, and cover the first three before tackling number four. Doing these will help you lay the foundation for smart decision-making.
I mentioned the sale that closed last week for $75,000. If you are looking to get started on building a portfolio, it's a great way to go - buy the cheapies. The buyer, who is an occasional commenter here, had amassed a group of a dozen lower-end rental homes over the last ten years, and sold every one of them in 2005 and 2006.
Now he's back in the hunt, but no reason to jump at just any old property. The one that closed had listed in February for $199,000, but you're not going to get a one-bedroom condo to cash flow at that price. The buyer has seen at least 100 properties this year, and we have literally made at least 20 offers - most of which don't get a response. You have to be patient, and stick to the game plan!
In the last run-up, there was a client named Steve that had bought four 2 br/2 ba condos in the early-to-mid 1990s that had been foreclosed on by Great Western. The bank didn't want to have anything to do with them, and Steve picked them up for $40,000 to $50,000. When we met around 1995, we agreed that selling those condos and exchanging into houses would make for a nice upgrade. In 2003 after doing 15 deals together, he retired with seven figures in the bank - and it all started with those four condos.
If you're thinking about investing, start with property that is manageable and cheap - ones that if they sat vacant for months, you'd still be able to handle it without stress. Be in it for the long-haul - you could see others nearby selling for less in the coming years. Use that as one of your tests - would it bother you to see others around it selling for less? If not, it must be a decent buy.
Steve's #1 mantra? Buy the best, and forget the rest.
Jim the Realtor
8 Comments
View Printer Friendly Version
Email Article to Friend
Reader Comments (8)
Jim,
I wanna be like Steve! I look forward to working with you and hope you can help me seal the deal on more transactions.
DonS
I bought my first house (a "fixer" with a huge mortgage payment by the standards of that time) with the idea that over time rising rents and falling mortgage rates would pass each other and enable me to rent the house with a positive cashflow and go on to buy the house I "really wanted." But by the time that had happened I had refurbished my "fixer" and become sufficiently attached to it that I realized I could never stand to have some renter trashing it day by day, and it was then I resigned myself to the fact that I would never be able to put so much effort into something and still think of it as investment fodder. Since then every home I've purchased has been with the intent of living in it for as long as circumstances called for, and I have no regrets. Some of us are just not cut out to be real estate investors.
"5. Look to pay 2001 prices, or less"
Jim, is that only for trash properties in O-side, or do you see the rest of the market headed that way as well?
I already see some investors come out of the woodwork in my neighborhood, and it frustrates me because it keeps the REOs from going any lower at this point in time. The investors can't be making any cash off their newly acquired rental homes at current prices - so why are they dong it, if all signs still point to a further decline?
"Decide how to manage the property - do it yourself, or a mgmt. company"
Great post, Jim. I think your #2 is probably the most critical for the new investor. Some folks are just not cut out to be landlords, and some, like myself, are only cut out to be certain kind of landlords.
One of the main reasons I have stayed away from most of the lower price Oceanside properties and the Escondido condos that you could pick up today for 75K is that I have become comfortable owning Encinitas rental condos in good neighborhoods, and would not want to put up with the management and turnover headaches of the total low end condos.
In one of my condos, I have had the same tenant now for more than 15 years, and yes, this type of experience has made me a very spoiled and picky investor. I am still looking to pick up some new ones though over the next couple of years.
One thing to be aware of in this climate in looking for condos is that some of the HOAs may be in severe financial straits and needing to impose some hefty special assessments to cover just operating costs. Due diligence is advised.
What about vacation rentals? I noticed this property from Piggington's site in Del Cerro. It's for sale for $1.2 million www.sdlookup.com/MLS-086005040-6450_dwane_ave_san_diego_ca_92120 and it's renting for $1750 a week www.vrbo.com/186705 doesn't seem bad if they book it through the year, much better than a normal rental I would think. Anybody have an opinion on this type of renting?
The part nobody likes about vacation rentals is that somebody has to be there EVERY Saturday for the change-out.
The companies around here who manage vacation rentals have way too many, and don't do much to ensure full occupancy. It's caused many to manage their own and use public VR websites to find their own tenants.
It's a lot of work if you do it yourself, and if you hire someone, expect 50% vacancy, and if it ends up better than that, yippee!
"What about vacation rentals? I noticed this property from Piggington's site in Del Cerro. It's for sale for $1.2 million www.sdlookup.com/MLS-086005040-6450_dwane_ave_san_diego_ca_92120 and it's renting for $1750 a week www.vrbo.com/186705 doesn't seem bad if they book it through the year, much better than a normal rental I would think. Anybody have an opinion on this type of renting?"
_____________________________
I have a 2/2 in S. Mission that I have rented on a 9 month lease, then weekly during the summers. I lived there from '91-96 and have been on this rental program since then. I manage the property myself. The entire summer is either long-time repeat renters, referrels from them, or family/friends who I always block off time for. It took years to finally get the summer booked well, but now it's pretty smooth sailing. I also rent a 3/2.5 in PB that I bought in '96, 9 blocks from the beach, year round, also manage myself. My approach has been to buy location, live in the property, and when the circumstances are right look to buy again while retaining the existing primary home, turning it into a rental. It took me 10 years to acquire 3 properties. I anticipate picking up #4 in about 3 years, when I think we will see prices much, much lower in the more central coastal areas of SD.
Great Advice. Still see a lot of 2008 knife catching even at the low end.