The trend is your friend

Hello,
So I was wondering if you invested out of town for your first deal or after you got some experience? I live in Miami and have been looking at properties. I have yet to find a great deal for a rental due to our HIGH taxes which even on a REO or a foreclosure eat any profit. I would love to invest in another area for an income producing property then sell it in the future if I decide to when the market goes up. I would use a management company for my rentals out of town and know that there are lots of places outside of Miami that would still produce cashflow after all these added expenses. I am just wondering if it was your first deal and if it was successful? Thanks!
Angie

Hi Angie, great question. Yes my first deal was 450 miles from where I lived and I was scared to death but, I put together a team of people to help me with the deal. If you assemble a team of people that you can help and then in return they can help you it is truly a win-win. Start interviewing property management companies in the area you want to invest in. That will be your key. Many times a good property management company will have maintainence people on hand to do rehab work or just simple painting and cleaning. Ask what services are included in their fee. Hope this helps.

Hi,

Thank you for your insite. The fact that your first flip was successful regardless of the out of town location is inspiring. I will try to focus on a few areas and now investigate the property management services in those cities. Out of curiosity(you don't have to answer if you don't want to) where do you live and where did you do the out of town investment? Thanks!
Angie

First of all, my first investment was not a flip it was a buy and hold cashflow property hopefully I didn't confuse you. The place I was living when I bought my first rental property was in the metro Detroit, MI area. I feel that although you can make money in that market right now I think the bottom has not completely fallen out yet. The best deals are still to come. The place I have done most of my investing is in the Moline/Rock Island area in Illinois. I chose that market for many reasons. I lived there for many years, rental houses were priced not much above the cost of a car, there is a deficit of jobs, and it sits on the biggest interstate in the US. That area is called the Quad Cities and it sits between Chicago, IL and Des Moines,IA and it sits right on the Mississippi River, has several local college and universities. Now wealthy people from Chicago are buying low rise condo units there and are spending time there with their families on the weekends along the Mississippi. It has attracted the attention of some big investors and I feel my advantage and timing is starting to slip. I bought over 20 properties in that area in the last 2 years. There are several areas like it in the US. Values increased last year by a small percentage, thanks to the media and their "doom and gloom" my window of opportunity has remained open for some extra time.

Hi,

You didn't give me the wrong impression. I am looking to buy and hold as well and thought that is what you were talking about too. It is very encouraging to hear you talk about your successes in the past two years! So I assume you are still renting them out and producing a cashflow after taxes, insurance, and management? The fact that you did so many in such a short time is very inspiring to me. I am ready to move on something and I'm just trying to find something that will produce some cashflow until the market picks up years down the road. Then I will evaluate which properties I would want to keep and the ones I would do a 1031 exchange with into a bigger or better producer. I really want to thank you for your time talking to me and appreciate it very much!

P.s When you stated there is a "deficit" of jobs did you mean an influx? Therefore keeping the rental properties occupied and not vacant? Sorry, I am a little confused?

Sincerely,
Angie

A deficit of jobs can mean that more people cannot qualify to purchase their own home (employment length, single as opposed to dual income families, etc), so renting is their only viable option.

I am familiar with the Quad Cities Area. It is also booming after the legalization of river boat gambling in Iowa. Most of the show boats employees are renters. Its too bad that the value of realstate only appreciated a small percentage.
It is different when some one like me in a metropolitin area like DC. The property is too expensive to buy and hold in the District. You have to have lots of capital to invest in DC or Northern VA area inside the Beltway. The surrounding areas outside the Beltway have more affordable values. Presently the market is down in the entire area about 11%. Despite this, prices are still high, which leaves the lower property for investers like me (starting Out) in the outlaying areas 40 minutes out of the city. The prices on the other hand will rise much faster on closer properties than outlaying areas. Do you advise investing in Fixer uppers or some properties that need the minimum? Do you advise on Townhomes verses single family? The townhouses are more affordable, they are also more easier to rent.

What I meant by "deficit" is there are more jobs available than there are workers for those jobs which means people have to move to the area to fill jobs which is a great thing for an investor. I should have said there is a deficit in the workforce.

I suggest that you study your market very closely. You should evaluate which properties are selling the fastest and for what prices if you are dead set on doing a flip. Here is something that I have done. I ask my real estate agent to pull a list of all of the properties that have sold in one certain town in the last 2 months. Then when I studied the list I found the area that had the most sales. Then I found the average number of bedrooms and bathrooms and focused on the price per square foot. Then it just came down to finding a property in that area that needed the least amount of work possible that was priced below comparables or be able to create a below average price/sq. foot by making low offers. In this market people expect low offers and are not offened by them or at least most people are not offended. Once you locate a property do your due diligence and go for it. Your fear should be gone with all that data in front of you. Hope that helps.

Hi CBR,

So are you still renting out most of the 20 properties you've purchased? Is it seasonal there or a year around neighborhood (Moline/Rock Island)? There seems to be several Management companies in the Moline area I found by just doing a search. So I was still curious about the cash flow from your properties (again if I'm being too nosey just let me know:). In my searches I found the property tax at 2.9% of Market value in that area, is that correct? So after mortgage, property taxes, insurance, and management fees are you still producing any income? I'm not looking to make tons on one rental home or duplex, but I figure with several it could produce decent income as well as a tax shelter. Thanks again for answering my questions and your time!

Best Regards,
Angie

Yes, when I buy real estate to rent out I am looking for a positive monthly cashflow. My properties produce a nice positive monthly cahflow. When I buy a home my goal after all the expenses is to gain a monthly cashflow of $200 per month. I have properties that are near break even and I also have properties that have $500 plus monthly cashflow. I will eventually sell the break even properties and replace them with better cashflowing properties or I could sell the break even properties as a "rent to own" because I would get more out of rent that way and eliminate expenses. It is fun with all of the opportunities that you can take with real estate.

Hi CBR,

Thanks again for your insite and experience, I find both very helpful. I will spend the next few weeks researching the area and also contacting different management companies and agents. It really is a numbers game and I am excited at the great prospects. Thanks again for your time!

Best,
Angie

Its interesting that you bring up that term "the trend is your friend" because it is indeed a straightforward and important fact. I also study the FOREX market using PremiereTrade and the system uses the EXACT same phrase as well, so I know this tidbit of info is valuable!

I would be wary of buying townhomes or condos. My experience has been that they do not rent as easily as SFRs. They are not as stable as SFRs. And they do not appreciate as well as SFRs.

So if I were buying one, I would REALLY want it to be a steal.

I am really impressed with the Quad City market. It keeps getting harder to buy foreclosures on the MLS. You literally have about 3 days to have an offer submitted or you just lost out. There are a bunch of them that are now selling above asking price! This is crazy. Rents are also on the rise. I would say rent prices have gone up 10% in one year. I love this market.

I know what you're saying, cbr,
You almost have to be following the foreclosues, or have a good realtor who informs you before they go on the MLS. Have you been adjusting your offers to make them competetive? Or do you just keep lowballing, knowing every now & then you'll get one? My problem is, if I lowballed everything, I'd run out of places to get. We're in a small town (& I'm chicken to really buy out-of-town until I'm more established). There are a lot of deals, but I'd have to pick up almost every other one! There are more across state line, but there's a big rental licensing issue going on right now. Nobody want to buy something that's not already licensed. Of course, I haven't gotten into assigning and finding buyers, either. Been sticking with buy & hold properties. Anita seems really great at doing that, though. And,of course, you're the king.

If your not just a little embarrased about your offer, it is probably too much!

Rina, thanks for the compliment but, I am far from the king. There are a lot of very successful investors on this site that are very sharp. They just may not post as much as I do. I have learned enough in real estate to know that I don't know much. I love to learn. I am just a beginner barely out of my sophmore year. Dean and his staff are the best around. I firmly believe the Dean Graziosi will be a household name in a few short years.

Mel Foster Co., one of the biggest real estate companies in the Quad Cities just came out with some new sales data. I quote "The Davenport-Moline-Rock Island, IA-IL market data shows a steady increase in median sales from 4th quarter of 2006 whith a current change at an overall of 2.8%. The local economy is sound and continues to add jobs at a respectable pace. Apartment rents have been rising at its highest pace in 5 years. 4th quarter sold prices are rising on both sides of the river in IL (up 4.04%) and in IA(up 2.73%)".

So what we have here are more jobs coming to the area, 2007 prices up 2.8% and 4th quarter prices up 4.04%. Which is showing an uptrend. It is a fun market to invest in. The coolest thing about the percentage increases I am telling you about is that those numbers are an average for the whole Quad City area, which means some areas will be increasing much less in value or not at all and some areas will be increasing a lot more than that. I like to invest in the best areas.

It would be nice if they would post more, we could learn a lot. I was just telling Anita yesterday that it's wonderful how many people are now part of this site, but I wish more would participate.

I noticed that San Francisco was up nearly 9% last quarter. Any San Fran peaople out there that can verify this info locally?

I recently read an article on down markets and it said California housing prices where up this month to a whopping 16%. Which is on it's way back up. It may take a little while to get where it was, but that is positive information.

I have been reading the book and learning about the national and local markets. As I read Dean's advice on how to rate my neighborhood market I am confused.

Where I live there has bee ALLOT of construction over the past year. New housing developments and stores are going up in droves. A new Target,5 new shopping centers with at least a hundred new stores and 6 new housing communities.

I live in a single home development where houses were valued around $170,000.00 some have sold for $199,000.00. However a mile down the road there are section 8 housing developments full of crime, the public high school is over crowded and ranked last in the school report card ratings in 2007.

Since they have built the new homes our house values have dropped. People can purchase a new home for about 30,000.00 more than what I would ask for mine.
I have recently put mine on the market and since I have the largest home in my neighborhood I was sure that I could get at least $25,000.00 more than the other homes selling for $199,000.00. However because of the new homes the comps for my home put me back into the price range of the others. If I were to sell my home right now I would have to lower my price $25,000.00.
My question is this... Did the new construction hinder or improve the real estate market in this area?

One thing that I have learned through Dean's list is location, location, location... When searching for an investment location we must take into consideration the schools and transportation. My neighborhood is convenient to all of the major highways but the schools are really, really bad. How would I rate my neighborhood for investing considering these two factors?

Do you think the older homes will go back up in value or continue to drop because of the new homes?

Good questions. It is hard to answer your questions without being there. I have seen good areas with bad schools still do very well because there are really popular private schools in the area that parents can send their kids to.

If the older homes are dropping in value then you have an opportunity to buy them really cheap and assign the contract. Remember, it doesn't matter if values are dropping. If you buy a house where the value has dropped down to $150,000 and you can buy it for $100,000 then you can make a profit.

that is definitley a tough desicion, man, i'm glad that my area that i live in has excellent schooling, the schools are rated as follows 1=bad 10=excellent are schooling rates #9 very good, plus our construction isn't being built up nearly as much, our area went through that phase in 2003-2004
GOOD LUCK