elezam

I'm looking for some opinions, experiences, anything that could shed some light on the subject of purchasing out of town investment properties. Would you? I am particularly interested in hearing about multifamily properties, and if you are/were able to successfully manage these properties from afar. I am in NYC, and everything here is priced skyhigh... especially for a beginner. The locations up here are also in, to put it nicely, less than desirable neighborhoods. I'm not sure that my first venture should be into section 8 housing.

I have been looking at real estate located down in florida. The properties look very nice, and are reasonably priced. They also seem to be located in nice, stable communities. It seems that some of these properties would be ideal for a beginner, but unfortunately the distance is quite far. In addition, I havent a management company as of yet. I have some relatives and friends down there. Flights down there are somewhat inexpensive as well, on an off week I can find $79 tickets.

Would you look into Floridian prospects, or would you stick to the neighborhoods you know best? Thanks for all your comments in advance!

anarchy[sear]

iTrader: (1)

From what I have heard from friends is that housing in Florida is relatively on the cheaper side especially compared to New York. My friend now lives in Jacksonville and she is talking about purchasing a home for less than $200k. As for someone to watch the property and the up keep that is up to you. The economy is pretty slow and people are hurting for jobs so I am sure you can find a handy man or a property manager for pretty cheap. Good look on your endeavors into the investment world.

MR1

Lower purchase prices usually means lower rents so beware. Most of the multi-familyforeclosures we are currently seeing are from out of town owners that thought they could manage inexpensive properties from a distance.

Yes, uninemployment is high and you can find a handyman. Problem is that everyone who needs work tells you they are handymen even if they have no skills. How do you tell a $100.00 repair from a $1,000 repair from thousands of miles away? I prefer to own things that I can see on a regular basis if necessary fwiw.

anarchy[sear]

iTrader: (1)

^^^Good point he makes but remember even if the housing market goes down rent never goes down usually always goes up.

mrdeeno

What do you want out of it? How much do you have to put down? What kind of financing? Will you be able to afford the place at the end of the day with a property manager?

Keep in mind that a lot of professional property managers i know take a % of rents, but also charge for maintenance, repairs (from professional repairmen), court time and costs, etc. So it may seem like a deal at first but it's not that great unless you own the building outright or are only financing a small portion that you can afford it with your mortgage payment.

Also keep in mind that as a beginner, and especially with the markets the way they are, banks are more anal about commercial property than they are about owner-occupied properties. Even with stellar credit, my bank required 25% down on my property i purchased 5 years ago as well as $10k locked in an account at their bank for 3 years OR get a property manager since i had no official rental property experience. I chose to keep the $10k locked in.

special-ed

Yes, but in a market where renters are also losing their jobs and can't pay the rent, it won't matter. If the renters can't pay or rental property owners can't fill their open spaces, or property owners offer their rental at a discount, or put themselves on a limb and takes the first occupant that has cash in hand to cover a few months, you now have a situation where there is an increase in risk of the rental property owner defaulting on that property.

Unless you've got so much discretionary cash just sitting around that you can swim in it, there are better options. Consult your professional advisor.

elezam

Thanks for the comments so far guys. MR1, you bring up a good point about absentee owners. It doesn't seem to make sense unless you have a management company.

I know about the residential/commercial property difference. I am looking for something with 2-4 units only, so I will be able to take advantage of a low down payment. The down payment will be about $50,000. Hopefully I can put a small percentage down at first, but I might be forced to take out two mortgages from separate banks to cover most of the property. I haven't looked into how I will finance the property as of yet, but I will be able to obtain very credible cosigners. As for a property manager, I'm not really sure how that works. If he wants a percentage of rent, I guess I could make that work.

Thanks again for your input guys

anarchy[sear]

iTrader: (1)

For alot of people that has lost their homes in this huge economic crisis a lot of people are force to turn to renting. Most people don't have a choice any more because consumer lending is very tight now.

SupaRookie

I would choose close to home. My two close friend had a single family home about 3 hrs away and it wasnt successful. They went to school and work there for a year or so. It was a hassle because he would have to drive down every time there was a problem. One of them is very lazy, so it didnt help. After 2.5 yrs, they foreclose the house. Good luck.

MisterLinus

I don't mean to burst your bubble but...

With $50,000 down is this debt market you could MAYBE get a $250,000 place, but it's my guess that even that would be difficult, since you have never owned or operated a multi-family property even if its a two-flat. Getting a second morgage is just wishful thinking, and a terrible idea as well. Even experienced property owners are having very difficult times getting debt, and it doesn't matter whatsoever if you have an excellent credit rating. Commercial real estate is going to be very difficult to finance for quite some time no matter what or where the property is. IMO, $50,000 is not nearly enough to put down, your mortgage payments will be hefty and if the slightest thing goes wrong or if you have a prolonged vacancy you will not be able to pay your mortage.

DO NOT invest far away, when you own a rental, you need to have someone on call 24/7/365. Toliet's clogged, your going to get a call, Leak somewhere, you are going to get a call, Locked out of an apartment, you are going to get a call, etc... If you DO invest in something that is distant from your primary residence, you NEED to hire some sort of manager and that is only going to eat away at the already slim profit margins in apartment rentals.

Commercial real estate is not an easy way of making money and investing in less desirable demographic areas makes matters even more difficult. If you are honestly really serious about dipping your toe into the real estate investment world, I would find someone to partner up with that has a little more experience than you and also you combine your equity you will be able to afford a bigger place or at the very least in a better neighborhood closer to home.

But I will state again, DO NOT invest in a small property far away from your primary residence, the potential downfalls far outweigh the potential profits. Florida is one of the most toxic real estate markets in the country which makes things even more dangerous for you.

MR1

Agree almost totally with #10 above. Point of clafication regarding 'Commercial Real Estate'.

Residential is considered one to four units. Commercial is five+ units. This would by for lending purposes nationwide. There are different requirements for the two property types with commercial being the toughest.

moeronn

I agree with what's been posted above. If you are going to do this at all (which may not be a good idea to begin with) you MUST do it close to home or have a property manager. We have one property that we are renting out that is only 20-30 minutes away and we still have a property manager. They collect the rent and field any calls. They take a percentage of the rent and send us a check for the rest. It's been pretty smooth so far, but we got lucky finding a tennant with good credit and my wife bought the property long enough ago that it is breaking even after taxes and everything. Starting off now, it would be difficult to just break even.

elezam

So with this property manager, do they do everything? For example, if I was to buy a house and hire a property manager... all I would have to do is find tenants and collect my rent, they do the rest?

elezam

As I stated above, I wouldn't be purchasing a commercial property because I would be required to put about 20% down initially. I would be going with a 2-4 unit house. Additionally, I would be using some of NYC's special first time home buyers incentives. I just found a program yesterday, that allows first time buyers with very low income to take advantage of special grants from the city.

Some of you said this whole thing isn't such a good idea, I'd like to hear some other suggestions as well. I am a student, and saved up money over the years. If I was to purchase a house, It would probably be a quad. This way, if I do have a vacancy, 75% of my rents would still be flowing in. If I had one vacancy in a duplex, I would only have a 50% cash inflow. I do have some financial backing just in case I cannot find renters for an extended period, but I hope it doesn't come to that. Thanks for all your input guys, happy holidays!

MR1

First time buyer programs are for owner occupied only I think. So it sounds like you are now thinking of NY.

Property Managers can do everything including finding tenants and collecting rent. The problem is that they charge accordingly and may have their interst rather than yours at heart. If you are going to live on-site, why not manage it yourself? I have searched and found good but reasonably priced handymen, plumbers, electricians etc. in my area. They come and go and some haven't been good but it works out over time.

There must me some sort of apartment owners association in your area. They should have information and regular meetings. You can learn how to select tenants, do background and credit checks, write leases etc. Your state should also have a web site for property owners and renters spelling out individual rights. Classes are also conducted at community colleges, universities and private real estate schools.

Over the long term this can be a good way to secure housing for yourself and possibly amass some wealth. The important thing is to educate yourself to minimize expensive mistakes. Everybody in the country is trying to figure out how to make money right now. This can be a good place to ask initial questions but go to the experts before committing to a path.

Happy Holidays


BTW - Buy the property before you buy the car FTW

elezam

MR1, thanks for all your words of wisdom. Its funny you should bring up the car though. Over the summer I was planning to purchase the new TSX, it really caught my eye. But as this whole economic situation unraveled, I said to myself: Hell, I'm one of the few people in this country that is not in debt, and has some expendable cash.. why not make the most of it? Since then, Ive pushed the new car to the side and have been focusing on investing the cash. Hopefully I'll make some side cash off the house, and will be able to gain experience with the local market.

Thanks again to everyone for giving your priceless input, it looks as though I will be sticking to my local market for the time being. Happy holidays again!

SupaRookie

you should also find yourself a partner. Someone you trust and can back you up in case your money is tight. Your views and theirs will contradict, but the bottom line is to make money.

5o9

Generally, I see very good results with geographic diversification.

However, I think equity positions in leveraged NYC apartments have historically provided great appreciation. Guys like plumbers buy "taxpayers" and basically get $0 annual equity returns, but pay off the mortgage in 25 years and own the thing free and clear for retirement.

You make your money in real estate when you buy it. I thought things would turn around by 2012, but looks like 2016. Be very selective.

MR1

Partners are a mixed blessing at best. If you go into a partnership, long discussions and contracts with exit strategy are a must.

Renegade

How did you come up with 2012, and now 2016 for the market to turn around?

5o9

For my metro, I set an inflation adjusted price point at about mid-year 2002 levels, and projected inflation and orderly price depreciation, and found the time to price equilibrium to be 2012. 2012 is the start of a baby boom migration that won't help me.

The 2016 date was obtained in a housing market study ordered from an econometrics firm that has a good track record forecasting this metro.

MR1

Above = somewhat educated guess. I think there are too many independent variables for anything better though.

ludachrisvt

iTrader: (2)

This is my story exactly, times 14. My business partner and I have "swam in it" for 2 1/2 years. People are broke as hell. They can't pay. Most of our residents are on some kind of assistance. We've burned through 80,000 in cash reserves and equity.

My biggest advice to you is to make sure you have cash for 2 years of mortgage payments saved (we had that and are still up shits creek!). Also, save your money now. Save every penny for 10 years. Then look into buying realestate. Having a bank note on a property sucks.

If you must have a note on it, make sure you are at least banking 30% or higher above your mortgage payment. Do not buy in low income areas. DO NOT BUY IN LOW INCOME AREAS.

I said that twice for a reason If that is all you can afford, keep saving your money and invest in some stocks for now. Build up your cash reserves. Invest in multiunits close to big college campuses. Students generally have money from mommy and daddy and you will always have fresh renters ready to lease!

special-ed

uhhhh, you sure 'bout that?

As I've mentioned in another thread and in this thread alone, rental market will become saturated and thus rental price will deteriorate where end result will lead to rental income dropping for these property owners putting further financial strain on an emptying wallet.

If you look at the data and take the time to understand what it is you're looking at, anyone with half a brain can see where we're going. It's not rocket science folks...


Apartment Vacancy at 22-Year High in U.S., Says Reis

http://www.bloomberg.com/apps/news?p...d=a5YNzreTGxLw




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special-ed

You forgot a few other options.....

1. Move back home to help family with bills
2. More individuals and families consolidating their expenses by living together with other individuals/families
3. Skipping rent entirely and live in "Tent City"



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