Where to buy investment real estate?

[RichardtheFrog]

I have plans in my future of buying rental residential real estate, or maybe a starting a mobile home park. Is there a way to determine what cities would be a good place to do this? Should I look at future expected population increase?


Also, where do mobile home parks get their mobile homes? Assuming they don't buy new ones. Do they get them from private individuals?

[Fulcrum]

You seem to be jumping all over the place right now with what you want to do. I think you're getting to far ahead of yourself and that you're trying to approach this from a seasoned investor's point of view. Take a step back and study, study, and when your eyes roll into the back of your head take 5 minutes off and study some more.

Pick up Ray Alcorn's book Dealmaker’s Guide (http://dealmakersguide.com/dealmakers-guide-alcorn/#.VEg3VBajJ48) and read it and learn what it will take to run the kind of real estate venture you're looking at. I bought this book a few years ago and many of the lessons taught there can apply to almost all businesses. It's expensive, looks like the price almost doubled since I bought my copy, but the information presented from an experienced real estate investor I felt is well worth the money.

I am not affiliated with the author/publisher of the book.

[RichardtheFrog]

I have been studying for years. Now, I need to get into it and do it.

[Fulcrum]

I have been studying for years. Now, I need to get into it and do it.

Please don't take this the wrong way, but that's not how you're coming across in your posts. To me, they appear to be all over the place and you're having a hard time making up your mind. I'm not saying this to be mean or to belittle you in any way.

You need to develop a game plan, which is why I recommended the resource that I did. I'm going to layout a few steps for you before you spend too much time "chasing your tail".

First, take complete stock of your personal financial assets. This will be a financial statement that will list all the assets and liabilities that you have.

Second, write down what you're talents and abilities are and how they apply to the management of real estate. If your talents don't match up with the day to day management, you will need to consider a third party management company.

Third, decide what you want your real estate investments to do for you.

Fourth, decide on what types of properties you are going to look at. At this time, only consider properties that will fit your current financial position and capabilities.

Fifth, start searching online for properties that will fit your criteria that you came up with in the previous steps. MLS, Loopnet, Craigslist, Kijiji, etc are all good places to start.

Sixth, once you find a property start running numbers to see if what is listed are real numbers or proforma numbers. Do this for a few potential properties. Recast some of the numbers, if possible, as if you were managing the property.

Once you go through these exercises and are comfortable on the research side, start calling the listing agents/owners and begin the process of due diligence. Don't jump at the opportunity to purchase the first place you look at unless it's a "steal of a deal" that you know you can turn over/turn around quickly.

I hope this helps you get some traction rather than just you sitting there spinning your tires. I'm going through these exercises myself on almost a monthly basis right now re-evaluating both my shops capabilities and financial position.

[RichardtheFrog]

1. I know what I own.
2. I know everything about what to do. I know the law. I know what leases to use. I know how to fix things myself. I don't need to waste money on a management company.
3. Make money.
4. I am only looking at residential properties that I can afford right now. I have a potential cosigner if I can convince him that I can make a profit or at least make enough to pay off the loan.
5. Already done this.
6. I already have done this.

[Blessed]

2. I know everything about what to do. I know the law. I know what leases to use. I know how to fix things myself. I don't need to waste money on a management company.
3. Make money.


As for #2 - Maybe you don't need a management company, but at the minimum I suggest that you would be wise to develop a very good working relationship with a real estate agent, a plumber, an electrician, and a general contractor. Also you need to hire a good lawyer and an accountant right from the start to go over your contracts, make sure you're taking advantage of every tax break you can without red-flagging yourself for audit and to be already on your team if someone ever decides to sue you or you need to evict somebody.

And for #3 - well, we all want to make money. The question Brad is asking goes way beyond that - what do you want to be able to do with that real estate when you're done being the landlord? Or are you going to be the landlord until you die, if so what is going to happen to those properties after that? Or are you just trying to start in some spot now - say a mobile home park - get it established and then sell it to someone so that you can upgrade to condo's or an apartment complex? Or do you want to eventually own a series of vacation cottages or a whole neighborhood?

You really don't seem to have a game plan in place yet. I get it that you've researched and you're ready to get your future real estate business going and all of us asking you questions instead of just telling you where to go buy real estate is frustrating. But we really are trying to simply help you get started with all your ducks in a row before you start spending money - that's the best way to succeed. Also - if you have to convince a potential cosigner that you can make money I'd simply stay away from that partnership and simply buy what I could afford, make money and then move on to the next property...

There are a lot of years of wisdom, experience and lessons from the school of hard knocks represented in the participants of this forum - especially those who have been in business for themselves for years or who have simply worked in the business world for years. Don't discount it. We all have a unique perspective and it's one of the things that keeps bringing me back to this forum - when I hear the same type of advice from people in all different sorts of business I sit up and listen.

[Fulcrum]

2. I know everything about what to do. I know the law. I know what leases to use. I know how to fix things myself.


No, you don't. Once you get going, the only thing you will know for sure is that you never know enough.




3. Make money.


If this is your only reason for starting this business, you should just stop now. I could probably land a 6 figure job at multiple companies if I were to close my doors over the weekend. Starting a business is more than just making money - it's providing a product or service that is lacking in the marketplace; it's enjoying what you do; it's being willing to take on a project that no one else wants, figuring out how to do it, getting it done right in a reasonable amount of time, and, hopefully, make a few bucks at the end.



5. Already done this.
6. I already have done this.

So what's stopping you from picking up the phone and making calls?

[RichardtheFrog]

I know the law. It is easy. I know taxes. They are easy. Wasting money on a lawyer is a bad idea. Landlord and tenant law is about the easiest thing in the world.

After running some numbers, I've realized that EVERY property is an income property because every property will rent for more than PITI and other fees with a 30 year mortgage at today's rates, provided you get a good inspection to make sure no major repairs will be necessary in the near future.

What do I want to do with it? I actually don't want to be a landlord at all. I want to have a bunch of cash in a portfolio of mostly bonds, but also some stocks and commodity futures. Unfortunately, you can't take out a loan to do that like you can with real estate.

It's just a series of simple tasks in a row.

What's stopping me now is the down payment. If I take out a personal loan for the down payment, it will make the venture unprofitable. I need to buy something cheap, or qualify for an FHA loan. The only problem with the FHA is that you can't use that for an investment property.

I disagree. I think the point of a business is to make money.

[Blessed]

If you don't have the money for a down payment yet - keep working, researching, etc... until you save up enough for the down payment - 20% minimum on an investment property and then start your real estate business with that first property.

My Dad owns a couple of rental properties - and they would make fabulous money - if they were paid off... it's amazing how that little bit of profit you make every month disappears in a poof of smoke when an HVAC unit goes out, the toilet overflows and floods the house and you have water damage to repair, the pipes freeze, the dishwasher quits working, your tenant gives you a 30 day notice and it takes another 3 months to find a new renter, a tenant moves out and trashes the house before he leaves... He owned three properties for about two years, sold the first one earlier this year and is looking to get rid of the next two soon - because the only way to really make money in real estate is to have that first property completely paid off.

If the only reason you have a business is to make money that attitude is going to be reflected in the way you relate to your customers (tenants) when a customer or tenant is only a dollar sign to you they have no loyalty and that will doom your business to failure. If all you want to do is make enough money to get a nice portfolio of bonds, stocks and commodity futures - work your tail off and earn some extra money, get a second job if you need to.

[Freelancier]

I want to have a bunch of cash in a portfolio of mostly bonds, but also some stocks and commodity futures. Unfortunately, you can't take out a loan to do that like you can with real estate.
From my experience, though, the ROI isn't on the loaned part of the portfolio, but on what you put into it for cash. In other words, we put about 35% of our cash into the purchase and furnishing of our rental homes. In 15 years when the loan is paid off, our ROI is 6% ON OUR MONEY (the bank got their percentage when I paid off the loan). After that, the ROI goes up slowly over time, topping out around 8%. That's assuming housing prices don't fall further than what we spent on the place and that our expenses don't get out of hand -- right now the income matches the total outflow, so we haven't had to add cash into the places.

So, $20K in, in 15 years, you have a 6-8% compounded return on that $20K if nothing goes badly wrong and the housing market doesn't tank again just when you need to sell. The loan was just there to make the transaction happen, not to provide any kind of return multiplier.

Compare that to a B or C rated corporate bond or preferred stock: same amount of YOUR money you put in, same 6-8% return, better liquidity, probably lower risk. Only reason we didn't go that route is we already had a lot of that and the rental homes fit into our lifestyle right now.

[RichardtheFrog]

Of course I want to make money, but that doesn't mean I have to be totally impersonal about it. I do know that I would have been kicked out of everywhere I've ever stayed if I was late on the rent.

I did a little more research with a realtor and looking at the property appraiser, and it actually appears that I should buy some low-income housing if not mobile homes. Either houses in the slums, or in rural areas.

I think I can make it work.

I'm not going to let me tenants stay rent free because they're "cool."

[Wozcreative]

Of course I want to make money, but that doesn't mean I have to be totally impersonal about it. I do know that I would have been kicked out of everywhere I've ever stayed if I was late on the rent.

I did a little more research with a realtor and looking at the property appraiser, and it actually appears that I should buy some low-income housing if not mobile homes. Either houses in the slums, or in rural areas.

I think I can make it work.

I'm not going to let me tenants stay rent free because they're "cool."

In many states or countries it can take about 3 months before you can legally kick people out.
As far as I understand after payment is late 30 days (you have to send a letter and then you have to apply for a court case which can take another wile longer, then the judge rules and gives the person X number of days to move out).. You need to "know" you will be able to make it work with cash reserve.. don't "think" you can make it work if you're not going to count in things like this.

[RichardtheFrog]

In Florida, it's 3 days before you can issue a notice.

[Harold Mansfield]

In NV it's a 5 day, and then a 24 hour. But all a resident has to do is go downtown and apply for a court date and then it can take weeks. In that time the landlord cannot kick them out.

In NH you can't evict someone in the winter.

Every state is different.

I'd never invest in low income or mobile homes. I don't see the point of going into it and aim for the worst possible situation with the biggest headaches.

[RichardtheFrog]

True, but I have to go with what I can afford right now. I am on another forum of landlords, and many people say do not rent out mobile homes, but some people say they have done it.

I think I can make it work.

I made a MS Excel spreadsheet with different variable such as purchase price, tax rate, mortgage duration, mortgage rate, expected rental per month, occupancy rate, estimated repairs, etc. and it tells me how much profit to expect per month. It seems that every single house comes out to about $200/month. In theory anyway.