Life of an Investor » Uncategorized

Archive for the ‘Uncategorized’ Category

Back to Business

Friday, August 15th, 2008

I haven’t written anything interesting in a while, but that’s because I haven’t had anything interesting happen related to investing. Actually, I did receive an e-mail that my silver has been shipped and should be arriving on Monday, so that’s exciting.

Update: What we’ve been doing
The last time I wrote about trying to close on a property was way back in May and that deal totally fell through. We weren’t able to get the utilities turned on for the inspection due to back payments due and other issues, so we canceled the contract, assuming that we would sign a new one once the issue was resolved. Well, long story short, we never really heard from the seller again. Little more has happened since then. We actually did make an offer on a 4-plex last month, but were a little late getting ours in, so the bank had already sent a counter-offer back to one of the bidders. The price had drastically dropped a couple of weeks before we noticed and put our offer in. As far as we know, we are not in the consideration for that property. It would have been another great cash flow opportunity. I’m dedicating myself to spending more time several times a week, if not daily, to searching for properties so we don’t miss opportunities like this.

Change of Focus?
What we’re finding as we evaluate each deal is that it is always going to be more difficult to get a multi-family property in the current market unless you have a lot of cash to put in. With a minimum of 20% down, plus needed repairs, every purchase drains a lot of available capital. With the limited inventory in our area, we are beginning to shift focus a bit. Currently, we’re looking at several single-family homes that would make for potentially good rehab/resell opportunities. In fact, we are putting in an offer on one today and it has only been on the market for 6 days, though it probably already has offers. If we get it at our price, it will be at about 60% of the after repair value (ARV). Hopefully we can keep the repairs down to about another 10% so that we will have a total investment in of about 70%. I’ll try to keep you updated on how each potential deal is going.

Bidding Strategy
As investors, do you have a specific bidding strategy when it comes to bank owned properties, or any MLS listed property for that matter? For example, if you find a property in an area that you love, but the bank has drastically overpriced it, do you put in a lowball offer right away, or let it sit on the market for a while first. It seems that I notice a trend with the way that bank-owned properties are sold and wonder if there is a way to hack the process in a way that puts me at an advantage over other bidders. Here is an example to contemplate: The bank lists a house in a great neighborhood that needs lots of work. The ARV is $150,000 so the bank feels justified in listing if for $125,000. In my eyes, I would maybe pay $100,000 because I feel it needs $20,000 in repairs. Should I make an offer that is 33% below the asking price as soon as it hits the market? My gut feeling is that I shouldn’t do this unless I enjoy rejection (or waiting for a response that I’ll never get). One month later, the bank drops the price to $110,000 and the offers start flooding in from investors. At this point in the game, it’s almost a matter of luck whether or not my offer is going to have a chance to make it to the bank’s desk. What if I had made my $100,000 offer just before the bank lowered the price? Wouldn’t I have had a much better chance of getting a response than if I had offered right away. It seems that once the house has been sitting for a month or two, banks get pretty aggressive in slashing the price until they start to get some offers. Well, that’s just something to think about. Feel free to comment if you have any ideas or responses.

———-
If you like, or can at least stand to read what I write, make sure you add my RSS Feed to your list so you don’t miss a single post. If you have no idea what I’m talking about, read this.

Photo courtesy of

Single-Family vs. Multiple-Family Investments

Friday, June 13th, 2008

In my mind I have gone back and forth a little bit about which to invest in, single-family homes or multi-family homes. I know there are pros and cons to each and the answer will be different for each investor, but I thought I would discuss it here a little bit and see if I can get some opinions in the comments.

I’ve always envisioned myself as either the owner of a large apartment complex or of dozens of single family or 3-4 unit buildings. Obviously, I would expect to have people working for me, taking care of maintenance, collecting rent, etc. But since I am just starting out, I’m wondering if maybe it would be a good idea to start with a single-family home and then build up from there.

Maintenance

There are many reasons that I would prefer a multi-unit property, such as a fourplex, but there also one or two reasons that I’m considering a single-family. Multi-unit properties offer many benefits to an investor. These properties are generally built for lower maintenance. They are built with basic supplies and nothing fancy or expensive for when replacement or repair is needed. For example, a fourplex we looked at recently had all of the plumbing for the bathrooms and kitchens in the same shared wall which would make repairs simpler. From the bathroom fixtures to kitchen cabinets, everything in these units was something that you could inexpensively pick up at the local home improvement store. Also, you can replicate the same items and design in each unit. When someone moves out, you don’t have to go looking for the paint that you used for that specific unit if you use the same throughout the building. In general, the maintenance will be more consistent.

Income

When it comes to income, there are several advantages as well. A multi-unit property offers more bang for the buck. I may be able to buy a 4,000 square foot fourplex for $200,000 with each unit renting for $700. If I bought 4 single family homes for $100,000 each, I may not get any more income despite doubling my purchase price. Let’s say I can only afford to spend $200,000, so I opt to buy two single family homes. If I had purchased the fourplex, then a vacancy will only cut my income by 25%, but with the two houses, it would be cut in half. That could hurt…a lot.

Neighborhood

Often a multi-family home is surrounded by other multi-family homes. Although this could be seen as a negative, at least those who are looking for a rental will be more likely to look in your area.

Appreciation

Lastly, as the credit crunch and falling house prices have taught us, multi-unit properties may be a better investment for stable appreciation at least in the short run.

Now I turn my attention to single family homes which have many advantages in their own right.

Ease of Entry

Maybe one of the easiest ways to get into owning rentals is to rent out the house that you are moving out of. If you’re a young married couple and are planning on moving up to a larger house, then hold onto your old house for a couple of years and rent it out. This takes the hassle out of searching for that perfect rental property, plus you’ve already paid down the principal a bit.

Affordability

Single family homes are also more affordable. In my example above, I said I had $200,000 to invest. What if I only had access to $100,000? My only option would be to get more money, or buy a single family home instead. Also, single-family home prices fluctuate more. It may be easier to pick up a bargain during a downturn in the economy. Multi-family properties are almost always priced based upon the rental income they bring in, so the prices do not fluctuate as greatly. This can also lead to a potential higher appreciation with single-family homes. Just like the stock market, the prices go up and down, but there is more volatility to take advantage of.

Easier to Market

Probably the biggest advantage I can think of though is the fact that if given the choice, many people would prefer to live in a house rather than a unit. Although I praised the simplicity of units above, some people actually do care where they live and the quality of the surroundings. This can bring you happier tenants and bring them to you quicker.

Less Competition

Since single-family houses are not generally in neighborhoods with multi-family units, there will be less rental competition in the area. People won’t be comparing prices with the unit next door like they might be in a rental neighborhood. But just remember, this also means that you have to find creative ways to advertise.

All in all, I think any residential property is a great investment. It all comes down to personal situations and circumstances.

Please let me know if you think of any other pros and cons that I didn’t come up with.

Photo courtesy of dave_mcmt via Flickr.

If you like, or can at least stand to read what I write, make sure you add my RSS Feed to your list so you don’t miss a single post. If you have no idea what I’m talking about, read this.