Author Topic: Buy locally or not?  (Read 464 times)

rulesofacquisition

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Buy locally or not?
« on: September 01, 2017, 07:46:36 PM »
I am just starting to research buying a rental and I am trying to figure out if my local area has good deals.

A quick look in a local paper has 13 single family and townhouses at an average rent of $1112 a month, which looks affordable with the median income of $53,751.

When I look at the 2% rule if I use $1200 a month rent I get a $54,000 total cost for the property, and nothing is that cheap here. I paid $120,000 for my single family house. The same house without the acre of land would go for less.

I was considering a duplex (or 3 or 4) to spread the risk a bit for my first rental, do you still use the 2% rule to get a general idea if the property will make money? Rent for something like this is probably $6-800 per apartment, but I couldn't find any ads this week.

YttriumNitrate

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Re: Buy locally or not?
« Reply #1 on: September 02, 2017, 11:12:41 AM »
At least in my area, the properties that satisfy the "2% rule" are in the D+ or C- parts of town. As a rather new landlord, I'd much rather get 1% with no drama and practically no vacancies, and leave the 2% properties to the hard-knuckled pros.

tralfamadorian

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Re: Buy locally or not?
« Reply #2 on: September 02, 2017, 12:23:42 PM »
I am just starting to research buying a rental and I am trying to figure out if my local area has good deals.

A quick look in a local paper has 13 single family and townhouses at an average rent of $1112 a month, which looks affordable with the median income of $53,751.

When I look at the 2% rule if I use $1200 a month rent I get a $54,000 total cost for the property, and nothing is that cheap here. I paid $120,000 for my single family house. The same house without the acre of land would go for less.

I was considering a duplex (or 3 or 4) to spread the risk a bit for my first rental, do you still use the 2% rule to get a general idea if the property will make money? Rent for something like this is probably $6-800 per apartment, but I couldn't find any ads this week.

1%, 2%, 50% rules of thumb are not particularly useful starting out.  Take some time and crunch the numbers in your area.

Income:
Rent:

Expenses:
P&I:
T&I:
HOA&misc:
Management (10% of rent):
Maintenance (10% of rent):
CapEx (5% for condos/ 10% for SFH/MFH):
Vacancy (10% of rent):

Find a few places that at first blush you think might be good investments, then crunch the numbers.  P&I can be calculated via a mortgage calculator. Taxes can be found on your county or city's site.  For insurance, ask your current insurance company to give you some quotes for targeted properties.  Then see what monthly profit number falls out.  A common minimum for many investors is $200/door per month.  After you do the long hand version of this for a bunch of properties, you will see a percentage that you will be able to use to quickly determine if a property is worth serious consideration.  All this takes a little time but you're making a big investment; it's worth investing some time as well as $. 

As Yttrium mentioned 2%, if found at all, is going to be in the worst areas that are most probably going to make you hate being a landlord.  Start with B/B+ areas.

rulesofacquisition

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Re: Buy locally or not?
« Reply #3 on: September 02, 2017, 03:39:06 PM »
OK, thanks, that gives me some homework and a direction. I hope local pans out as we can do many repairs ourselves, but if this area isn't good I don't want to waste my time or money.

tralfamadorian

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Re: Buy locally or not?
« Reply #4 on: September 02, 2017, 05:50:40 PM »
I think it will work out given the few numbers you provided above.  If your taxes and/or insurance are high compared to average, it might take more work (more waiting for the right properties, more bids).  If the taxes/insurance are average or below, you may be able to purchase as many cash flowing properties as you wish.  Let us know how it goes- good luck!

Frugal Father

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Re: Buy locally or not?
« Reply #5 on: September 15, 2017, 06:18:20 AM »
OK, thanks, that gives me some homework and a direction. I hope local pans out as we can do many repairs ourselves, but if this area isn't good I don't want to waste my time or money.
Remember when you're crunching the numbers to assume that you are outsourcing all costs: maintenance, property management, etc. This will make sure you consider the value of your time, and you may decide later on that you don't want to be that actively involved anyways. If you analyzed your costs without taking into account the things you intended to do yourself, you could find yourself in a tough spot.

hoping2retire35

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Re: Buy locally or not?
« Reply #6 on: September 15, 2017, 06:27:02 AM »
YTN, agreed. with no drama SF housing you are looking at a 1% rule. with 2% you need a large number of units and a team to handle the stress. Pursue 1% properties now, collect, build team, then go for 2% and let your team handle management.

Cwadda

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Re: Buy locally or not?
« Reply #7 on: September 18, 2017, 12:11:38 PM »
I look for the 1% rule in a decent area. If I wouldn't want to live there, I won't buy. My rental property is 1.25% and is in a great location, but the schools aren't the best.