Look for Properties with the Right Things Wrong

Look for Properties with the Right Things WrongI had an appointment to meet an investor at a bank owned property that had just come on the market.  As I waited for my buyer to arrive, there was a parade of potential buyers and Realtors looking through the house. I suppose the enticement was the very low advertised price. The house was a bank owned property and it needed considerable work. There was a poorly constructed addition at the back of the house and there was rotten wood all the way around. The outside stucco was unprofessionally done and was riddled with stair step cracks. One corner of the house was sagging. When we got inside we saw that the house needed to be gutted. The roof was leaking in various places and the ceilings were sagging.  There was no kitchen or bathroom and no flooring. It needed a new electric panel and appeared to need new wiring.  The inside and outside a/c units were missing. It was apparent that there were more issues than met the eye in this dilapidated old house. We agreed that it looked like a Pandora’s Box of problems.

In buying investment property consider a house with the right things wrong with it. The wrong house at the wrong price can be a buyer’s nightmare.  An investor putting his hard earned dollars and his sweat equity into a property should be able to build in some equity of his own. In real estate you make your money when you buy. In figuring purchase price, renovation costs, plus an additional cushion for unforeseen problems and the unprofessional workmanship throughout this particular house, it was a loss. The true value was in the land. In researching further we found no surrounding properties in the neighborhood or on the street to add value on this house after the cost of a renovation. And, the fact remained that when completed, the house would still only be a 2 bedroom, 1 bath.

Some investors may be enticed by a property with a price that seems too good to be true, but leave it for someone else. A bad investment can waste time and drain a pocket book of hard earned money. Look for properties with the right things wrong.

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Investors–Should you Buy Single Family or Multi Family Properties?

 

Investors - Should you Buy Single Family or Multi Family Properties? by Sandy Shores Broker Associate

Properties in Brevard County are moving quickly off the market. Some statistics indicate that 40% of buyers under $125000 are investors, and 60% of them are new investors. Over 50% of our buyers are currently paying cash and we are again seeing multiple offers on property that come on the market for sale.

Many new investors ask what type of property they should buy…single family or multi family. There are pros and cons to each type.

In my experience, my preference is investing in single family properties. They are often easier to buy, finance, sell, rent, own and manage than multi family units.

Single family units typically:

(the following comparison is single family vs. small 4-10 unit multi family complexes)

>are easier and cheaper to buy than multi family.

>are tyically easier to get financed than multi family properties. There are guidelines in buying investment property. A lender typcially requires 30% down to buy a single family investment property. Often times owner financing or creative financing is helpful.

>require less money down, because they are often cheaper than multi family.

>are easier to rent (provided they are affordable) as some prospective tenants don’t want to live in a multi family district.

>are easier to sell and they sell quicker. Often because there is a larger pool of buyers for single family units. Investors or owner occupants may be interested a property. A multi family property is usually restricted to investor buyers.

>rents are usually higher than in multi family units (for the same square footage). Often in multi family there is price fixing. A tenant that has been renting from you for several years may be paying less rent than today’s market rent. Thus, you must be cautious in the amount of rent you charge for new tenants. People shop around for the best deal. If your price is higher than others of the same size they will go elsewhere. Or, if they do rent, at a higher rent than you do, they will be talking to your old tenants. Or vice versa, as pointed out in the example below.

>appreciate more quickly than multi family units. Often, this is due to the fact that the small multi family units are located in high rental areas with other such properties surrounding them. Often times rents can become somewhat fixed, because you can only rent for what the market will bear within the building or within the range of what other tenants in the building are paying. Therefore, the value of the multi family is typically based on the amount of the current rents on the building. in looking at single family, the houses are not as similar as in an apartment building, so variations can justify different rents.

Multi family units can be more difficult to manage than single family units because multiple tenants of yours are living in close proximity to each other. This could cause problems:

>As previously mentioned your tenants will talk to each other.

>If you have one disgruntled tenant. they can wreak havoc with your other tenants.

>If one difficult tenant is breaking your rules, their bad habits can spill over to your other tenants. Often, they become friends. And, if one bad apple doesn’t like the landlord, he can cause your other tenants to fill the same.

>Or, you may find your tenants calling you regularly to report a difficult tenant. It can turn into a nightmare!

For me, I don’t care to have my tenants living close to each other, because it can get very complicated. If you’ve had a tenant with you for 5 years and you have been increasing rent each year by $25, this tenant may now be paying $750 per month. What if the rental market has dropped? And, there are a large number of vacancies, so you offer an empty unit in your multi family complex, same size same square footage to a new tenant for $650, because that’s all the market will bear? What happens when the new tenant moves in and becomes friends with your $750 tenant and they talk about how much rent they’re paying? Guess what, your phone is going to be ringing, asking why you are overcharging your old tenant. It can get sticky.

Often, it can be tedious and very difficult to get a multi family building financed. Some lenders don’t have programs available to be able to finance a multi family properties. So, private financing or owner financing may be a necessity.

In my opinion small multi family units require micro managing. They are often more difficult to manage in that often they are lower priced rentals, in lower income areas. Thus, it becomes more difficult to collect rents. Sometimes tenants must be put on payment plans, and you’re soon collecting rents bimonthly, or every week, as that’s the only way the tenant can afford to pay. That means the landlord is at the property weekly. Then, it can become a situation where you’re hearing the drama of everything going on or everything that is wrong on a regular basis. I’ve seen several landlords in this very situation.

Often the cash flow is more than in single family units. But, often the risk is higher. And, often the vacancy rates and eviction rates are higher. I prefer to take my money and divide it between multiple single family units, located away from each other.

Let me twist this a different way though: if you have only one single family rental and it is empty, then you have 100% vacancy. But, if you have a multi unit complex, and 1 unit out of 4 is empty you only have a 25% vacancy. That’s why I own multiple single family units.

I buy, sell, rent, own and manage single family rental houses. And, I prefer them to small 4-10 unit multi family comlexes.

I do not currently invest in condos or townhouses. There are associations that govern them, that can become a bit challenging to deal with. And, your cash flow is lessened by the association fee you pay each month.

NOTE: Please note that this post has been written based on my experiences and opinions in investing in Brevard County real estate. The information may vary depending on the part of the country you are in and the current market conditions.

And so, the choice is yours… will it be single family or multi family?

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Melbourne FL Real Estate, Sandy Shores, Realtor

Sandy Shores, Broker Associate, Brevard County FL Real Estate

Sandy Shores, Melbourne FL Broker-Associate

M & M Real Estate, Inc.

Residential, Investment and Relocations

We have a team of professionals to facilitate your Short Sale.

Melbourne Real Estate / Palm Bay Real Estate

321-253-4545 or 321-733-6080

www.SandyShoresMelbourne.com

Email me at SandyShoresMelbourne@hotmail.com

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Thinking About an Investment Property? Work the Numbers First

thinking about buying an investment property

Today many buyers are looking for “that perfect deal”.  We’ve seen deals in various price ranges. 

Investors have gotten back in the market. Some are looking for houses to use as rentals, while others are flipping properties for profit.

Many investors are looking to buy properties that need work, so they can build sweat equity.  Some will buy a house that needs a new roof, or a new A/C, one that needs flooring or a new kitchen, perhaps a coat of paint or new bathrooms. Each investor may be looking for something a bit different. However, they are all looking for a great deal.  

Investors are in the business to make money, today or sometime in the future. They know they make their money when they buy. Some are pros that can rehab a house in under a month.  If they can get in and out and do the work affordably enough they are able to build some serious sweat equity.

On the other hand, there are novices looking for their first property.

In buying a property for investment, it’s important to buy one with the right things wrong with it.  Investors that aren’t very handy, that have to hire everything out, should talk to a professional that knows the ins and outs of the business, first.  They have to be careful they don’t buy a house that burns a hole in their pocketbook. It will be the first and the last house they ever buy.

In buying an investment property there are many considerations:

Will you be doing the work yourself?

How long will it take to complete the job?

How much will it cost in materials?

Will you be paying yourself to do the work? Or could you be working somewhere else and making more money?

Consider what your closing costs will be to purchase the house.

How much will holding costs be?  If it takes 9 months to do the job, how much does that amount to in mortgage payments?  What about monthly water bills, electric bills, gas bills?  And, homeowners association fees?

If the house is going to be resold, how much will the closing costs be to sell?  How long will the property be on the market before it sells? Add that and the monthly utility bills to the holding costs.

Consider this, if it takes 9 months to do the work and the plan is to use the property as a rental, why not just buy a house with a tenant already in place?  You’ll be collecting rent from day one. And, the tenant will be paying the mortgage. Be sure the house being considered has positive cash flow.  If the tenant is in place, you won’t be putting money in immediately for fix up, either.

Or how about this...why not pay $10,000 to $15,000 more for a house, provided the numbers work, and buy a nicer property, one that doesn’t need a major overhaul, but perhaps just some elbow grease and a coat of paint?  Get the work finished in a couple of weeks, and get a tenant in it right away. Check the numbers first. For some people it pays to save the headache of trying to do the work themselves. They’ll save in fix up expenses and many extra months of holding costs.

When I got into investing 14 years ago, my broker told me when considering a property to figure the numbers on paper first.  If the numbers don’t work, don’t bother looking at the property. 

We hear about sweat equity and it adding to the value of a property. But, in some situations, for new investors or those that aren’t so handy, it may make more sense to think smarter, instead of working harder.

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Sandy Shores REALTOR®, Melbourne/Palm Bay FL Real Estate

Brevard County Real Estate and Investing

I specialize in Residential, Investment & Relocations. 

We have a team of professionals to facilitate your Short Sale.

I buy, sell, rent, own and manage Investment Property.