Poor Rental Market
I'm moving to Asheville North Carolina. I have a bit of cash and want to invest in rental houses.
I done some research of the Asheville market and I've found that there has been alot of apreacaition recently making price of housing is very high compared to the average wages people earn.
The current rents are also very low compared to the price of the units. Most cases have a cap rate arround 6%. Many investments will carry a negetive cash flow.
How do I handle this? I got lots of cash but should I invest in a maket that has sub standard returns?
ashville is cutting back on building because they are running out of room. Therefore existing structures are appreciating rapidly. If you got cash and can take the blow each month might be worth getting a few rentals. Then cash out later
Would anybody suggest increasing the down payment to avoid a negative cashflow. Of course I would also have a much lower ROI.
Hi maida7,
One thought that you might consider is to not pay retail for your property. This would give you a cushion in equity.
Depending on how much time you are going to spend in locating, buying properties, you may consider buying pre-foreclosures or buying foreclosures at the sherrif sale. These are both areas that you would want to know and understand well, but the education pays handsomely.
Best of Success!
BAMZ
_________________
"Never Buy Anything . . . Unless Someone HAS TO sell!" (Donald Trump)[ Edited by BAMZ on Date 10/31/2003 ]
In our book we will ALWAYS pay retail IF we can negotiate the terms which we are looking for. "Terms will overcome price!" I know this will trigger a boat load of hate mail to us but if a seller is willing to finance or be creative with terms on a NOO in perfect condition, low down payment, accepting interest only payments for about 5 years, at an attractive interest rate (6%). Without impacting our credit, and using OPPM, we are entertaining the retail price.
Yes will will be limited on the exit strategies but the terms are attractive.
Eric & Rosa
[addsig]
I'm new to this game but from what I have read.
Pre forclosure = taking unfair advantage of people in money troble
Forclosure auction = buying without knowing all the details
Of course I would like to save money but arent these strategies either risky or somewhat underhanded?
Anyway back to my original question: Would it be wise to invest in a market that has a low cap rate like 6%?
For someone who is new to the game, I wouldn't suggest buying retail, with or without favorable terms. Now Maida7, may be an exception because of the extrra capital that they have if things go south, the furnace goes out, or the tenant stops paying rent.
"Pre forclosure = taking unfair advantage of people in money trouble "
A - the homeowners willingly or unwillingly fell into an unfavorable postion. They are not paying their bills. The bank will foreclose, and evict them from their house. Tthe foreclosure will go on their credit report and haunt them for many years to come.
OR, you can buy their property from them, give them some moving money to help them in the right direction, and prevent the completed foreclosure from going on their credit report! If everyone wins, it that taking advantage of someone?
"Forclosure auction = buying without knowing all the details" ...risky?
A - Investing in anything is risky. The RE or stock market can go up or down, and there are all kinds of "what if's" that could happen.
If you put effort, energy and education into your investment strategy, there are many ways that you increase your cap rate considerable higher than 6%.
BAMZ
_________________
"Never Buy Anything . . . Unless Someone HAS TO sell!" (Donald Trump)[ Edited by BAMZ on Date 10/31/2003 ]
I think that people will look for any opportunity to "not do something" myself included.
If you think you are "taking advantage of someone" then you won't do the deal.
Getting a deal is not taking advantage of someone. Making a deal with someone who has diminished capacity is.
I never pay retail, I bought a car this weekend in Boise. Retail was 12,000 I paid 7500 cash.
I got a good deal, at a price I was willing to pay and the seller was willing to accept.
Houses are the same way, a good deal is one that allows you to buy at your price, and the seller to accept at a price he can live with. Neither is under physical duress.
IN a market like you describe I would not pay retail unless the terms were so good that it left me cash positive. IN such a market I might also consider mobile homes, especially the 10-12 year old ones where you can purchase cheaply and cap rates are higher. IT is not uncommon for a $7000 MH to rent for $500 a month.
THis is where you (the man with the cash) provides a home for the person who doesn't have the cash to purchase and is willing to pay the rent you ask for.
Or maybe you sell at a price he can make the payments on?
Good Luck!
[addsig]
Have you looked at multi family property. If a duplex won't cashflow, how about a triplex? If none of those work, how about a rural area close to Asheville... Probably none of that in that area Mobile homes also cashflow very well, especially if you are looking at ROI. (I am talking very used MH).
[addsig]
You could work the newspaper classified and find flexible sellers and don't wanters.
Buying retail creatively is really not a bad way to go for a begginer. I recently purchased a 4 bedroom Townhome in perfect condition. It was listed for 59,900.00. I offered full price with the seller paying $2500.00 of my closing costs. The DP is 10%, that was taken from credit cards, timed just right for it not to show up on the credit bureau. The closiong costs were 1400.00 so I had an additional 1100. Taken off of my down payment. 49900 is what I took from the CC. The rent on the property far exceeds the mortgage payment by 2/3rd's. I was a skeptic but now I belive it can be done.
Apologize for the tangent!!
CK
Buying retail creatively is really not a bad way to go for a begginer. I recently purchased a 4 bedroom Townhome in perfect condition. It was listed for 59,900.00. I offered full price with the seller paying $2500.00 of my closing costs. The DP is 10%, that was taken from credit cards, timed just right for it not to show up on the credit bureau. The closiong costs were 1400.00 so I had an additional 1100. Taken off of my down payment. 49900 is what I took from the CC. The rent on the property far exceeds the mortgage payment by 2/3rd's. The CC's will be paid off in 4 months. After that, my cash flow monthly is close to 1k. I was a skeptic but now I belive it can be done.
Apologize for the tangent!!
CK
Buying retail creatively is really not a bad way to go for a begginer. I recently purchased a 4 bedroom Townhome in perfect condition. It was listed for 59,900.00. I offered full price with the seller paying $2500.00 of my closing costs. The DP is 10%, that was taken from credit cards, timed just right for it not to show up on the credit bureau. The closiong costs were 1400.00 so I had an additional 1100. Taken off of my down payment. 49900 is what I took from the CC. The rent on the property far exceeds the mortgage payment by 2/3rd's. The CC's will be paid off in 4 months. After that, my cash flow monthly is close to 1k. I was a skeptic but now I belive it can be done.
Apologize for the tangent!!
CK