I am going to be purchasing my first investment property out of state. The property is a duplex in Oklohoma that rents for $650/month. Is there anyone here that lives in an expensive area that has done this to generate cashflow? The property is less than $70,000.


Mike
www.liveinvisalia.com

is it at least 20% below mkt value?

It is below market value, whether 20%, I cannot be for sure. The property has been owned by a family member for years and he foreclosed on the owner and is repairing the property. He's going to carry the note for terms we've already agreed to with no money down, although I'll probably put $5,000 or so down.

I know that many of these cheap properties will not appreciate like the property I have in California, but it makes sense to buy them simply for cashflow. What I would really like to get into is rehabbing multi-family 8 units or more. How's Montana Real Estate?

You need to have an overall business plan for real estate investments.

In it develop your criteria for properties. As an investor your object is to make a profit in as many of the 3 key profit centers as possible that fit your investment goals and portfolio requirements. They are 1: acquisition below market value 2: Cash Flow during hold (if any) 3: profit from appreciation at sale.

Some of your investment goals may not have all three such as when you buy and immediately flip... you will not have cash flow.

If your intent is cash flow... you need to determine what you cash flow actually will be and what your minimal ROI requirements are according to your business plan.

You really need to do a conservative Cash Flow Analysis taking all the factors into consideration, and don't forget to add in a loss of rental time between tenants and repair cost, property management and set asides for major repairs/ replacements such as carpets, roof, flooring, Heading and Cooling systems, marketing cost if your going to rent it yourself and general maintenance during non rental periods.

Determine what your minimal investment requirements are and plug in the numbers. For Cash Flow I personally have a higher than typical requirements for ROI. If it does not meet my requirements for that then I evaluate it for a flip and if that doesn't work I pass on it.

If the property is under $70,000 and your getting $650.00 you really need to be careful in your analysis, and error could be of great consequences. Just from those numbers you almost automatically fail my criteria unless I am almost assured of a wonderful appreciation rate with no tax increases reflecting those appreciated rates..... on lower end properties I want about 1% of FMV or more per month for rent, but that is my criteria and I don't have all the data to do the analysis for Effective Cash Flow and long term ROI.

What are your criteria for investing? at each profit point?

You need to make sure rent covers the mortgage. Payments will depend on what you put down, and your payment effects whether there is positive income or not

Like I said, I have property that has done very well in California. Trying to meet your goal of purchasing property below market value is nearly impossible here unless you come across a distressed situation. Since I am an agent I do have 1 that will have $70,000 in equity when I purchase it.
I have not yet made the move of buying out of state property. The gross return on this particular property is 12%. Most property I sell to investors averages 6-8% ROI in California. I have limited expenses and made a terrific income last year. My goal is to go full-time into investing in 10 years. Among other goals is buying out a property management company where I live.
My wife's uncle owns this property and will carry and doesn't want the property any longer. He has many rentals where I live and unfortunately doesn't use leverage and does all the work himself in managing the properties he owns. I am doing him a favor anyway in taking it off his hands. My net cashflow will be $175/month which is reasonable considering I can buy it with or without money down. I have already ran the numbers. Appreciation is where this property won't do as well. My properties made over 27% last year and it will be lucky if it breaks 5%. Most likely I'll flip in a couple years and buy a multi-unit fixer


Mike
www.liveinvisalia.com

Las Vegas Real Estate....

You will need more than simply having the rent cover the mortgage to have positive Cash Flow.

You have MANY other factors that can/ will eat any "apparent" Cash Flow when only looking at the variance between the rental amount and the mortgage servicing amount.... MANY...

Recommend you go back to your pre-license books and look at the investment sections for some of the very basic calculations for Cash Flow, if your personally going to do any investing.

Looks like Central California Property may have a handle on what Cash Flow is.... I hope...

LV - Realty is correct this time. If you can get me a property where the mortgage is the only expense, I'll pay you 110% for it! CCP - it doesn't matter where the property is located. All that matters are the numbers. Find a property with positive cash flow AFTER ALL EXPENSES, and you've got a winner!

Thanks for the comments everyone! I analyze properties for my clients and myself but just had never bought "cheap" out of state property. Iwill most likely pass on the Oklohoma property because when I tap into 100% of the cashflow my return is only $650 give or take. It's not really worth my time. I'm going to see what is in Oregon. The rents are higher than Central Cali believe it or not and the price is right. Appreciation has been steady as well!

The Best place to buy now is probably
Arizona, Florida ( I sold two properties
in Florida I held less than 1 day for over 100% profit )and I heard New Mexico is booming.

That's nice to hear. I wasn't aware New Mexico was doing so well. Thanks for the info!

I strive to stick to the same 3 criteria for buying rentals as Realty Check mentioned above. (I personally think Realty Check is a sage on this website and I pay attention to everything he wrote for reality check!)

Other 3 principles I use are as follows:

1. Never buy properties outside one-hour drive range from my residence.

That's because I manage renters and do minor repairs things myself to save cost and make sure the properties are rented to people who will take care of them. I have done shingle/flashing replacement, wood rot fix, plumbing repair, dry wall repair, pest control, fence building, tile laying etc. I can't imagine doing all that on far away properties.

2. Always buy properties within 5 years of age to minimize maintenance expenses. I specialize in brick SFRs with at least 3 bedrooms and 2 bathrooms.

3. Hold for long-term. I plan to rent each one for 27.5 years and then live in myself for 2 years before selling tax-free (if the tax laws stay the same) or do 1030 exchanges.

4. Get a real estate salesperson license earn money on each property I buy. Don't quit your day job too soon.

Any comments or suggestions?

There's many ways to acquire your Real Estate and I completely agree with the principles of:
1. Cashflow
2. Appreciation
3. Purchased for less than market value

However, if I was to limit myself to just buying properties where I live, I will only acquire property for what most consider, "more than market value." California is considered the most over-priced market along with Florida and the Las Vegas market. I sell Real Estate and do occasionally find a property below market value, but they are scarce.
I don't have the time and energy to manage each property so I am planning on buying out a property management company, and that way, I put my money back in my pocket.
And I can tell you that age to an extent, is not a concern for me. I sold a property to my cousin last year for $93,000 and they put $15,000 into it and it is now worth $150,000. I would exchange it myself had it been my property for 3 more properties or a more expensive fixer.
Lastly, I don't ever intend to hold my property for more than 5 years. I can hold about 5 that are my cashflow single-family's, but the rest I'll exchange up into the 80 plus unit and eventually larger million dollar commercial buildings. My goal is to own 100 million in Real Estate. I know, it's lofty, but I have big dreams!

Everyone needs their own criteria... very good to see thought has been put into developing them and a rational as to why. They are also not cast in concrete.... when things change and you have a rational for making a criteria modification... go for it.... it just should not be a frequent event in most cases.