Well, sure, but wouldn't it be better to just invest in cities where there is lots of demand but also low risk of rent control (or other policies that are detrimental to your investment)?

Edit: I will admit that there's a housing market spiral of lockup that happens. NIMBYism >> policy to limit development >> tightening supply >> prices up, up, up >> rent control >> tightening supply >> policy harder >> tightening supply >> more Tiens >> NIMBYism >> policy harder >> tightening supply >> prices up, up, up >> ad infinitum

So there's some logic in the approach. It's just too much headache for me. I hate politics.

Principle = the part of your mortgage payment that is paying off the loan balance
Interest = the part of your mortgage payment that goes to pay the interest on the loan balance

P&I is normally just expressed as "mortgage payment" or just "payment" or something similar. If you google and find an amortization calculator you can see how over time your interest payments decrease as your principle loan amount decreases.

Principle is the 'real' amount of the original loan...

Interest is the amount being charged to you for borrowing that principle above and beyond what you come into the transaction with.

insurance is a fee you pay to insure your loan against default when you loan to value is beyond 80/20%... in other words, if you borrow more than 80% principle to qualify for the loan, a lender will want that insurance to cover possible default because those type loans are incur more RISK than a traditional loan type.

What do we think about inflation and interest in this thread? Do we think underreported inflation and its increasing, leading to interest rate hikes and a market plumet?

What are peoples strategies? Hold/sell now? Be liquid asset heavily for being able to back up the truck on opportunities over the next 3-5years?

How do you think about making improvements to properties you are about to sell and what the ROI might be? I own a single family in a nice neighborhood with nice yards. In the front corner of our property along the street, there is an area about the size of a tennis court (original owner had planned to put in a tennis court here) that is overgrown with brush. It is totally unusable and a bit of an eyesore compared to the other properties on the street.

I have been thinking about clearing the area and planting grass. If I knew I would be here forever I would've already done it but I will probably only be in this house another one or two years. My kids will get some enjoyment out of it during that time but beyond that, I'm trying to figure out if this is the wisest use of money. As far as home improvements go, which kinds provide the best bang for the buck and would something like this be considered a good investment? I do think it would help with the curb appeal considerably.

Any thoughts are appreciated.

Never heard of a tennis court in the front yard - very odd. I would probably clear it - wouldn't be that expensive presumably and will add value. Your best bet is to find a Realtor you can trust and pick their brain on investments that return - it's very subjective.

I think you should make good deals that adequately compensate you for the risk you're taking in a leveraged real estate investment. That is harder to do when interest rates are high, largely because the risk free rate gets really high.

I don't really think there's going to be a massive apocalypse in real estate. I think people that overpaid for investment property over the last few years and didn't lock in low rates on long term debt are going to get washed out. This category is, IMO, largely professional investors running syndicates and funds.

My strategy is as it's ever been - buy stuff at a solid UYOC, place responsible debt loads on it, and never sell it.

How does one find good deals?

I want to invest in real estate, but I don't really want to make it a full time job. I don't really see the point in putting in blood sweat and tears just to get a mediocre 4% ROI or even lose money when I can just put my money in stocks and ETFs. The real appeal of real estate is having more control on the success of where you put your money. You can't get screwed over with fabricated accounting when you are the one keeping track of everything. Another appeal is lower volatility with net worth and leverage. I really want to get involved with real estate investing, but I'm just not seeing many good deals. If the right deal came along, I would gladly hop on board.

I look on Zillow and most of these deals just seem like garbage. Tried looking for some duplexes and townhomes and I'm just not liking what I'm seeing. I've gone on Facebook real estate investing groups and some things sort of look promising, but I also sort of assume if a deal looks good that I'm probably overlooking something, because why wouldn't anybody else snatch it up?

I've toyed with idea of buying land and doing something like beekeeping, gathering solar energy, blueberry farming, or something else, but these seem like they may be a lot of work or not all that profitable. I don't mind doing work I just would rather it not take too much away from my current job because I can already make more money working longer hours.

The current market is very challenging in finding deals - your best is to look for multi families that need reno as they usually offer the best return. Ideally if you're an investor reach out to a couple RE Agents that are hungry and tell them you want to invest in a lot of homes and they would be your #1 if they find anything. Have them work for you for free.

Don't try to buy value add multifamily as a noob with no experience. That's a high risk game and even experienced investors who do it for a living get washed from time to time.

I mean, like any other investment class, return is proportional with risk. I don't know a lot of professional investors that buy off the MLS, because that marketplace is pretty efficient unless you really have some sort of redevelopment insight that others are missing (which can definitely happen). There are usually better deals to be had in the smaller sub-institutional deals sitting in the gap between too big for one family and too small for the small funds. The exact dollar amount of those deals depends on the specific market. If you're hoping that something magical happens and the market turns at some point -- it won't. The real estate market is a more or less efficient, zero sum marketplace. People making returns that beat, say, the S&P 500 over a period of 20+ years are people that are doing it for a living and are extremely skilled at sourcing deals, raising capital, excuting a business plan to create value, and operating investment real estate.

In other words, I think that if you want to get high returns in real estate then you have to have both unique insight into a property, and also have to bust your hump to make that insight a reality. It's a job, whether you call it that or not. So your returns better by high enough to justify the *time* as well as the *risk*. Generally speaking, the time part is supposed to reduce risk -- but that only works if you know wtf you're doing. Spending time on a project is moot if you don't know what you're doing.

You might also look into being an LP in someone's fund or syndicate to give you access to investing a deals that aren't broadly available to the open market.

I have a decent deal in a location that I've been hounding for the past 7 years. The opportunity is finally here but it's a tough situation due to the current rates.

600k 4 plex.
150k Rehab.
Gross montly Rents: $7500
Gross monthly Expenses w/o mortgage: $600

Mortgage: 9% floating rate. (take it down first and pivot to a 30 yr fixed after rehab later).

My cash flow from other properties combined is around 15k a month so I'm not too worried not being able to pay. One of the only 4 plex in the area.

Would you just bite the bullet and get the building?

Need more details.. what is the current rent roll, neighborhood, floodplain,... etc.
If that was in any of the cities that I invest in and have boots on the ground, I would buy that yesterday.

Current rent is like 2k and it's pretty run down. I'd need to renovate and redo most of the buidling.

The neighborhood is like an old village type of feel. Got food, churches, schools, and densely populated. Lots of working class people that rent in the area. It's "prime".

The sellers are out of state and I asked for a 1031. They haven't responded, but I might just want to take it down with a 9% floating rate loan just to take it off market.

A 1031 would be really ideal, but it's hard getting the timing right and the seller seem to be a little impatient.

I take back my buy it yesterday comment. Was the $7.5/m on some pro-forma sales sheet used to market the unit?
So how good are your rehab skills? How many have you done before? Is this a legal 4 plex? Do you know what type of permits you need and how long it will take to get them? Permits for structural changes can take up to six months and require engineering drawings in my city!
Have you done a breakdown of the material costs, labor, holding costs.. etc. How long is your scheduled rehab? Time to get the units Rent ready? If you have not done a few of these yet, this is the killer. Watch a HGTV/Magnolia Network show on first time flippers or rehabbers and look at their estimate of turnover time.
... usually 3 months.... 6 months later.. still not close to finished and have to hire contractors to do more work.
Are you going to manage these yourself or do you have a PM in mind? Have you called them up? Have you called more than one of them up? Have you checked out their web pages and see what they have listed in your area? Is the $2000/m 1 of 4 units only or 2 or 3?
Why are the other units not rented? What is/are the x Sqf # of y Beds+ z baths in the units? Have you been on Padmapper or Zumper to see what at y beds + z baths and X sqf go for? What is the vacancy % in your city? Many more questions to ask.

Thank you for your detailed question and making sure I have all my bases covered.

The 7.5k/m is from what I know from previous units that I currently own.

I'm decent with my rehab skills, been doing it for 10 years now. Newly built and rehabed around 15 single famlies and 15+ apartment/condo units. Own my own little contracting company.

Completely legal 4plex with seperate utlities paid by tenants. Permits are a breeze here.

Yea, all in including shipping in all my supplies and materials and labor will be sub 150k. Probably can do it for 120k but I like my bells and whistles.

Project will take 6-8 months from rehab to fully rented.

It's run down, so I'm not bothering with current rent rates as new rent rates will be 7.5k around 1900 per unit x 4.

4 units are all 3 bed 1 bath. ~1000sqft per unit. I do my own property management for all my rentals.

Vacancy is not an issue (sub 5%) for the foreseeable 10-15 years as we have a housing shortage and the current mortgage rates are turning away new home owners. Most will be renting and continue to rent/government subsidized.

I lurk your 100k passive post and have learned alot as well. Keep on pushing!

Given your XP and background, I don't think there is anyone on here that can honestly give you any advice better than your own, even Spex X as this is your area of expertise and city; and you seem to know it quite well.

The only thing I think you may be asking is a long term guessing question such as.. is there going to be a recession in the next 6-12 months that will cause the cap rates to expand. ie. maybe I can get this property at a better price in 6 months?!?

How busy are you now?

This is a negative cash flow deal. Instapass.

I could use some work.

My market is pretty limited. Think of something like kuai / hawaii-esque. There aren't maybe 4 plexes in the area in general and in this area it's probably one of the only 4 plex.

There's some better cashflowing larger buildings, but the location is no the same. I love this Prime location and it's dense population. There's bigger building in rougher/more rural neighborhoods that has a better cash flow however it can't be compared.

Ice cold

So 7500/mo in rents post reno, 750k all in, 9% interest. I mean even with 20% down you have what like 45-50k in interest alone a year. I also don't get 600/mo expenses without mortgage - take away insurance/mortgage/taxes/etc you still have depreciation, pest control, general upkeep,etc. Overall sounds like a terrible deal with probably negative cashflow and furthermore you're going to spend 6mo-1 year with the reno so your time has to be factored in. Not sure why you would even remotely think this is close

With it being 4 units, I can get a traditional 30 year fixed loan with it.

From my DD, 30 year at 7%, The property will be a 9% cap rate and cashflows. There's alot of hoops to jump through, my area is a very limited island and old apartment buildings with good bones are rare. I can build a brand new building, but my land is less ideal compared to this location.

Not only is this not a 9 cap, it's never going to be a 9 cap based on the business plan you described. You're talking about buying an asset that generates $24k gross for $600k. $24k gross, and massive deferred maintenance. That deal can't even be financed, (70% , 30 year loan at 7% would be negative $700/month) so you'll have to pay the $600k purchase price in cash or get a hard money loan at ~12-15%. Then the plan is to plow $150k cash into the deal to get the rents up to $7,500/month.

The opex after renovation are going to run 40% of gross, so $3,000/mo. Thats means you'll make a 7 cap, not a 9 cap.

With the other $4500 you pay $3500 to debt service and make $1,000 profit. that's $12,000 profit on a post-refi investment of $225,000, for a 5% COCR before adding back holding costs and opportunity cost in a ~5% risk free rate environment. Oh and that's also not taking the~ $37,500 risk free rate opportunity cost into account during the 12+ month renovation phase of this project, nor the likely several thousand per month in holding costs that you'll pay out.

So to sum it all up, you're taking massive uncompensated project risk, assuming your $150k budget is even correct, to buy an asset that offers the exact same return as the current risk free rate. Doesn't smell too good to me.

Maybe there's some large upside that I'm missing?

Post ARV will be 900k-1m.

My "hard money" loan would be my current 850k credit line at 9% which I'd refinance after renovation to a 30 year fixed at 7%. I have enough to cover purchase + renovation until fully rented.

I've boiled down the numbers to a 600k purchase + 120k renovation cost. The owner is kicking everyone out, so I'm pretty much buying a shell and renovating immediately.

Currently, I'm working on a 1031 exchange of a 550k single house and it makes way more sense than my credit line plan. (Seller hasn't replied me, as they're out of state).
Credit line+ refinance will be my back up plan to aquire property.

Opex would be ~ 2k a month. (property taxes here are almost non-existent at a .03%).

Mortgage will be ~3.5k a month at 30 years.

All units rented ideally would be $7.864k but I put $7.5k for more of a downside cushion.

I'd be able to take a majority of my money back out and have a cashflowing asset.

I don't love it with all these hoops I'd have to jump through for a measily ROI, but I've been searching for a multifamily in this area for the past 7 years.


On a side note, spex, I'm so glad I found this thread back in 2008 while I was in college struggling. Learning from this and doing my first deal in 2011. Change the course of my life completely.
Now I'm talking to you about 600k buildings. Thank you from the bottom of my heart my dood.

Ok so if I'm understanding you, you're going to borrow 600k at 9%, assuming a 6 month turn on the project? That's $27k financing cost to add to your $120k rehab budget.

Well that helps because you can count some of those tax savings toward overall ROI.

I mean, that would surprise me. In roughly 30 years in this business I haven't seen an asset yet that truly operates at a 27% expense ratio when you factor in capital expenses over the lifetime of the hold period. Maybe a mobile home park can do this, but I haven't seen a building do this other than commercial triple net and the yields of those reflect it.


Fair enough, that's most investors goal with a value add project. I'd just caution you to consider if the return on equity after the rehab is worth holding an asset like that. So you end up with $250k equity or so. That's a deal worth doing IMO, but maybe selling it after a year hold is the better course. Even if you pay the taxes on that money you might be better off cash flow wise to just put that capital into 5% tbills or covered call ETFs or whatever and wait for the next such deal to come along. High risk free rate environment like we have now makes such a huge difference in the calculous for hold period on real estate investments.


I'm so glad the hear it.