I realize this is old, but I missed this question when you posted it...

I know several rehabbers in Florida, and many parts of the state still have some opportunity. The market rebounded quickly and considerably in Florida between 2012-2014, so it's not as good of a market for investors as it was a few years back. There's also some decent new construction opportunity in the areas that are seeing large influxes of retirees.

As for Wisconsin, I flipped about 50 houses there between 2012-2014. It's a tough market (for lots of reasons) and I'm glad to be out of it... :-)

My Historic Row. Built by James Gamble in 1865

I like it! What are you doing with it?

I was curious if you decided to stay int eh mid-atlantic and are finding properties that can be flipped or if you went back to your old market? I seem to recall that at one point you were frustrated with the property values in MD? I might have misinterpreted things from an old post though.

We're still doing about 50% of our deals in our old market (Atlanta), about 30% of our deals in our new market (Maryland) and about 20% of our deals in other markets (mostly upstate NY).

I'm finding Maryland to be a lot tougher than other areas I've done deals, mainly because in this market (Maryland, DC, Northern Virginia), there are a LOT of investors and, being close to DC, values are pretty strong and rarely drop. I actually think there is decent opportunity in Baltimore City and Washington, DC, but for various reasons, I don't want to focus on those specific areas.

Thanks for posting. I just picked up a copy of your book, which I'm sure is the type of behavior you like to encourage

Anyways, my fiancè and I have been thinking about buying a house for a while, but I live in Southern California and valuations seem a bit frothy.

Would you recommend a direct mail strategy as a first time home buyer looking to good a somewhat below market deal? I was thinking about trying to find a list of people who have passed away recently and sending (nice) letters to their estates, letting them know that I'm interested in purchasing a home and can move quickly, since I would think that heirs would be more concerned with minimizing hassle and a little less concerned with squeezing top dollar out of a potential buyer. Does this sound like a good strategy? Anything else that you recommend?

Basically, I want to buy something where my monthly nut for the place is at a modest discount (say 5-10%) of what I think I could rent the place out for. Is that a realistic target?

I read the free book OP posted on the new construction project and enjoyed it. Thanks for posting it!

Every market is going to be different in terms of what is currently working and what is not working for acquisitions. Direct mail is currently working ofr a lot of investors I know in many parts of the country, though I'm finding in my local area (Washington, DC), direct mail isn't as effective as in other places. My take is that that's related to the fact that there are so many investors in this area that homeowners are receiving a ridiculous amount of direct mail and are ignoring most of it.

My best advice is to find some local investors who are actually doing deals (perhaps join your local REIA) and talk to them about what they're doing to find deals. Doing this, you will also start to build a network, which is important because a lot of successful investors will pass deals around between each other when they don't have the time/money/team to take on more work -- it's possible that building relationships with other investors will help you find deals when they are looking to get rid of something.


Not sure exactly what you mean by that? Can you elaborate

In general, about 50% of your gross rents will go towards your expenses -- taxes, insurance, maintenance, property management, rent loss, capex, utilities, lawn care, etc.

I actually just posted a video tutorial on this the other day on my blog:

http://www.123flip.com/50-rule-video-tutorial/

Thanks for the response. I'll look into finding a local real estate club.

To clarify my second question, basically, my question is this:

Let's say that I buy a three bedroom condo and that that my all in cost for mortgage payment, property taxes, HOA fees, homeowners insurance, and other miscellaneous costs is $2,000 a month

Let's say I could rent the rooms out (using comparable area rents as a proxy) for the combined total of $2,200 a month. So I'd be buying at about a 10% discount to the equivalent rental value before taking into account property management fees.

I guess what I'm trying to figure out is what a good "margin of safety" would be so that, in the event housing prices took a dive, I'd still be OK. But I'm realizing as I write this that this is probably highly dependent upon local market conditions as to whether or not the 10% number that I used in the above example would be a good margin of safety.

A better question might be this: Do you have any tips for first time home buyers with respect to valuing a potential purchase? Is there a target cap rate (if you were to rent the property out) or anything that you would be shooting for when deciding how much to bid?

First, you want to make sure that -- using your example -- the $2000/month is your actual costs long-term. Many people ignore the fact that they will have to replace a roof every 20 years, replace an HVAC system every 20 years, replace a water heater every 10 years, replace some siding every 10 years, do some electrical/plumbing upgrades every 30-40 years, etc. While you may not incur these costs for many years (or even decades), you should be factoring them into your monthly average expenses, just so you're certain that you're planning for them in your analysis.

For example, if you're going to spend $5000 every 20 years on a new roof, that's an average of $250/year -- or about $20 per month -- over those 20 years. Are you factoring in that $20/month? If not, you're ignoring a real cost of holding your rentals. Likewise, you need to factor in losses for things like vacancies, evictions and other non-recurring costs.

As for your question, again using your example, you'd be earning about $200/month in cash-flow. That's $2400/year in cash-flow. If you purchased the property in cash for $10,000 out of pocket, that's a 24% cash ROI. But, if you were $100,000 out of pockets, that's just a 2.4% cash ROI. The first would be good; the second wouldn't be so good (you could get just as good a return in a CD, with zero risk).

That's how I like to evaluate my rentals -- determine my cash ROI and see if it's reasonable for the work I'm putting in. Also, use worst-case numbers to see what happens if my expenses are higher than expected or if market rents drop. Am I still happy with the returns???

Hopefully someone can help, I live in Florida and was looking into buying land and eventually build a house on it. I know construction loans exist, but does anyone know of a product where that construction loan turns into a conventional mortgage loan after completion? If so what banks?

every bank ever? That's how a construction loan works. They lend you money to build and then once you receive a certificate of occupancy and lien waivers from all contractors, you roll that in to a conventional mortgage. The construction loan will probably have a floating rate and be a maximum of 1 year long.

Amazing thread and I am checking out your site very soon.

How much did you invest/risk on your first project?

Were you funded by poker winnings or some other way?

Thanks again

Our very first project, we were all-in for just under $100K. Because we had the cash (from poker and also our corporate jobs), we decided to pay cash for the first deal. After that, we didn't use our own cash again for the next 100+ deals (even though we had the cash had we needed/wanted to).

Smart and careful leverage is a wonderful thing, especially when trying to scale a real estate business.

Seems the flippers on Biggerr Pockets all agree flipping is so yesterday. You better be good- no margin 4 error!

plenty of people are making money with small flips, however, there are 500 people (at least in the Boston area) working as hard or harder than you to find them. Any homeowner skips mowing the lawn for 10 days gets 25 letter looking to by the house.....

......the people making the most in the flipping market now are the ones that are giving paid seminars on how to flip houses....

The dibblers dabblers, or week enders are best suited to buy and hold. Stick to good neighborhoods and properties that rent for 1% of the purchase price monthly. You cant go wrong. Equity build-up, appreciation, low downside due to decent rent .


Not overnight success but over time it builds wealth.

such is the nature of any market

look at poker, look at affiliate marketing, look at RE flipping (even buy and hold... finding residential properties in my area where the 1% rule applies is hard as hell) it all goes in circles, can't have abundance forever.

edit: acesup is doing spectacular, i have no clue how you transitioned like this but seriously i applaud you, the first property I bought i basically made a pretty big mistake x.x wont have a positive cashflow anytime soon

When the hottest babe in RE(Kathy Fettke) is recommending BELIZE you know something isnt right. From recommending Cinncinnati, TEXAS, Pittsburgh to BELIZE?

$300,000 + condos topping out @ 60% ocupancy, with $300 per night rates.

Somebody got to this chick...................hahahahahahahaha.



GET THIS....i was listening to a Las Vegas RE agent who has investor clients on the radio. He says a good deal is a $150,000 property that rents for $1000 a month and ha a neg cash flow of $75 a month.

His reasoning is you will make it up in appreciation...................hahahahahahahahahah a.

God bless to all who make money in RE.

But whats the point in flipping small. I ASSume you get small profits if you get any.

Small profits add up. We've done 200+ flips in the past 7 years (plus another 100+ partnerships, deals we've loaned on, equity investments, etc)...we don't do high-end stuff, but even at the low- and mid-range, doing that kind of volume makes for great income.

Absolutely true... A lot of people say that you can make money in real estate in any market, as long as you adjust your strategy. While technically that may be true, by-far the hardest time to make money is when the market is at a peak and about to hit an inflection point.

I don't know if it will be tomorrow, next month or next year, but we're certainly nearing that inflection point in all the markets where I buy. This includes both flips and buy-and-hold -- finding deals is tough, and what could be a decent deal today could easily turn into a loser tomorrow if/when there's a 20% (or larger) correction.

We're still flipping, but we're only doing deals where we know we can be in and out in 2-3 months. And we're still buying rentals, but it's tough to find things that will generate 1.5% of the total cost in monthly income (even 1% is getting tough in some areas).

So, while we're still plugging away, we're being a lot more cautious, and we won't hesitate to sit on the sidelines if things start to look more ominous...

Are you saying Belize is a bad deal? You realize how small the taxes are there?

I asked Kathy Fettke organization why they have no allowance for CAPEX on their pro-forma. Her representative said beacuse for example, the roof wont need replacing for another 10 years....................lol.


I think its because acctg. for CAPex reduces the rate of return they advertise to lure in the fish.

Of course. Anyone who's been in this industry for any amount of time knows that the seller is going to generate a pro-forma that is based solely on NOI (which doesn't include capex) and as few expenses as possible. They will also use leading financials when better than trailing financials, and will use stabilized numbers even when a property is not stabilized.

Buyers are going to generate pro-formas based on trailing financials, deferred maintenance (even when not yet needed), adding capex above the NOI line, etc.

These are the games real estate investors (and brokers) play in order to sway "values" in their favor. That's why buyers should ignore seller bull**** and sellers should ignore buyer bull****. Both sides need to figure out numbers that work for them, and hopefully there is some overlap. If so, there's a deal; if not, there's no deal.

Again, this is the real estate industry. It sucks, but unfortunately, there are a lot of unethical people out there...