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highincome property,
You make very good points, I have funded probably 250 plus deals in both Indy and Detroit, Although I would not buy or lend in the city of Detroit as Wayne county tax's are really bad as has been posted before as well as if the tenants do not pay their water bill its attached to the tax bill, I have closed transactions for my clients that were buying REO's and have seen 2k plus water bills.
We have a very nice book of business in Indy as well.
I recently bought ( August) 2 courthouse steps properties in Western Florida… They were very good deals. And I agree the place to be in the states right now is the lower end rentals.
What I have seen in the past and the thing that out of state and foreign investors really need to be aware of is that managing your property manager is the biggest component of a successful investment.
The other main issue I see is the misrepresentation of true Cash flow and thereby squewing the rates of return. Most of the USA wholesaler or Turn Key companies grossly understate vacancy rates, and on going maintenance. Granted most houses are rehabbed prior to investors buying them and most are done well, However any rental property from New construction to older homes is going to have on going maintenance costs. And No property stays occuppied 100% of the time. In addition when tenants move out the average turnover of a property to get it rent ready will be 1500 to 2500 dollars. Paint ,Carpet other sundry items. There are always exception to the rules, and if you do better thats great but its best to use realistic numbers going into the transaction so your not dissappointed later. The double dip is happening to some extent however its not really affecting the lower value properties they have pretty much bottomed out.
I have lived through 3 of these corrections this one is by far the biggest and again on the low end homes now is the time. I am not saying they are going to sky rocket because they won't but they will start crawling back up as US banks start to loan on investment properties again. This is one of the main reason's so many of these exist. US citizens can only get 10 mortgages and thats for only the high net worth and strongest borrower that has substantial liquidity. 4 is the max 95% of americans can have on the Credit report. And being a hard money lender, hard money is only used for short period 6 months or less. So what has happened is that most of these low value homes are going for cash. The US investors are snapping them up using their IRA ( retirement accounts). But there still is not enough general credit to keep up with the amount of REO's.
As investors from all over the world come in and buy these properties they are helping to stabalize the market and that in its self keeps values up and will on the rebound allow for some gentle inflation or appreciation of the asset.
My company is diversifying from the debt side back into the equity side. We are buying about 20 homes a month. With Jackson MS., Memphis, Indy, and Suburban Detroit as our target markets… Our goal is 500 this year, and in my opinion we will see these opportunities for another 24 to 36 months as there is a lot of shadow inventory out there yet to be cycled through the system. We cherry pick for certain, just because its cheap does not mean its a good deal. At the end of the day our goal is 5000 houses. And we will be bringing in Foriegn investors as our partners as well as US investors. Our program gives the best of both worlds. We take all the risk of running the asset, Investor never gets a cash call or deals with maintenance or vacancy. And we all participate in the upside as partners. And I bring my investors in at the True cost. My investors will be in our homes for 30 to 40% less than they could buy them on their own through Turn Key companies or other marketing companies.
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503 789 2451I think I can shed some light on the plight of those trying to buy REO's that need renovation. Homes that need extensive Renovation are bought 2 ways 1. with cash fixed up then refinanced to pull ones cash out of the deal. or 2. they use a private money or Hard money lender.
I am a hard money lender with our Niche' lending to fix and flip investors. Or fix and hold like your attempting to do. Any decent real estate agent or mortgage broker should have told you that you would have never gotten a conforming loan from a bank for a house that needed major repairs. What you were looking for is a construction loan, that would roll into a perm.
In addition when buying investment property in the states the last properties that will bounce back significantly are Higher end homes. Virtually all loans being sold in the secondary market are sold to Fannie and Freddie or backed by FHA. The loan limits in 98% of country is 425k. Any loan above that is classified as a Jumbo and the folks buying these properties have to have full documentation which most self employed people do not have. Its the self employed that drove the high end market using stated income loan products commonaly called ( Liar Loans here in the states). There are only so many doctors dentist attorneys that can show substantial w-2 income to qualify for these properties. And in fact a lot of them are being sold for cash. However a cash buyer is a very astute buyer and is not going to over pay.
The construction to perm loans exsist however are primarily avaliable for owner occuppied transactions.
This leads me to comment on all the TURN KEY CASH FLOW companies offering properties to overseas investors. I loaned to many of the folks who source and rehab these homes and then sell them to the end buyer. I have done well over 2,000 of these loans in the past 6 years. we loan 100% of cost and 100% of rehab. And we base our loans on ARV After repair value. We only loan to those folks that are in the business and have good track record we would never loan to an individual who does not live within 25 miles of the property. These properties that we loan on are predomiatly low value homes ( 50 to 100k) however have huge rates of return Vs a Vi rents to cost. We loan in Detroit, Indianapolis, Memphis, Jackson MS, and parts of Florida and Georgia.
Having seen the trials and tribulations first hand of out of state or off shore investors trying to manage their property manager to varying degree's of success or failure. I am changing focus from just pure lending to getting back into the equity side. We currently have about 200 homes in our portfolio in the above mentioned markets.
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