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Wednesday, January 24, 2007

Next Property On The Way (Hopefully)

I've decide to get a jump on one of my goals for 2007 and am in the process of picking up a new rental property! This one will be out of state and I'll be using a property manager to manage it. The property is currently rented with a lease though November. I won't say anything else because there are no contracts yet, but I'm excited about the opportunity.

I hadn't planned on investing out of state mainly because I didn't want the headaches that can go along with out of state landlording. Instead, I had been concentrating on the filled lease option properties that some companies in the Phoenix area are selling. I don't want a negative cashflow property and the only way I could see to make those investments cash flow positive would be to put in $10,000 to $20,000 of my own money and, even then, the cash flow would be pretty small. So I was out driving one morning and had a small epiphany. I had seen some properties for sale in the Midwest a couple weeks ago. At the time, I had dismissed them in favor of going after the lease option deals, which I thought I could get into with less cash. But now that I was committed to putting more money into the investment, these properties suddenly seemed more attractive. They may not provide the appreciation that the Phoenix market might, but they would produce nice cashflow each month and the entry costs would be much lower. In fact, I may be able to get two properties instead of the one I'd get here in town!

8 comments:

Doug O said...

Shaun - good to hear you are looking outside your local area. I can tell you that was the best thing I ever did. I started searching in metro areas that were 1000 miles away from my home. What I discovered was the return I could net from some of those was far better than what I was getting locally. It took several months to locate a good manager with great local contacts for maintenance and repairs, but now everything is running very smoothly.
And I was able to purchase a 112 unit property for about the same price that a 10 unit costs me locally, so there's always that...

jim said...

How positive does the cashflow on a property have to be (%age wise on the carrying costs) for you to consider it? Or do you not think in those terms?

Anonymous said...

shaun;

Being that the house is in a different state how did you go about choosing your pm. I would be nervous about reliability and trustworthyness. And how will it be set up with the bills? Is the pm going to handle every thing and send you a statement?


Just curious

Anonymous said...

doug o; 112 unit property? thats huge.

Shaun said...

Jim - I tend to look at it both ways. I want at least 12% ROI because I know I can get that in other investments, so this would have to be as good or better than those. I also am looking for at least $100/month cashflow. That's just a number I picked out of the air which represents how much I think my time is worth. I'll need to be tracking expenses and stuff, which will take time. I want to make sure the effort I put in has a decent payoff.

Anon - all the details are yet to be worked out, but I do have a PM I trust and who has intimate knowledge of the property.

Doug O said...

" Anonymous said...

doug o; 112 unit property? thats huge. "

As long as you're not afraid to invest in areas that are considered class C properties, and have good, aggressive management, you can pick up some incredible values. In certain metro areas, you can find decent C class properties with 100 or more units for under $1.5mm . Class C properties always tend to cash flow better than most others, due to the perceived risk of investing in areas that not everyone wants to be involved in. It's good for those who are not afraid, since you can hit cap rates upwards of 15%!

Anonymous said...

doug O, you got a blog?

Doug O said...

Nope, just like to read what is out there and add my comments when it might be relevant!

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