So, I flipped for a while and unless it was completely ghetto would flip about anytjing I could get my little paws on. Then I started to build a portfolio and decided I needed to focus.
My parameter is:
-Within 10 miles of city limits (this includes bedroom towns but nothing in the boonies)
- Built after 1960s (these typically have drywall finishing, are insulated well, and have copper plumbing/ pvc or abs drain lines.-older stuff causes maintenance issues)
-Minimum one car garage (with shed/basement for storage- tenants love storage!)
-Min 3 bedroom (1100 sf min)
- Must have off street parking/ and some sort of yard/patio
My goal is houses that in my smaller midwestern city would rent for 1000 or more. Right now my lowest rent is is 950 and highest 1250.
These are sfr houses.
I am a sucker for a cheap property and having these parameters has helped me focus tremendously and move quickly on new deals.
I also have become more precise at estimate rehab budgets since I am buying them usually in rough shape as bank forclosures
@jawollbrink do you manage these yourself or use a hired PM? When I first started looking for rentals, my standards were really strict, until I found a good PM who was willing to fight the battles that came with older houses in C-class neighborhoods... that helped open up a lot more opportunities and better deals.
I did have a partner that managed for me, last year I switched to a property manager. So far so good. The idea of the parameters is to lock in good appreciation and hopefully find better tenants. I should have said that the propertied I have I have bought and rehabbed, So I get an equity boost there as well.
@jawollbrink very cool! I'm just getting into rentals myself.
I think for me, I'm definitely wanting more units than less, so I think a bare minimum is going to be 4 units or higher unless it's an amazing deal.
Something I think would be interesting to hear your take on - what do you think about the 50% rule?
I have a friend who said instead of always parking 50% of the gross income away for expenses, he simply maintains a savings account for 6 months of gross rent. Once he has that in place, he takes home 100% of the cashflow outside of debt service.
I like this approach a lot better - of course, if there was an expense taking out of the savings account, all rent would go back to replenishing it but as long as the 6 month balance is maintained, I like taking 100% home (minus debt).
Thoughts?
I have found my rentals to be 65% profit. That is also because I have some i own outright which make about 72 percent and others i have loans on that earn about 48 percent.
I have a friend who has way lore than me which proposed the idea of a "sink fund" type of saving account for each property. He actually only held about 4 months rent per property, but its an economy of scale with the more units you have.
I am doing the same thing.
Personally though I currently am not takong any money out for takehome this year as I am cashing up to buy another house which I am closing on next month, that will need some rehab.
My property manager also keeps a few hundred in a escrow for each property for minor maintenance that wouls come up.
I think having a "sink fund" is a simple and easy system.
Try to keep it simple.
It must cash flow.
There must be instant equity...a safety net from the start if you will.
It must be close to home. Preferably in the bedroom community outside the main urban center in my area.
It must be a property I would live in. Not doable in every region, but I consider this a defacto tenant screening. Now I know some of you would NEVER live in houses you rent, but I guess that's the benefit on the flip side of living in an area where houses cost more.