invest vs. not invest in rental real estate - Posted by vince bogan

Posted by Rob on February 15, 2005 at 12:11:46:

Bandit signs are those “We Buy Houses” signs.

invest vs. not invest in rental real estate - Posted by vince bogan

Posted by vince bogan on February 12, 2005 at 20:00:11:

I want to invest some of the capital gains from my primary residence sale (in Lorton) into rental real estate, say a sfh or th. I am motivated to learn, but have a lot to learn. I think that some of my concerns are basic ones that others may have a lot of insign on.

  1. I had the idea that one could buy a sfh and rent it out with the rent covering a significant portion of the owner’s piti. When doing the math for houseing in my area, I found that perhaps with the exception of an interest only loan, most rent cash flows were significantly less that piti. An example: in my neighborhood rents are around 2500/month for a house which now would sell for around 615K. My calculations based on 20% down would be a scenario where my excess expenses in piti and maintenance could be over 15-20K/year. So my question is, have Northern VA housing prices risen much faster than rental rates or is it that I need to look further at the market and/or financing alternatives?

  2. Half of what I read in the news warns of the possibility of a housing market bubble/downturn and half is optimistic. I have also heard that this area is pretty low risk for a market downturn because of its stable employment and affluence. None the less, the market has been hot for several years and this area did have a market downterm I believe in the late 80’s/early 90’s. Does anyone know where one can go to read about the past history of that or other market downterns in this area to better understand these dynamics? My concern is that I know that I can potentially make a lot of money based on a relatively small investment. I also appreciate that I can lose a lot of money way out of proportion to the money I put in.

Thanks so much for putting up with my long posting!

Vince Bogan

Re: invest vs. not invest in rental real estate - Posted by Jeremy

Posted by Jeremy on April 25, 2006 at 10:05:44:

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Thanks, and Have a great day!

Re: invest vs. not invest in rental real estate - Posted by Dave T

Posted by Dave T on February 15, 2005 at 10:01:06:

In the late 80s and early 90s, the country was experiencing a major recession – even a global recession if I remember correctly. The fact that your market experienced a downturn during a major recession is not unique to your market.

I live in SC so I can’t say I am intimately familiar with your current markets, but in the past I had seen some potential investment finds in Dale City and Woodbridge. If they aren’t there any more, consider looking in MD, perhaps Hyattsville, Ft Washington, even Columbia.

Re: invest vs. not invest in rental real estate - Posted by FrankIL

Posted by FrankIL on February 14, 2005 at 15:08:30:

Simple answer - you’re looking at the wrong properties to rent. $615K houses are not ones you buy to rent out. You need to be looking for homes no higher than $200K for rentals and even with that you need to buy at a discount or on terms to get the cost down enough to have a positive cash flow. Most tenants I’ve found cannot afford rents higher than $1300 a month - if they could they wouldn’t be renting. So trying to get $2500 rent as you mentioned will be next to impossible for the typical tenant. You need to rethink the types of properties you’re looking at.

Re: invest vs. not invest in rental real estate - Posted by Rob

Posted by Rob on February 14, 2005 at 15:06:22:

I’m from the MD/DC area and yes there was a downturn in the 90’s. There are deals in your area. Remember you have to find a motivated seller. Have you thought about the Richmond area? Also, join the local investment association so you can learn how they do deals. Since the price of housing is so high in the area you may need to find creative ways of doing deals. your local investment clubs can help you with this. I know there are plenty of investors in your area and there are bandit signs everywhere.

Re: invest vs. not invest in rental real estate - Posted by David Cooper

Posted by David Cooper on February 14, 2005 at 04:03:14:

If I offered you $2000 a month income for your $250 a month investment, you would probably say YES. Putting a side the 20% down, I look at negative cash flow vs. appreciation over next two years. How much negative cash flow are you willing to handle to achieve $2000 a month return.

Re: invest vs. not invest in rental real estate - Posted by Vince

Posted by Vince on February 14, 2005 at 20:06:57:

Thanks so much for the feedback. I will look for a local investment association in my area to join.

There is very little if anything in my area in the 200K range. Where I live in Lorton Station, the houses for rent go for around 2400 or so per month. Tenants include higher ranking military officers working at the pentagon and fort belvoir. They receive a housing allowance stipend of around 2400 or so per month. These houses here though have gone up in value by about 100K in the last year making them difficult to buy and rent without high negative cash flow. The intitial attraction for me to start out in this area though was my familiarity and proximity to the local market.

What are bandit signs?