24 yo , real estate purchase

[Tomcruise]

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Plan on living there.....maybe even renting a room out...live there for at least a year.....this is 30-40min north of boston....prices have fallen a lot in the past year and looks like a solid time to a buyer inthe next 6months

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if u are planning on buying it and living in it at least a year, and renting a room out, you should DEFINITELY do it. like, go fill out paperwork tomorrow.

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Saying that based on specific knowledge of the boston market? or you like the business plan?

[Henry17]

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Curious why you wouldn't do it? What the reasons are that prob. dont apply to me? Thnx

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My main two would be that regardless of how profitable a fixer-upper might be I couldn't deal with living in that environment. Even if I was assured 30-40% returns it wouldn't be worth it for me.

The second is that if you are starting a thread like this implies that to do this you'd probably be cutting back on some quality of life spending. I don't do that. I always choose enjoying life over maximizing income. Reading some of the topics on here I often feel bad because people seem so keen on maximizing their net worth and incomes but that just isn't me.

Like I said though those are specific to myself and I really didn't think they would apply to most people.

[spex x]

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If you were me.......................................and you were looking to buy a 250k condo/fixerupper with 50k down.
Playing the interweb poker full time (2/4nl-5/10nl + donkament)...at the time of purchase how much money is the right amount to have????

Want to put down 20%?!
Have money set aside so I don't have to stress the mortgage payments/other costs?
Have money to play poker?

Net worth needed at time of purchase?

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I know lots of RE investors that are profitably flipping properties all over the country. I don't really know how much real experience the others that've posted have in RE investment, but my experience is that flipping can be profitably done in just about any market - including inner city slums, and everywhere else.

Judging from your questions and the other comments that you've made, I'd guess that you arent' really trying to 'flip' the property. In order to flip a property you would have to buy a property for LESS THAN MARKET VALUE. That is the only way it can be done.

The problem with what you're talking about - buying a fixer and putting some sweat equity into it to increase its value is that there really isn't any money in it. Thats because fixers are usually NOT prices sufficiently low to compensate for the time and effort that it takes to do all the work. Young couples and naive 'investors' disagree, and point out how they fixed a property and added $50k in value. I point out to them that the only reason they pulled that off is becaue they valued the time they spent working on the house at $0. Not my idea of investing.

Young couples and naive investors, though, are stuck once they buy a fixer. You've gotta fix it to get any cash out, but you will VERY soon find that you CANNOT afford to hire a professional to do the work - it'd kill your profit. So you gotta deal with it - living in a construction zone, working full time then working on the house, arguements, stress, etc. PLUS while Bob Villa makes putting in a tile counter top look real easy, I assure you that its not - there is a steep learning curve with anything construction related.

If I were you, I'd seriously consider if the repairs are priced into the market value of the fixer. If a fixer is selling for $80k and it needs $20k worth of work, while a perfect comparable house is selling for $100k, you don't have a deal. So be careful.

[inishowen]

Tom,

I'm in the Boston area as well. My .02 is that this once red hot market has cooled to the point of being stagnant. There are tons of listings, and seemingly no buyers. Listing prices, imo, are still tied to the market of a couple of years ago and on average are still overpriced to reignite the interest in RE you need to flip something (I only hear from people that they think prices are going lower, which I know could be a contrarian indicator). Sellers have been reluctant to drop asking prices which has dramatically increased inventory. I think the theory of supply and demand would point towards an eventual decrease in average sales price in the area.

Being in the market for another investment property myself, I want this decline, if it happens, to be rather dramatic. I would guess that the odds are against you right now to flip something in the greater Boston area (unless you stole something for +15% below current market).

I wouldn't buy a condo by the way. They are usually the first to feel the real hit of a decline and the last to recover. Find a multi in an area that is in demand with the 25-35 yr old renter (Somerville, for example).

Lastly, I think there are 3 major components affecting the local market besides prices: Jobs, interest rates, heating costs. The first two are doing fine, the last is going to be a beeyotch this winter. High heating bills just might be the catalyst to bring sellers back to pricing reality.

[Tomcruise]

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Find a multi in an area that is in demand with the 25-35 yr old renter (Somerville, for example).



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Somerville/Boston Multifamily seem to run 600k plus, little out of my price range....I'm thinking the danvers area a decent two family runs 400k or so, just don't know what kind of tenants to expect there, or the demand.

[Jimbo]

Tom,

Can't you just use an alien mind meld and pick the preserved brain of L. Ron Hubbard?

Jimbo

[inishowen]

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Find a multi in an area that is in demand with the 25-35 yr old renter (Somerville, for example).



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Somerville/Boston Multifamily seem to run 600k plus, little out of my price range....I'm thinking the danvers area a decent two family runs 400k or so, just don't know what kind of tenants to expect there, or the demand.

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You're right about the current average pricing but if you put in the time you'll find a 2 family in the low 5's, high 4's. Belmont, for instance, is primarily a single family town, affluent, but some of the older stock 2's are priced in the low 5 range currently. Downside is it is not nearly the rental market as Somerville or Cambridge, how about Watertown? If it was easy eveybody'd be doing it. I'd much rather pay in the 5's for a property that when an apt comes available there's a long line of potential tenants vs pay in the mid 3's in an outlying area that goes vacant for a couple of months between tenants.

My theory is that once the glut of multis on the market hits critical mass, sellers might start to cut their prices to get a sale, then the next guy undercuts that price and so on. Kind of like a snowball running downhill...but that's the best case scenario for me.

For now, I'd suggest you sign up on a realtors website for automatic emails of listings in the areas you're interested in. It's important to find a site that offers you complete access to MLS, not just that realtors listings. Learn the market you're interested in so that when a deal comes up you will recognize it.

[inishowen]

One last thing and then I'll shut up and let others chime in.

You must have a gameplan before getting into real estate. If you need a place to live that's one thing, but if you are an investor you need to have a plan to maximize your potential return. With each property you look at you need to assign some type of probability to determine if that property will help or hurt your chances of attaining your goal.

I follow a self created maxim that has 3 components. Other more savvy investors here will most definitely offer more valuable insight, but for me, this works:

1. The decision to buy an investment property is primarily an Arithmetic equation. With all the numbers in front of you it is quite easy to determine if the income will cover the expenses, seen and unforseen.

2. Owning an investment property is a people problem. Do you think you can deal with tenants and contractors, inspectors and realtors, all in a win/win way or do you have to win in every relationship you enter or worse, do you let people walk all over you. The fallacy of re investing is that you make millions off of rental income. Not true, you have to keep tenants paying the rent to cover expenses, be able to negotiate w contractors for favorable pricing etc to keep the ship running. This leads to number 3...

3. You get paid in real estate investing when you sell. If you bought properly, managed effectively, when it comes time to sell you should be well compensated for all the time and effort you put in.

My maxim applies for me because I'm a long term investor, the true flippers here would undoubtedly have a different perspective. I just don't have the gonads to get into that game.

[spex x]

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(unless you stole something for +15% below current market).



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Not even close, IMO. Jesus, I can negotiate a 15% discount on FMV just from making offer on expired MLS listings, and get a property in perfect condition. You can't make money flipping on a 15% spread - the transaction cost alone will erode your profit to nothing. For a flip, I'd look for 25% minimum discount on true FMV - not a 25% discount off someone's inflated price. 15% would be cutting it WAY too close for a flip. For a rental, 15% might work. Not for a flip.

[inishowen]

Good points Spex,

All the more reason I don't flip, but being honest if I could consistently find properties in this area at a 25% discount off FMV, I wouldn't have time to post on the internet. That'd put a $500k FMV property at $375k which, even considering the state of the local market, I don't see happening right now. We can hope though.

I'm curious, what type of anticipated ROI (as a percentage) is your floor to make a flip worth the effort?

How do you file to avoid the regular income tax rate if you hold less than the qualified time for cap gains treatment?

Do you have a buyer lined up before you purchase or do you go the more traditional marketing route after taking ownership, or a combination of the two?