What's Your Strategy?
Hey guys-
Been flipping foreclosures for a couple years now- and am starting to hang onto properties for the long haul. Been doing a ton of research on landlording, etc, and am trying to put together an investment plan for my business. I'm pretty sure I want to go the Lease/Option route for the next few years- meaning, I will Lease/Option my properties out to tenants, with decent option money down and slightly higher rent increase than the market in the area demands. I have a way to help fix their credit scores and get them back on track as well. So my plan thus far, in theory, is to do just that. Lease option out my properties, fix their credit scores and get them to be able to buy me out asap (GASP!). Hang on, dont stop reading yet... 
I will then 1031 exachange my profits from each deal (I typically get in around 75% LTV total) until I can either payoff the good properties I want to keep, or, shoot for an Apt complex...
Up till this point, it's been my idea to only target newer homes built in the last 5-10 years, in the better parts of town. Appreciation values are better, rents higher, and I can expect less repairs on newer homes. This is also the median home that most families with corporate america incomes live in (ie- $150-$160k FMV, 3 bed 2 bath, 2 Car Garage, etc). That's fine and dandy, except these deals are tougher to come by. So, this leads me to my question...
What's your investment strategy? As I'm getting more and more excited about rentals, I'm questioning more about my strategy I stated above. I come across older, less expensive homes all the time, and typically just flip those out for quick cash. Now Im wondering if I should be hanging onto any and everything I can get- new or old. Obviously, if I need the cash, I'll flip it or sell it retail. But, if I'm doing ok on cash, should I be hanging onto the older homes that are cheaper in much older, less desirable neighborhoods? It worries me to hang onto those houses due to repairs and the tenants who'll be renting them. The newer, more expensive houses will bring a dual-income, middle-upper class, corporate america type family (not to be judgemental, but in general, they will). In essence, a nicer to deal with tenant and property. I'm pretty deadset on doing the Lease/Option approach on ALL of them either way- since that demands higher rental rates, and the tenants take much better care of the property (as I have very few repair requests- it'll be part of their lease agreement to take care of repairs themselves, since they are, afterall, purchasing the property).
But, what is working for you guys out there? Are there a TON more headaches with much older, cheaper homes in less desireable neighborhoods as compared to newer homes? Is it a bad idea to hang onto these types of properties as lease options? Should I just stick with the newer properties, or, should I be hanging onto every property I can for the long haul? I'd love to see some serious discussions on this as to what's working for you guys and what's not. Remember- I pick up easily 2 properties a month for less than 75-80 LTV- most are in lower income areas, but some arent, so the #'s aren't in question soo much here as it is the theories you guys are investing under. What's working for you guys? What's your thoughts? I know there's people doing ONLY Section 8 and making good money, and people making good money doing higher end homes as well. Any thoughts as to your strategy and why you chose the route you did? Or, do you just hang onto any and all properties that fit your financial formula?
Thanks a ton,
D
I think you are doing it right .I have several rentals and most of my headaches come from the lower value homes screening your tenants will help, but it takes longer to find a good ternant thus longer vacancies.
Okay, you want to know my investment strategy, I try to do three kinds of deals,
1) Flips. Here the idea is to maximize short-term cash flows. I'm doing industrial condo conversions, Changes of use, Demo and rezoning.
2) Land plays. Here the idea is to control relatively large parcels in "the path of progress". In these deals I don't care about short-term cash flow (though I try not to be negative) only about how much land can I control. I try to buy large parcels with small or inappropriate buildings that actually hurt the value. I then lease the buildings to cover my debt and wait. When the neighborhood improves i will demolish the buildings and sell the land.
3) Cash flow deals. I have a few "unique uses" for buldings which I have worked out over the years. In these cases I renovate and rent and hold. They make decent cash-flows and require minimum management because of the nature of the use (commercial, no residential, no middle of the night phone calls about broken toilets or heat not working).
I try to do about equal volumes of each kind of deal. That way I have covered both my short-term, middle term and long term investment goals.
Short term: cash for some unusual large expenses I have in the next year or so.
Middle term: day-to-day living expenses with minimal work.
Long term: Wealth creation and added value where some-one else can do the development work if I don't feel like it at the time.
Commercialking,
What the heck is a commercial condo conversion?
I like your strategy for buying land.
Paula S.
CommercialKing,
I too like your 3 pronged approach to your budget/investing. Not just focusing on 1 type of income, but 3 types.
Thanks for sharing your stragegy.
Robert