I was listening to Bloomberg radio the other day and they came on being super bullish about home buying. Also there have been many news articles on the various financial websites about home buying lately.

I looked at Zillow and it only seems like a few areas are up year over year. In fact, I started researching houses up for sale in Tulsa and planning a trip there to check it out. Tulsa's unemployment rate is much less than the national rate. It has a lot of things going for it to include the energy and agricultural industry. Its the headquarters of a few companies.

http://www.zillow.com/local-info/

I checked another link with this poor looking chart, wow!

http://investmenttools.com/median_and_average_sales_prices_of_houses_sold_in_the_us.htm

I am not a real estate expert or have any experience on buying investment houses or "flipping". I do know there are quite a few here who do have that experience.

So I ask this open question...is now that time to start looking?

I will now open the floor for debate. Please let me hear your thoughts, however, if you post in this thread please also state your real estate experience. How many homes have you bought and sold over the course of the last 10 years? Have you ever flipped a house? Its important for us to know who is giving this advice. I will be the first to admit I have no specific experience in this area and, thus, why I post this thread to get ideas.

...my buddy buys blowouts in decent areas...uses questionable help to get it back to sell-able and flips......makes decent money....lots of headaches along the way

I read this past weekend that the best projected estimates is that there are still 10,000,000-12,000,000 shadow houses in the bank's inventory.

I hear 5 bedroom homes available for 10K in downtown Detroit. Aaah, the American Dream!

This is a good time to buy single family homes, like it was in 93/94 and 02/03. At the most basic level, this is done with a two person team. One has a general contractors license and the other has money. often the contractor does a job for the guy with the money and then the money guy suggests they do some more ‘together’ and agree on some type of profit split (maybe 70% to the money guy and 30% to the contractor).

At this point in the market, you won’t see too many ‘flippers’. That usually happens in red hot markets where one buys the home and sells it within 3-9 months after the purchase. Buying the home and then renting it is the way to go in this phase of the market, probably looking at 2-3 years before you sell for a decent profit. If you are not the contractor in this example, you can buy a home that doesn’t require any renovation and the two person team is the money man and the rental management firm (you'll need them to deal with any problems at the place, which would be handled by the contractor in the other example).

If everything goes right, you can buy a place for let’s say $200,000 and the rental payment covers all expenses until you sell the place for $260,000 a couple years later. If it is three years, you make about 10% per year on your investment. if you don’t have much money, you can join an investor group, 10 money guys each put in $20,000. Once you’ve bought the place and a renter is in place, a bank might lend you $100,000. So each money guy gets $10,000 back at that point. Many people avoid these investor groups as a problem can arise and then you have to deal with 10 partners. Kind of like the problems in the EU right now or even our own pathetic government which has just two partners and can’t agree on anything.

I've been in the real estate business for thirty years as a real estate attorney and investor. If you are buying property to flip and get a profit and particularly if you are not an experienced contractor I think it's crazy. In the end the only way to buy real estate and make a profit in the long term is to buy properties where the return from rental income is greater then the costs by an amount sufficient to justify the purchase. Everything else is speculation and very dangerous.

You buy a $200,000.00 house and you need to rent it out for around $2,000.00 a month when you include costs for taxes and insurance on the average. There is an awful lot that can go wrong under this plan. First it's difficult to find credit worthy tenants that will pay this kind of rent. Second, because it's a nicer house a bad tenant can do much more damage that will need to be repaired when you get them out. Typically the cheaper the property within reason the easier it is to have a price/earnings sufficient to justify the investment.

Apartments or condominiums that rent for $600.00 to $850.00 tend to have good price/earnings in my part of the country. Porker's not wrong about degraded homes in Detroit, however there are places that are easier then Detroit. There is usually a minimum rent that people have to pay to have the square footage and roof over their head. Those kind of places often have low taxes and costs compared to the rent. In many lower middle class areas there are condominiums, apartments or degraded houses that can be bought for $25,000 to $50,000.00. These places if selected carefully looking at taxes, condition of the property, assessments if condo, direction the business in the area will go and so forth are often the best long term investments.

It's better to be a Warren Buffet style investor then a fast profit seeker. IMHO

gurock, i agree with all that you say except for the numbers (i was a banker). i don't think many places worth $200,000 rent for $2,000/mo.

here are a couple examples from downtown san francisco.

in 2001 my buddy rented a place for $3,800/mo. one bdrm, two bath, with 180 degree view of the bay. plus a parking space. a premier location. that was the dot com boom. in 2004, i rented the same unit for $2,200/mo and it was probably worth about $800,000. today, the value might be up a bit (not much) but it rents for $4,000 now. my same buddy moved back to SF and called the landord to see about moving back to the same unit, he took a pass (married now so needed more space at that price).

another guy has a condo at the low end of the market. one bdrm, no view, no parking, but good location. he paid about $400,000 in 2002 and it is worth about that today. he rented the place out for $1,400 at the beginning. now he is getting $2,200. the same i paid for a super pad back in 04. he has a 90% loan on the condo and makes $500/mo after expenses. his dad got so fired up about this that he bought a condo in SF and immediately rented it and is collecting more than the expenses - cash flow positive from day one but his loan was 70% of value.

Probably a good time to buy if you're looking for a place to live in. Not so much if you're looking for an investment that will appreciate rapidly. But if you buy as an investment, go small and buy 2-bdr rentals. Bigger homes are not selling. The avg. family size is way down (except in Utah) and smaller properties are much in demand, especially on the rental market.

Different markets vary a great deal and SF is somewhat unique. Also when looking at positive income or what I call an earnings ration one has to take the down payment money into consideration. It is better to take the rental income minus the normal vacancy rate less the taxes, upkeep, and normal expenses and see what percentage of the purchase price you are getting. Considering that the money is all at risk whether it's yours or the banks and that real estate is not always easy to liquidate anything less then about eight percent is not good. IMHO

I was thinking of buying a house to flip...meaning sell in 6 to 12 months...in an uptrending market. At this time, I don't see anything uptrending and I learned a long time ago its foolish to predict the bottom of a downtrending market.

I was thinking of Tulsa and a few other oil towns where unemployment is low and housing in demand. In the next few weeks, I was going to take a trip through there and a few other places to check out the scene. I dont expect to see a happening scene, but these oil boom towns are just about the only places with a decent uptrending housing market.

here is a basic example for a 200k condo.

200,000 home price
140,000 loan
60,000 downpayment (30%)

6,300 debt service (140,000 x 4.5%)
4,000 prop tax (2.0% of purchase price)
3,000 condo fee ($250/mo)
2,400 insurance ($200/mo, not sure on this)
15,700 total cost

so you need about $1,300 to break even.

Your going to need more than that, you forgot the fee that the property management firm is going to charge you, along with a reserve for normal repairs that any property needs from time to time.

I would never hire a property management firm because the simple fact is most everyone steals or mismanages things from time to time. I have never seen a business flourish with an absentee owner. All of the small businesses I know of which are successful is where the owner is on site and right in the middle of operations keeping a watchful eye and getting involved.

I can paint, do drywall, light construction, basic plumbing, basic electrical work, etc. So I wouldnt need to hire anyone for basic maintenance.

My idea is to live within 60 miles of the properties, rent them out and sell them within several months to a few years. In another forum, someone said they will not buy a property which is more than an hour's drive away which makes sense.

RG, you are correct. what is a typical property management fee for something like this ? 1k/yr ? 2k ? if the condo is new, you may be able to set aside the reserve and not actually use it. but you never know, should put in there.

another way to go is use all cash to buy and that was my initial method (finding 10 guys to put in $200,000). since you can't get any interest on your money in the bank, alot of people are buying with 100% cash (plus it can be hard to get a loan).

so in this case instead of paying the lender the $6,300/yr, you get that money (less the reserve and the property mgmt fee).

the property management is pretty important as they are good at keeping rentals rented. an individual may not be as good. my buddy's place in SF has had multiple tenants over the years and the unit has never been vacant for more than one month.

Let Portege my several places. He will be so busy that we might never hear from him again.

MM

Im not buying yet, just brain storming and might do a fly-by of Tulsa and a few other places. Williston, North Dakota is a gold mine and I wanted to buy something there two years ago, however, it is a depressing place. I couldnt imagine living there.

However, Williston is the place to make money right now. If I was much younger than maybe I would do it.

my dad was just in williston. he was there to meet some old college buddies. that place is probably a good bet.

Williston is a good bet for everything. Anyone can walk right in and get a decent job. All of the salaries there are higher than in other places of the United States. There are so many jobs and so little housing there that people are camping out in the Walmart parking lot because there is no other place to live.

I just couldnt live in North Dakota though. I could do Tulsa, anywhere in Texas, but ND wasnt for me.

here is some info from my buddy in SF that owns the 400k condo (roughly):

Rental income = 2,100
HOA dues = -457
Property taxes & fees = -466
Insurance = -60
Mortgage interest = -630
Home equity loan = -183

Pre-tax monthly cash flow = 304
Pre-tax annual cash flow = 3,648
Depreciation allowance = -6,867
Net taxable loss (after depreciation) = -3,219

he only collects 304/mo but gets a tax benefit that translates closer to 500/mo.

he also said he DOES NOT use a property manager but he does use a leasing agent. cost is 6% of first year rent.

he has a 80% loan to value. and the first is at a variable rate of 2.75% - wow. the second is 5.5%.

In Portege's case I would suggest that he at least use a leasing agent unless he is prepared to do the proper background and credit checks on a potential renter, plus they know how to advertise and screen in order to find the type of tenant that you want in your property.

One of the advantages of using a property manager is that WHEN repairs are need, you can write off the cost of those repairs, however if you make the repairs yourself you CANNOT write off those repairs. Think about it, how valuable is YOUR time and labor?

The other thing you will need is a CPA that is knowable in rental properties, preferably one that owns rental properties. Having a tax professional will keep you out of trouble. Mine saved me thousands by suggesting that I do an 1031 exchange instead of simply selling my old rental property.

I bought a 3 unit apartment building about 4 months ago for dirt cheap money in a bit of a depressed real estate area.

It needs some work most of which I can do on my off time, yea I'll be a busy boy, one renter pays the mortgage, taxes and insurance.

A 2cd renter gives me a nice positive cash flow which I might use to purchase another building.

At that point I could hopefully be spending more time in AC.

Thankfully I will come out of this recession like a bandit.

I know guys who've been buying and flipping houses all through this housing mess, it can be done if you got the experience.

My friend bought a 2 unit building from such a guy about a year and a half ago.

I wouldn't advise anyone to do it unless you have some contacts that can solve problems cheap or you have experience yourself to handle all the things that can come up, which are many more than the eye sees.

There's no magic way to make big money quick, it takes alot of hard work and ability to do it.