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Erik

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Reply with quote  #1 

I've been searching around the U.S.A for a large metro area where I can buy a single family house rental and cash flow with 5% down. Dallas/Ft. Worth and Houston seem to qualify, San Antonio as well, but Austin seems more difficult. Austin seems to have lots of nice areas with nice homes that have priced themselves out of cash flow range. Some of the lesser Austin areas barely break-even. Atlanta seems to be similar to Austin in regards to cash flow. I'm currently looking at Charlotte and Raleigh and so far I've found some cash flow possibilities but still most places even there are negative. There are some really lousy looking places that I calculate could provide 200 bucks positive a month but I'm concerned with the crime stats in those areas and the appreciation potential.

 

Ok my overall question is this: Is there anywhere outside of the midwest and certain Texas markets where I can find positive cash flow in a single family house in an area that's at least semi-middle class/ lower working class, part of a metro area with at least 1 million people and is not a marginal area.

 

I think the higher interest rates have really affected cash flow as has obviously the higher prices but especially the interest rates because many of the places I've looked, like Atlanta and North Carolina and Dallas and Houston haven't exactly appreciated much recently.

 


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curious1

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Reply with quote  #2 

For the most part, decent SFHs wont cash flow with 5% down.  For that to happen, the return on investment from rent would have to equal the cost of the investment (the expense of the financing).  At current loan rates of 7.5%, this would mean that the SFH was "like" an investment vehicle returning 7.5% + the historical housing premium (population growth + inflation).  In this sense, investment houses can be compared to stocks, bonds, and other investment classes, as investors search for the best returns.  Of course, houses are more personal and volatile, but in a general there is a link between housing prices, housing cash flows, and returns from other investment classes.  IMO the Fed would have to continue to hike rates, and we would see CDs and safe bonds putting out 7% before we see widespread cash flows like the one described, achieved either from rising rents or declining prices.  This is some research I am involved in, one perspective from which to value real estate markets; I hope it makes sense.

 

 

Erik

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Reply with quote  #3 

Curious, cash flow on what you call decent single family houses was there for the taking even as recently as 2 years ago in Phoenix, Orlando, Tampa, Salt Lake City and more. The problem is that those cities have exploded in price and they're now highly negative cash flow. The higher interest rates are also responsible and that's killing the investment market for single family houses everywhere except maybe Texas but even there I expect it will dry up because we only need one or two more years of 5%-8%+/yr appreciation for those metro areas to go predominantly negative.


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ISamson

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Take it from Ron Starr,  if you expand your horizons a bit you can find plenty of low dollar areas that are not war zones.  He cites Oklahoma,  and when we travel cross country on our mega - vacations we go through areas in many states that are similar,  Minnesota and Wisconsin come to mind,  as well as the Dakotas.  Likely there are dozens of States / Areas that meet the criteria,  just dig a little deeper.

 

 

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Reply with quote  #5 
Yeah, as rates fall there is an investment window where returns are high, in time these returns have to fall in line with the rest of the market, and this is what has caused prices to rise so much.  Beneficial leverage occurs at the point where the borrowing rate falls below the CAP rate, the point where prices should spike.

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Reply with quote  #6 

Erik (and All)

 

If you are looking for the next "hot market," You might want to cool your heels just a bit.  Like Samson said, there are quite a few areas that might qualify for your wants, but you probably will not find too many of them by asking others.  Learn to do Your Own Research, so You know WHY you feel an area meets Your Criteria. 

 

With whom to Study to find these areas?  Bruce Norris and Robert Campbell spring to mind.   


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Erik

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Reply with quote  #7 

Socalstan- I never said I was looking for hot markets, just non Midwestern metro areas where single family houses cash flow with 5% down.

 

Imsamson- I know there are many places in the country that still cash flow with the above criteria, but they happen to be either in the Midwest or in smaller than 1 million metro areas. I prefer to avoid the Midwest because, although there are cash flowing areas there, long-term appreciation is still a crucial consideration for me and the Midwest lags and will continue to lag other areas in price increases. I define Midwest as Kansas eastward to Western New York/Western PA. I know of Ronn Starr and OK. I also know there are creative real estate techniques for making money in market where long-term holding isn't an option and don't rely at all on appreciation.

 

Thanks for the input.

 

 

 


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ISamson

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Reply with quote  #8 

"Long Term Appreciation"  is the same by percentages in the whole Country.  In short term swings there are vast differences,  but over the long term for the Buy and Hold crowd it is not so.

 

If you had a chart for the last  50  years,  and then the last  200  years,  you would see that California Real Estate and Oklahoma Real Estate  ( and everywhere else )  have actually Appreciated at approximately the same rate.

 

Think of the logic,  if something goes from  30k  to  300k  in the same time that something else goes from  10k  to  100k,  it is the same rate of return.  If you had  3  for every  1  of the low dollar versus high dollar properties,  then even with leverage or whatever else you do the return is the same.

 

If you use the Cycle and become more short term oriented then you can use the Cycle to improve that,  but you referred to  "long term appreciation"  where that is not the case.

 

 

 

cyberjb

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Reply with quote  #9 
Quote:
Originally Posted by ISamson

Take it from Ron Starr,  if you expand your horizons a bit you can find plenty of low dollar areas that are not war zones.  He cites Oklahoma,  and when we travel cross country on our mega - vacations we go through areas in many states that are similar,  Minnesota and Wisconsin come to mind,  as well as the Dakotas.  Likely there are dozens of States / Areas that meet the criteria,  just dig a little deeper.

 

 

 

Samson and Ron Starr are right.

 

You have to expand your vocabulary to include buying LOW in depressed markets, for cents on the dollar. Middle class neighborhoods, not war zones.

 

We've lately been busy expanding that side of our company with depressed markets. There are over 25 states in the US which still have plenty of value buys, such as Indiana, Ohio, Michigan, Tennessee, Georgia, Kentucky, and so on. We are, in fact, getting plenty of cents on dollar deals out there which are cash flow cows.

 

Buy lower, and sell low, not necessarily rely on appreciation. Fundamentals investing versus speculative investing.

 

Vivek 


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m95roadster

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Reply with quote  #10 
Quote:
Originally Posted by cyberjb
Quote:
Originally Posted by ISamson

Take it from Ron Starr, if you expand your horizons a bit you can find plenty of low dollar areas that are not war zones. He cites Oklahoma, and when we travel cross country on our mega - vacations we go through areas in many states that are similar, Minnesota and Wisconsin come to mind, as well as the Dakotas. Likely there are dozens of States / Areas that meet the criteria, just dig a little deeper.


Buy lower, and sell low, not necessarily rely on appreciation. Fundamentals investing versus speculative investing.

Vivek



Correct me if I'm wrong, but wasn't the type of investing you were pushing (preconstruction) very speculative? I'm not trying to be a jerk, just trying to understand the different ways to invest. Thanks.
ISamson

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Reply with quote  #11 

Vivek is showing us from his actions how to adjust when the market changes.

 

It was not very speculative to do Pre-construction in California from  2000  to  2004.  Now it is to do them anywhere.

 

Bruce taught from my beginnings to adjust your  "Buying Systems"  based on the nature of the Market Cycle.

 

 

 

m95roadster

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Reply with quote  #12 
Quote:
Originally Posted by ISamson

Vivek is showing us from his actions how to adjust when the market changes.

It is not very speculative to do Pre-construction in California from 2000 to 2004. Now it is to do them anywhere.

Bruce taught from my beginnings to adjust your "Buying Systems" based on the nature of the Market Cycle.



I realize preconstruction would not be considered speculation in 2000-2004. However, I remember just a couple of months ago there was a strong push for precon deals in several places like ID and New Orleans. What ever happened to those markets.? I was even considering the deals in LA listed on preconlots.com . Glad I didn't because the website no longer exists.
RonaldStarr

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Reply with quote  #13 

Erikā€”CA------------------

 

The answer is simple: low-priced properties.  Buy houses for less than abut $70-75K each.  Perhaps with multiunits, you buy for less than $40K or so.

 

So, all you have to do is find the low-priced locations.  You can cut down your search time by finding SMSAs that have low average prices.  You can also study census data by city and county to find the ones that were low cost in 2000.  Then look to see where they are now. 

 

I think restricting yourself to areas of 1 million population and above is doing yourself a disservice.   There are many places with less population that have good rental situations.  But, you have to do what you think is right for yourself.

 

Good Investigating************Ron Starr***************

Richard4009

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Reply with quote  #14 

From speaking to people who have seen many cycles, you can make money in real estate all the time.  It is a matter of changing your investment style to do well in that particular real estate environment.  Pre-con has slowed, so the smart money just changes how they invest.  I think it is "unfair" to hold someone to what they did in the past.  To do so seems to say you're not allowed to grow.

 

My 2 cents.

 

R

Erik

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Reply with quote  #15 

Excellent responses by all of you. Thanks.

 

I'm trying to decide whether it's better to follow the Ron Starr method of buying cash flow in a place like Oklahoma or one of the border states like TN, Arkansas, etc., or try to buy low and sell higher but still low. I like the latter but think it's more time consuming and hard to do from a distance. For the record I have a triplex in Phoenix I bought in 2002 which cash flows and a SFH in Austin which is break-even & appreciating moderately.

 

I've slowly been coming to the opinion that single family house rentals, even if they are cash flow positive of $50-$150 per month, are cash eaters over the long-term. Of course if I get the type of cash flow Mr Starr gets from his houses, or even close, that's a different story.

 

Is there anyone out there who is doing out of state buying low and selling higher, fixer-uppers, flipping, that kind of thing? If so, how do you find the deals? I was under the impression you have to really learn a particular market and have your ears on the ground to pick up the deals and move fast.

 

I agree with the person(s) who say strategies must change as the market changes. I'd like to learn what you're doing now to make money in this current market environment.


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cyberjb

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Reply with quote  #16 

Quote:
Originally Posted by m95roadster

Correct me if I'm wrong, but wasn't the type of investing you were pushing (preconstruction) very speculative? I'm not trying to be a jerk, just trying to understand the different ways to invest. Thanks.

 

Roadster,

 

I wasn't trying to "push" anything, and never have been, even though others may suggest so.

 

Every investor needs to have different strategies in his arsenal. Personally, I like preconstructions in emerging markets, which is to be differentiated from preconstruction land investing in any kind of market.

 

Example of former:

 

You put down $5k to reserve a home in San Diego in 2000 for $500k. 6 months later, its worth 600k. Flip and take profits and move on.

 

Example of latter:

 

A developer has 40 acres at 100k/acre. He can get 150 lots each valued at $100,000 per lot once developed. He wants 20% presold so he can get bank financing on land development, so he agrees to sell 30 lots at $60,000 per lot to investors putting 5-10k down, and agrees to buy them back at $90,000.

 

The former is speculative investing, latter is value investing. Both are preconstructions.

 

Preconstruction does NOT equate to speculation necessarily - appreciation is good but not needed in the latter case I mention - only consistent demand for the lots is needed.

 

We do the latter all the time as a developer.

 

As a market timer, I've realized the need to expand the depressed markets side of our business. Thats part of the reason I've been undercover lately, working on setting up buying systems in some of these markets.

 

Some examples of deals we've done in the last 60 days:

 

- 120 unit apartment building, under contract for 3 mill, appraised for 5 mill. 55 units vacant currently, and thats part of the 5 mill appraisal. Would probably appraise at 8+ mill once fully rented out and some management/strategy changes are made. Great condition, between colleges. Currently not opened to students, bad management. Seller will let us assume his 1st, and will carry back a 2nd for 5 year I/O balloon for balance, with only 100k down from us. CASH COW...

 

- 36 unit apartment building, fully rented out already. Appraised at 2.1 mill. Under contract for 1.05 mill. Gross rents over 20k/mo. Cash cow..

 

- 10 duplexes for $15k each. 20k rehab for each, ARV 120k. Rented out for gross rents $1100 monthly. Cash out refinanced 80% LTV..after paying cash to buy and rehab. Cash flow is real good.

 

- 4plexes, 22k price. 30k rehab. ARV 160k. Rented out for $2000 monthly gross. Cash out refinanced 80% LTV after paying cash to buy and rehab. this way I got more cash than what I put in, plus huge positive cash flow.

 

- 320 acres for $12,000 per acre in Boise. 250 1 acre lots can be had, mkt value $200,000 per lot. We will probably bulk sell the lots for $150,000 per lot and be done. Septic, roads will be put in...

 

I'm a fan of not relying on appreciation necessarily to bail an investor out. Land development is one way of creating value without appreciation and being safe. Another way is buying properties cents on the dollar..

 

To answer the original poster - cash flow and deals are everywhere, 80% of the US by land space is depressed mkts, so go find the deals...and team up with local rehab ppl who can automate into buying systems for you, after you develop the trust and confidence. Help them grow their business and make it win-win, and you will have a winner on your hands.

 

This would be the way to go as we march forward. There are the asset timers, who will move money from R/E to stocks to commodities. I'm a R/E guy, I think the deals are there to be had...and I like to move money and change strategies from within R/E.

 

Best Wishes,

Vivek

 

 

 

 

 

 

 


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cyberjb

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Reply with quote  #17 
Quote:
Originally Posted by Erik

 

Is there anyone out there who is doing out of state buying low and selling higher, fixer-uppers, flipping, that kind of thing? If so, how do you find the deals? I was under the impression you have to really learn a particular market and have your ears on the ground to pick up the deals and move fast.

 

 

Yes, we've been buying 20 cents on dollar regularly last 4 months, fixing and flipping or refinancing and keeping as cash flow rentals. 

 

The trick:

 

- we do not find the deals, someone else does

- we do not do the rehab, someone else does

- we provide the cash, and partner with active rehabber/deal finder/prop mgmt guys.

- we do use my credit for the cash out refinance to 80% LTV of ARV (after rehab).

 

Once you develop the confidence and trust, you can do remote control buying systems for anywhere out of state. It has worked out well for my wife and me over the last 1 year when we used to do 70 cents on the dollar, but over the last 3 months, we've gotten spoiled by 20 cents on the dollar .

 

Be prepared to move quick with cash and you'll do fine once you establish solid relationships, where you make it win-win partnerships with active on the ground people who are cash poor.

 

Vivek


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ISamson

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Reply with quote  #18 

Typo ? !

 

20  cents on the dollar ? !

 

Not even Bruce does that.  How are you pulling it off ?  ( to be blunt and to the point )

 

 

 

cyberjb

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Reply with quote  #19 
Quote:
Originally Posted by ISamson

Typo ? !

 

20  cents on the dollar ? !

 

Not even Bruce does that.  How are you pulling it off ?  ( to be blunt and to the point )

 

 

 

Samson - yes 20.

 

There are plenty of markets out there where getting properties 60-70 cents on dollar is easy. Now you have someone looking for a motivated seller type deal for you (birddogging), and you can get further discounts...

 

These deals exist out of state.

 

Example of one strategy (which might be in Bruce's buying systems):

 

Approach retiring 80+ year old investor with multiple properties. Pay him cash (read Hard money) to offload. You will get 20 cents on dollar all day long..at least in Ohio, Michigan and Indiana where I've done these.

 

It is not difficult. Just go to realtor.com, pull up a few realtors in Cleveland, Ohio, for example of one city where it works, and ask them to get you duplexes/triplexes/4plexes from motivated sellers. You will get them for under 30k easy, and after fixing for 25k more, you can resell for 120k-140k to sell quick. Mkt value 160k.

 

20 cents would be pre-rehab purchase price...

 

Very common.

 

If you'd like, I can email you offline some actual deals I'm doing to show you it can be consistently done with not as much effort as going to tax/auction sales or running up foreclosure listings. You do need flat to marginally appreciating markets to be able to do this, though, such as the midwest.

 

Vivek

 


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m95roadster

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Reply with quote  #20 
Quote:
Originally Posted by cyberjb

Roadster,

I wasn't trying to "push" anything, and never have been, even though others may suggest so.




Sorry, didn't mean it that way. I've always enjoyed reading your posts. It just caught me off guard about the "speculative investing" you mentioned which is completely the opposite of what you were preaching a couple of months ago, IMO. It just seemed to me that you were now against precon. If I offended you in anyway, I apologize.

But of course, market changes will dictate the type of investing one does.
cyberjb

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Reply with quote  #21 
Quote:
Originally Posted by cyberjb
Quote:
Originally Posted by ISamson

Typo ? !

 

20  cents on the dollar ? !

 

Not even Bruce does that.  How are you pulling it off ?  ( to be blunt and to the point )

 

 

 

Samson - yes 20.

 

There are plenty of markets out there where getting properties 60-70 cents on dollar is easy. Now you have someone looking for a motivated seller type deal for you (birddogging), and you can get further discounts...

 

These deals exist out of state.

 

Example of one strategy (which might be in Bruce's buying systems):

 

Approach retiring 80+ year old investor with multiple properties. Pay him cash (read Hard money) to offload. You will get 20 cents on dollar all day long..at least in Ohio, Michigan and Indiana where I've done these.

 

It is not difficult. Just go to realtor.com, pull up a few realtors in Cleveland, Ohio, for example of one city where it works, and ask them to get you duplexes/triplexes/4plexes from motivated sellers. You will get them for under 30k easy, and after fixing for 25k more, you can resell for 120k-140k to sell quick. Mkt value 160k.

 

20 cents would be pre-rehab purchase price...

 

Very common.

 

If you'd like, I can email you offline some actual deals I'm doing to show you it can be consistently done with not as much effort as going to tax/auction sales or running up foreclosure listings. You do need flat to marginally appreciating markets to be able to do this, though, such as the midwest.

 

Vivek

 

 

To add to that, the other factor in favor of doing this in depressed out of state markets is that fancy loans such as neg-am's and I/O's, while contributing to euphoric appreciation in some of the current bubble markets, contributed to rapid rising foreclosure rates in the depressed flat markets..Another strategy is to buy REOs from banks in bulk, you will see 40-60 cents on the dollar in this scenario, although I suspect this will get deeper on discounts as the events around us unfold with interest rates/adjustable resets/etc/etc from 2006-2009.

 

Vivek

 


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cyberjb

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Reply with quote  #22 
Quote:
Originally Posted by m95roadster
Quote:
Originally Posted by cyberjb

Roadster,

I wasn't trying to "push" anything, and never have been, even though others may suggest so.




Sorry, didn't mean it that way. I've always enjoyed reading your posts. It just caught me off guard about the "speculative investing" you mentioned which is completely the opposite of what you were preaching a couple of months ago, IMO. It just seemed to me that you were now against precon. If I offended you in anyway, I apologize.

But of course, market changes will dictate the type of investing one does.

No offense taken whatsoever.

 

I'm a big fan of precon and emerging markets investing, and always will be. I still do it on a limited scale, since I have much bigger sized deals such as land development and bulk buying in depressed markets to be better utilization of my time as we move up the "Dreams" ladder as Samson calls it...

 

Its just that people define appreciation to be in 20-30% range lately, and making the quick buck has always had more public fancy versus consistent systems for success.

 

Food for thought for precon people: most people define inventory going up as a metric of slowdown..what about if building permits double in 1 year but inventory goes up 50%, thereby the relative reduction of inventory?

 

Vivek

 


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ISamson

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Reply with quote  #23 

That is beautiful my Brother !

 

I may have to look into those,  there is nothing like that around here.

 

 



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Reply with quote  #24 
I checked it out and there is 4-5 bed room homes for 5-9k, but it seems to me that these homes are in warzones


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Reply with quote  #25 

vivek,

 

are buying these properties in cleveland?

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Reply with quote  #26 

I'm doing the same thing in Dayton.  They have a sheriff's sale every week with dozens of properties.  The rehabbers I am working with have relationships with a community development corporation which brings us buyers.  We can sell at full market value to these buyers who receive $25,000 downpayment assistance and 4% mortgages from a regional bank, and 12 months of seasoning isn't necessary.

We are also getting 4-plexes of 1+1 units for $40k, turning them into 3br duplexes and selling the units as Single Family Attached for $70k each.  The city and neighborhood associations love it because abandoned properties are being renovated and filled with homeowners rather than renters. 

The neighborhoods in these cities don't have to be warzones.  Since the real estate investing craze hasn't really hit there, there is a large supply of abandoned and REO properties in the blue collar areas

For cashflow, there are plenty of opportunities to lend money at 15%-18% with points.


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Reply with quote  #27 

Now this thread is what this board is all about; sharing information to the benefit of all the members. Not like the lady from Austin that wanted and did start a club in Yahoo for Austin investing. From my point of view that was not what this discussion group is about. I would appreciate the discussion of Texas, but apparently in being held in a Yahoo discussion group; not here.

 

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Reply with quote  #28 

War Zones ..... some people stay MILES away and some people tolerate them.  But the facts are ..... there are lots of People that live in and around them.  Whether because of need, or because of perception that they cannot afford anything else, or because their Family is still there, or because ..... so many different reason.  People still live there. 

 

If You are going into a "War Zone" as a Profiteer, that is apparent.  If You are going in there as someone looking to provide solid decent Housing to People who want THEIR piece of the America Dream, that will be equally apparent.  To the Neighbors, to other Developers, to the local Constabulary, to the City Housing and Social Agencies, and to Your Target Market. 

 

If You Build It, They Will Come. 


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Reply with quote  #29 
Quote:
Originally Posted by cyberjb

Yes, we've been buying 20 cents on dollar regularly last 4 months, fixing and flipping or refinancing and keeping as cash flow rentals.

The trick:

- we do not find the deals, someone else does

- we do not do the rehab, someone else does

- we provide the cash, and partner with active rehabber/deal finder/prop mgmt guys.

- we do use my credit for the cash out refinance to 80% LTV of ARV (after rehab).



What about on-site management ? I believe you can get some good discounts in places like Michigan right now. Can you complete the project without visiting the properties and people involved?

Greg


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Reply with quote  #30 

arent thse low priced properties in war zones?

 

These properties are very cheap, but is it worth the investment?

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