April 2011

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The month is upon us already and there are a few things that I would like to address and these are my opinions.
Why does everyone in the investment sector want to buy everything as cheap as possible?   This is a good question.   Usually who ever is trying to sell you something dirt cheap is usually trying to unload a problem property or something that has lots of issues and needs work.  Here are a few ideas and scenarios.
Let’s say we buy a property.  It is a 3 bedroom, 1 bath, 1 car garage here in Wichita.   Let’s say we pay 45,000.00  Since we are below $50K and most banks don’t want to loan on anything less than 50K then we will have to pay cash for the property.   So we pay cash.   Let’s say we rent this property for 650.00 per month.  So the bottom line is that we have to have 45K to buy the property and we make 650 per month.   Rent (650) per month / total investment (45K).   At this rate and if we have no maintenance or vacancies.  It will take us 69 months to make a profit.
Let’s say we buy the same home in the same area but for 75K.   So we get a loan on the property and we have to put down 20% (15K) and we still get the same amount for rent.   So now we have rent (650) per month / total investment (15K). At this rate and if we have no maintenance or vacancies.  It will take us 22 months to make a profit.   AND WE STILL HAVE 30K LEFT TO BUY ADDITIONAL PROPERTIES.
My wife and I are always trying to buy properties that we don’t have to do much work to at first.   And hopefully they are currently rented so we are just taking over the management part of the deal.
When we first started in this business everyone we met talked about how many properties they have.  No one ever talked about what kind of quality of properties they have.  So when we first started out I thought I wanted to be like the guy that had 50-100 properties.   Here’s where I am going with this. Over the years I have decided and found that it is better to have good quality properties rather than many properties.  Here’s why.
We have 12 properties of our own and have a net profit of about 2000.00 monthly All of our properties are renting for 650+ per month and we have very little maintenance.
We also put money into them when we first buy them, and we concentrate on the mechanical items and curb appeal.   With all these items completed we have found that the tenant seems to take care of the property better.  This saves us TIME AND MONEY.
My friend has a 10 unit apartment complex he bought for 190K and makes roughly 2000.00 a month but he has a ton of work to keep it up cause of his rents at 350-400 monthly.  Lots of turn over’s and when a tenant moves out there are always tons of repairs.   He has to be on top of it 24/7
Result:   Higher the rent, better the tenant you should usually get.  $350-400 rent and $200 deposit pretty easy to come up with and if you decide to leave not much to loose.  Compared to $650+ rent and $400 deposit.

So sometimes cheap is not always the best way to go.


Crissy and Johnny