Re: If you could start over… - Posted by Sean
Posted by Sean on July 09, 2003 at 09:49:56:
If I were a newbie, starting out and knew nothing more about real estate than the general concepts of wholesaling and/or retail flipping, I would personally without question choose a rust belt city such as Pittsburgh (where I just do happen to operate) or Cleveland or the like.
Why? Simple. The barriers to entry are almost nill. Acquisition cost is insanely low, the housing stock is older, and nearly every piece of land is already developed, so there really is little choice but to rehabilitate the existing housing stock for new buyers.
Large established real estate investing clubs usually existin in these types of cities, and the neccessary infrastructure and support teams are also in place. Hard Money Lenders, Investor Mortgage brokers, RE attorneys etc. Popultion is generally very stable, no huge increase or decrease over time. You can very easily get up and going with very minimal cash, and can pick the brains easily of people who have been doing it in the market for 20 or 30 years.
The downside of this is of course general property values are lower, so long term holding isn’t going to make you rich unless you hold a LOT of properties. Of course, the upside to that is, the markets generally don’t depreciate either… when times are good you get modest appreciation, when times are bad, you get zero in these types of cities… but rarely if ever do you see valuation loss unless the neighborhood goes downhill.
Now, don’t get me wrong, even with property values that after repair will be in the 60s-80s, I still recognize 20-30k profit per retail flip, so even though properties are low after repair values, acquisition costs are definately low enough to make good money.
On the flip side, you don’t really have many high end properties such as around Silicon Valley… where you could buy a 3/2 1200 sq ft ranch in need of 20k-30k of repair for 350k and sell it for 450k-500k. Certainly there is more money per deal there, but you need a lot more money to get started… I can’t imagine a 15% interest only loan on 350k holding cost would be ~4500-5k a month… but on the same token there is still more than enough spread to make very good money.
In the rust belt, a 350-500k home is a 5,000+ square foot custom built stone mansion, not uncommonly on a large chunk of land too… in fact you can’t find homes of the quality of a 350k-500k home in the rust belt in areas like Silicon Valley, at any price, they just don’t build homes with anything close to equivalent quality out there.
But on the plus side, you can make far more money per deal… down side is you have to have or have access to a lot more money to get started.
I know others may not agree, but that’s how I look at it. If you are more savvy, and know more techniques and are comfortable with sub2’s, sandwich l/o etc… most any market will do.