Invest O Mania

Three or four years ago an agent in my office was all excited about the idea of buying investment property in Oklahoma. He had been visiting there and discovered that you could buy a property cheaply, rent these places out and have the most amazing thing happen…you could have positive cash flow! In other words you could rent these places out for more than your mortgage payment on them. He and some partners bought 15 of them! I chickened out and didn’t join that party.

It wasn’t too much later that we were visiting some family in Peoria, Illinois where we ended up in the little rental house of some cousins. They were paying $750.00 a month to rent a small 2 bedroom, 1 bath house with a full basement. When we were leaving I noticed that a house down the street was for sale, and I walked down there and grabbed a flyer from the box on the “for sale” sign. It was listed for $34,900! I started thinking…we could advance ourselves the down payment ($6980=20%) on our Visa cards and buy this house right then and there! The principle and interest on this house, even at 6.5% interest on a loan of $27,920, is $176.47. And similar houses are renting in the area for $750.00?

Meanwhile around here it was possible to put 50% down on a property and still not have positive cash flow. The difference is that these places will appreciate alot faster. In 10 years that little house in Peoria might be worth $40,000! Honestly, I didn’t buy one of those either…but my brother in law did. The only problem was that it became a royal pain to deal with a rental property from 2000 miles away. Coincidentally, his tenants moved out in the middle of their lease, taking all of the house’s appliances with them, the same week that their property management company went out of business. To put it simply, owning investment property when you’re a long way away can be a pain.

Now, amazingly, that’s all changing. Take, for example, this 3 bedroom, 2 bath house at 84 Oceanside in Daly City that’s pictured above. This house sold in 2006 for $710,000. It’s now a bank owned foreclosure that was listed and sold for $382,900. It closed on Monday. You know what else? It’s in pretty good shape too! Click that link and check out the pics. Assuming the more stringent current lending environment forces you to put down 30% on this place and assuming you get an interest rate of 6.5% as well you’re principle and interest here is going to be $1692.36 a month. When I checked craigslist today I discovered a similar 3&2 in the same neighborhood asking $2465.00 a month in rent.

It’s been a very, very long time since this kind of investment vehicle existed in San Mateo County. You literally can get both cash flow and appreciation. I’d sure rather have my money in a home in Daly City, 30 minutes from me by car, than in Oklahoma or central Illinois (or Stockton & Sacramento for that matter). Of all these areas, which one do you suspect will appreciate better in 10 years?

I think there’s some really good opportunities out there right now.

Comments

  1. Very helpful, informative article Jim!! Thank you! After Christmas let’s see what we can do!

  2. It is the best time in history to buy. I wish I had a ton of money to invest myself. Thanks for the blog.

  3. Frances Rokicki says:

    Jim, We have owned properties far away, Martha’s Vineyard in Massachusetts, that we rented out. At first it was great. But, in time, the tenants stopped paying their rent and utilities. Sad to say, we sold it just so they would move out. Wish we still had it today! Too far away is a problem.

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