WHAT IS YOUR BUY BOX???

Four things to reduce your long term liability when investing in single family homes. You ready? Hey, I'm Steve Valentine and I'm a Phoenix real estate investor, real estate agent, team owner, and we own about $50 million worth of single family homes here in the Valley. And so what we have learned is these four things will reduce your long term liability when investing in real estate. You ready? Here's my buy box. No pools, no HOAs. Single AC unit, smaller homes versus larger homes. So let me break these down for you. A pool will cost you about $110,000 to maintain with no return on that investment. You're not getting the equivalent of what you put into a pool and owning the pool and having the liability for the rent return on that property. So a pool will cost you about $110,000 to maintain over a 30 year lifespan. By the time you replastered a couple of times, you, you maintain it, you're paying for pool service, all those things, you're not getting a return on that investment. And the whole goal to investing in real estate is to have a return on investment. So a pool is a very poor way to have a return on investment. It doesn't mean we don't look at homes with pools because if you understand how the pool works, is that, you know, like one that we're buying right now, it has a pool and it needs about $10,000 worth of replaster, cool deck, all the things. But it's only going to cost me $3,500 to buy bury that pool. So it's okay if you buy one and it has a pool and maybe the pool is functional right now, but the first sign of needing to be replastered or repaired, you're going to implode that pool and get rid of that liability. So it's still there, but we can also reduce that liability by imploding it and redoing the landscaping, the backyard, single AC units. It always cracks me up when people or agents, they get a buyer, they bring that buyer into the property management with a property that they just sold them and they're like, hey, you know, we just bought this 30 square foot house, it has three AC units and a pool and we want to keep it as a rental. They just paid cash for it. You now have all these long term liabilities that could have been reduced by not having that. So what I mean by that is that you've got three AC units, which, you know, if the average AC unit costs $7,500, you know, over the life of Owning that home, you've got $21,000 worth of AC units that are potential problems. They also, you have three AC units that have to be serviced once a year. All the things that can go wrong with three AC units, I only want one. And that's where we are going to go into the smaller versus larger. You know, when you look at these investors that have paid cash or agents have sold them larger homes there may be newer because they don't want older homes. And you know, you go through that process, the reality is, is that a larger home has a lot of long term liability to it. Because when you're buying something in the 3 to 5,000 square foot range, your tenants are typically going to be transitional tenants. They're either building, they're relocating, they might be there for a year, they might be there shorter term, maybe a little bit longer term, but most likely they're going to be a very short term tenant versus if you're buying something in that 1100 square feet to 2000 square feet and you're typically buying in more of a demographic of a maybe blue collar neighborhood where people want to get settled, they may not be buyers yet, they're going to stay longer term. So our average tenant, by looking at the data inside the property management company is that the data shows that these smaller homes in these typically blue collar demographics or neighborhoods, the tenants will stay an average of five to seven years. Now some of that average five to seven years depends on how you treat the home as well. If you're just putting people in crappy homes, they're probably not going to stay five to seven years. You know, my opinion is, is you renovate the home or you update the home. So that is a home for the tenant and they will treat it like a home and they will stay longer because of the condition of the property. Their kids are going to get settled in school, all those pieces. So that is one of the reasons that we like the smaller homes. The other advantage of having a smaller home is that when the tenant does turn, you might have 1300 square feet of paint and carpet versus on a 3000 square foot house you've got 3000 square feet of paint and carpet if somebody damages the house or just typical wear and tear when you have to redo it. So I like the advantages of having the smaller home because it's half the size, it's half the price to maintain it and you know, single AC unit, those types of things. So it's really important to look at those long term liabilities and figure out like what is this going to cost me over the life of the property to not just right now. The last thing is hoas. I'm not a huge fan of the hoas when it comes down to it's really just money going out the door. So if you take a single family home that's in an HOA, it's $50 a month. You know, you're paying about $18,000 a year for pretty much nothing when it comes down to it. And the other piece is that you might have a little bit extra management cost because the tenants, if their weeds are growing, they didn't bring the trash cans in, they're parking in the lawn, they have too many cars on the street. Those are all notices that the management company or if you're a, you know, self manager, you're going to get those notices, have to deal with those in time and energy when it comes down to the hoa. And it's just there's no return on investment with an hoa. Now the other piece is condos. Not a big fan of condos. Reason being is that you're typically paying for the tenants utilities that typically a condo association will include sewer, water, trash and they're maintaining the extra exterior of the building, which is great. But if you have $150 a month HOA and let's say you pay $200,000 for a condo, technically you've got about $250,000 in buying power if you were to go buy a single family home versus a condo. Condos typically take a little bit longer to rent and you also have the long term liability of what if. Right. So back in 2008 when the condos went defunct, they started having to do these large special assessments for parking lots, roofs, buildings, pools, those types of things. So you can get hit with that cost as well. So by owning a single family home outside of an HOA and not in a condo association, you're not subject to all those things when it comes down to it. So again, when we're investing in real estate, we want to look at the long term and reducing long term liabilities as far as future costs. So by keeping a property, this is my ideal house, I would rather buy an older home that is between 1500 and 2000 square feet, single AC unit, no pool, no HOA. That is your ideal buy box when you're buying a single family home for long term investments. Hey, I'm Steve Valentine. If we can get together and talk about strategies and how you want to invest, this is my strategy when it comes down to guiding my investors and also what I believe in and what I buy. And you can reach out to me anytime and we can talk about your strategies. Investing in real estate.