Best location for small mulitfamily houses?

Question

Hi Bp community,

I am looking for advice on good areas to buy small multifamily properties right now. My friend and i would like to partner up and buy a small multifamily property together. Together we could come up with about 40k for a downpayment.

We did some research in the mid west market and it seems like there is potential out there for positive cash flow?

Is the cash we have on hand enough to get us started or should we wait and save up for a bigger downpayment?

Patrick Drury · Answer

@Maximilian MayrYou are definitely right about the potential cash flow in the Midwest markets. I would recommend checking out Columbus OH. It's a solid hybrid market of cash flow and appreciation. Columbus has lots of job opportunities and population growth. If you only care about Cashflow and don't care if the property goes up in value I would say Cleveland would be a great market.

Michelle Figueroa · Answer

@Maximilian MayrHey Max,

40k is definitely enough to get started. I bought my first property with $17,000 down in 2021 in North Carolina. I'm not sure if you know much about the state but Charlotte and Raleigh top the charts for some of the fastest growing cities in the US. The only issue with that is that property prices are going up quick and that doesn't lend well to those starting out. However, the Greensboro/TRIAD area is right in the middle of those and it's also experiencing a lot of economic boom with huge manufacturers like Boom Supersonic and Toyota Electric Battery plants (just to name a few) being built in the region. The cool thing about this region is that it's a little behind the Charlotte & Raleigh growth so the properties are more affordable. I'm sure you'll locate a great area. Best of luck and I'm excited to see your progress.

Steven Foster Wilson · Answer

Hi Maximilian,

Yes, that would be enough to start really anywhere here in Ohio. I recommend the major cities in Ohio:

-Columbus, great for appreciation, pp is a bit higher around $220k for multifamily

-Cincinnati, has a mix of cash flow and appreciation, average multifamily around $180k

-Cleveland, has a lot of cashflow potential, average multiform around $140k

There are other smaller markets like Dayton, Akron, and Newark, which we are starting to see these areas boom due to huge investors and corporations like Intel choosing to set up shop in these kind of areas.

Looking for cashflow? Look into Cleveland, its got good cashflow potential with appreciation happening as well.

Looking for appreciation come to Columbus, there are still 1% deals, but the more attractive part is the population growth and other economic drivers!

Austin Steed · Answer

For Columbus OH that might be a little tight for a multi family! I would reach look into Cleveland if you are looking to be in OH for a MF property.

Maximilian Mayr · Answer

@Patrick Drury thanks for the advice.

In your opinion is 40k enough to start in the Columbus market?

Drew Sygit · Answer

@Maximilian Mayr

We think the Midwest is a GREAT place for OOS investors to consider!

YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods: https://www.biggerpockets.com/...

Your biggest question shouldn't be WHERE to invest, but HOW you will invest!

Many OOS investors set themselves up for failure because they don't truly take the time to understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

Good luck with whatever you decide😊

Laura Shinkle · Answer

I'd be surprised if you could find a multifamily in decent shape in NC for less than $175k. I am in the Charlotte market and it's not a possibility here. I'm not an expert in the Greensboro/TRIAD areas, but from what I've looked at it would be a property that needs a full rehab. The midwest is going to be better for that price range and cash flow needs.

Brandon Goldsmith · Answer

That could get you into most markets in OH including Columbus. That money would go a little further in Cleveland or a smaller sub market of the state @Maximilian Mayr

Remington Lyman · Answer

That cash should be enough of a down payment to get a property in a Midwest market like Columbus, Ohio

Jonathan Oh · Answer

40k is enough for single-family, but will be tough for multi because you'll likely need 25% down. And you gotta account for closing costs, reserves, and any touchups/repairs. But midwest is def your best luck in finding something that will work with that budget. Hope this helps!

Best location for small mulitfamily houses?

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