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Should I avoid Baltimore?
My partner and I are just starting out with RE. We are looking to do LTRs in the MD area. Currently every property we are seeing just does not have enough ROI or cashflow, except in Baltimore. We are finding properties in BALT that are cheap enough (100-150k) that we could purchase, do renovations and then rent it to make a pretty good cashflow. But with there being so many options we feel like we are missing something. What are we missing? Why aren't more bigger/experienced investors doing this?
We want to understand this market better before we make a serious mistake. Thank you!
this is not unique to Baltimore, i think this is a feature of many cities, including most rust belt cities. so i think it's perceptive of you to notice. if something is just sitting on the MLS looking too good to be true... then it's too good to be true.
these properties are going to have higher costs overall, be in more challenging neighborhoods, have very gnarly deferred maintenance and capex, potentially have liens, be high turnover, and require expert, highly knowledgeable, localized support to be successful. see for example this thread.
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
and even at those price points, i think cash flow is fairly low to non-existent if rehabbed to a high grade, especially with DSCR debt. it's just not a cash flow market right now.
You shouldn't touch a Baltimore neighborhood under $200k unless you are a very experienced landlord with class c/d properties.
Quote from @Joseph Braun:Afternoon Joseph,
My partner and I are just starting out with RE. We are looking to do LTRs in the MD area. Currently every property we are seeing just does not have enough ROI or cashflow, except in Baltimore. We are finding properties in BALT that are cheap enough (100-150k) that we could purchase, do renovations and then rent it to make a pretty good cashflow. But with there being so many options we feel like we are missing something. What are we missing? Why aren't more bigger/experienced investors doing this?
We want to understand this market better before we make a serious mistake. Thank you!
Are you just getting into wholesaling ?
Quote from @Juan Fernandez:This would not be a wholesale, our intention was for it to be a BRRR.
Quote from @Joseph Braun:Afternoon Joseph,
My partner and I are just starting out with RE. We are looking to do LTRs in the MD area. Currently every property we are seeing just does not have enough ROI or cashflow, except in Baltimore. We are finding properties in BALT that are cheap enough (100-150k) that we could purchase, do renovations and then rent it to make a pretty good cashflow. But with there being so many options we feel like we are missing something. What are we missing? Why aren't more bigger/experienced investors doing this?
We want to understand this market better before we make a serious mistake. Thank you!
Are you just getting into wholesaling ?
Make sure you have a great location analytics software to understand the type of neighborhood you are investing in. This would be my single biggest piece of advice, as a rough location with little upside offers little margin for error.
I sent you a DM to help out :)
@Joseph Braun
I’m originally from Baltimore and yes to everything @Nicholas L. mentioned. The old adage, “Location, Location, Location” could not be more true then in Baltimore. There’s a few really good easy read books out there as to why Baltimore developed the way that it did starting over a 100 years ago which in many ways ways is still pervasive and has crippled the city even to today.
Even in the “gentrified” neighborhoods of Federal Hill, Fells Point, Canton, Harbor East, desirability can be very block by block so you have to be careful that you understand these neighborhoods (and blocks within) somewhat intimately. Cheap in Baltimore does not equal good prospect for cash flow.
Quote from @Adam Schwartz:Thank you! Is there another market in MD that would be good to start in and have similar price points? Or, should we wait to save up enough to start at a higher price point?
@Joseph Braun
I’m originally from Baltimore and yes to everything @Nicholas L. mentioned. The old adage, “Location, Location, Location” could not be more true then in Baltimore. There’s a few really good easy read books out there as to why Baltimore developed the way that it did starting over a 100 years ago which in many ways ways is still pervasive and has crippled the city even to today.
Even in the “gentrified” neighborhoods of Federal Hill, Fells Point, Canton, Harbor East, desirability can be very block by block so you have to be careful that you understand these neighborhoods (and blocks within) somewhat intimately. Cheap in Baltimore does not equal good prospect for cash flow.
#2 Contractors Contributor
- Severna Park, MD
I use a very usefull method to determine if I would invest in an area . I ask myself would I live there with my family ?
What does Baltimore offer , it has rental inspections , highest property taxes in the state , worst schools in the state , high crime rates , higher insurance rates , longer time to evict tenants , slower appreciation . And high water bills .
Properties in Balto are cheap for a reason .
You can still find deals in the outlying counties , you just have to be first and have cash .
I am not a fan of Baltimore , my family moved out in 1974 , and I told my parents it was the BEST decision they ever made . Been in Anne Arundel ever since and all my properties are here and doing rather well .
Unless you really know Baltimore I consider buying there gambling , not investing .
Quote from @Joseph Braun:
My partner and I are just starting out with RE. We are looking to do LTRs in the MD area. Currently every property we are seeing just does not have enough ROI or cashflow, except in Baltimore. We are finding properties in BALT that are cheap enough (100-150k) that we could purchase, do renovations and then rent it to make a pretty good cashflow. But with there being so many options we feel like we are missing something. What are we missing? Why aren't more bigger/experienced investors doing this?
We want to understand this market better before we make a serious mistake. Thank you!
Im in VA and invest in VA and NC that have much more attritive options/cities in my opinion. That's my bread and butter is housing 150k and under. My average all-in is around 80K.... ARV 120K and rents $1,100-1,250. I like places like Petersburg, VA and Wilson, NC....let me know if you want to chat or talk partnerships, im actively looking for partners in current opportunities.
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#1 Classifieds Contributor
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Quote from @Joseph Braun:
My partner and I are just starting out with RE. We are looking to do LTRs in the MD area. Currently every property we are seeing just does not have enough ROI or cashflow, except in Baltimore. We are finding properties in BALT that are cheap enough (100-150k) that we could purchase, do renovations and then rent it to make a pretty good cashflow. But with there being so many options we feel like we are missing something. What are we missing? Why aren't more bigger/experienced investors doing this?
We want to understand this market better before we make a serious mistake. Thank you!
if you need a piece of software that tells you about the immediate area in Baltimore before you invest, send me a DM.
Should I buy a whole street of rowhouses in Baltimore for $1k each?
Baltimore might work fine if your plan is to seller finance but it is most likely still a bit of a gamble.
No. You should buy up Baltimore!
@Joseph Braun
As many people said you have to be careful with the areas u invest. There are areas that will grow nicely buy there are rough areas 2 blocks away.
I can provide a property manager who has found me many nice cash flowing properties with no drama.
Quote from @Michael P.:
Should I buy a whole street of rowhouses in Baltimore for $1k each?
No. Large investment in a failed area,
City should be paying investors to take those chances.
Like many investment opportunities, there are a lot of factors to weigh when making the decision. You will be dealing with an older housing stock, so higher deferred maintenance and capex should be expected. Over 20% of the city is below the poverty line. I would recommend contacting local property management companies and investors to see what struggles they have had. If you find the right team, you can probably find success but that's not to say it might be easier somewhere else.
yes, you want to be closer to the median price point in the city / market / state that you're in. and yes, i would recommend being in a strong financial position with substantial reserves.
Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.
If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.
So, when investing in areas they don’t really know, investors should research the different property Class submarkets.
Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:
Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.
Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years
Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.
Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.
Make sure you understand the Class of properties you are looking at and the corresponding results to expect.
PM us if you’d like to discuss this logical approach in greater detail!
The main thing for Baltimore will be financing. A lot of lenders do not do that market due to high foreclosure rates. Just remember a "cheap" deal isn't always a good deal!
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Quote from @Michael Smythe:
Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.
If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.
So, when investing in areas they don’t really know, investors should research the different property Class submarkets.
Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:
Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 yearsClass C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.
Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.Make sure you understand the Class of properties you are looking at and the corresponding results to expect.
PM us if you’d like to discuss this logical approach in greater detail!
Michael makes some excellent points here. And to add to that, I would say if you are interested in Class C, looking sub-markets where there is clearly upside to be Class B soon. These are gentrifying neighborhoods where development is rampant and properties are selling at a price point above replacement cost.
@Joseph Braun i invest in Baltimore, But I also live here. I know the market better than most. Baltimore gives higher returns due to the higher risk but also the general hassle of doing business here. Those hassles of dealing with an inefficient government mean less competition therefore higher returns. It is a trade off.
"Baltimore" could mean Baltimore city which I am refering to or Baltimore county which is less risky and less hassle.
I didnt know or live in the city when I started. I learned it over time. You can do that too if you are close by in Maryland but in general I recomend not investing from afar, especially in Baltimore.
The post about asset quality should not be overlooked. I do think in A & B you can push those numbers on the high side. MYve if you factor in holding times during renovations that could be diluted with a longer period of ownership but assuming once its ready to go I like to average 2% or less. Another thing is the higher the asset the more likely you can push rent prices up. If your rent increases just mimic inflation close to half or more if you self manage will bump your yield up and cash flow. Thus think long term and invest in good areas. Up here in Baltimore high 100s might get you a decent 2/1 rowhome turnkey. I would t go much lower unless you can estimate rehabbing accurately or bear in mind the asset class to vacancy and other variable cost issues rising.
Good Day Joseph,
I moved to Baltimore in November of last year and currently doing house hacking. Reading some of the previous post and from my experience being here, it really does change from block to block in Baltimore. One thing to be aware of is the higher property taxes to offset some of the city services. Baltimore is a more affordable market for those like myself that work in Metro DC and don’t mind the commute. Try to look around the major hospitals and universities if you can. Let me know if you would like more information.