Looking to buy a multifamily property in 2025

[Evan Coopersmith]

Happy new year, folks! 

I'm a guy approaching middle-age, living in Chicago. For several reasons (property taxes, politics), I would prefer to begin real estate investing somewhere other than locally. Currently, my interests are Indianapolis and Louisville (though I would welcome other suggestions). 

My goal, over the next five years, is to utilize real estate in lieu of my current hourly consulting income, by building a portfolio of rentals.  

My professional background is data science / analytics, which means analyzing cash flows will probably come more naturally than building relationships, which apparently, is how one finds deals worth making.

Are there meetups in these areas I should attend (digitally at first, presumably)?  Curious to have some conversations with similarly-minded folks. 

[Allan C.]

Quote from @Evan Coopersmith:

@Allan C. That's exactly what I needed, thank you. I accept the need for a competent PM and the reality that competence typically ain't cheap. It seems there are plenty of ways to be penny-wise and pound-foolish. 

When you allude to "real wealth-drivers," to what are you referring? Long-term fundamentals? Micro-local patterns?

Wealth-drivers are appreciation, debt pay-down (ie. principal payments) and tax shielding.

Since you're analytic savvy, run some high level amortization schedule scenarios to see how much equity you gain through annual principal payments. Most people focus on cash flow, and while that's nice, it doesn't build wealth. Many people don't realize that you gain as much or more net worth through debt pay-down, and while it's less liquid than cash flow, over a 5-10 yr hold period it's considerable if you buy in the right areas with the right asset class. You can surely buy cheaper properties and obtain the same debt pay-down, but now you've got 5x the head-ache, so right asset class is more about efficiency when it comes to debt pay-down.

Tax shielding is similar concept in that more expensive properties directionally give you more building basis to depreciate, which means less net income to tax. Again you can buy more properties in lower asset class area, but it's less efficient.

There are many threads about appreciation, so i won't repeat it here, but my guidance to you is to think through the difference between appreciation and inflation. They ultimately look the same when it comes to property value, but the fundamental drivers are different. It doesn't matter if you already have assets, but it makes a difference when you're looking to make new purchases. You have many people who say midwest markets are now appreciation markets, but I disagree with that statement. Midwest has inflated over the past 5 years (as everywhere else), indexed to cost of new construction. Appreciation is driven by demand outstripping supply, and cost of new supply.  Some of it can be temporary, but ideally you'll want to be in markets where it can be sustained (ie. have barriers to entry).