Best cities for Multifamily homes

[Daniel Mendez]

Good morning BP,

I am looking to invest in my first multifamily out of state.

Originally, I thought Indianapolis was a great city to invest in multifamily homes but it seems that it isn't. 

I have heard of Jacksonville, FL as a possible city.

Any others?

I am looking for properties below 100k that I can apply the BRRRR strategy.

[Ross Denman]

@Daniel Mendez Indy isn't a "bad" place for MF investing, but most of the older MFR's in town are in lower income or more distressed areas. In general, MF housing is more similar to apartment investing which typically means more turnover or higher vacancy rate. It makes the cash flow inconsistent. This is especially true of many duplexes but is much more sustainable with 4+ units. Duplexes can be cash cows until your tenants move out and if both units are turning tenants every year or two, it never feels like you're getting ahead.

Also, in Indy, single family homes are usually a more desired lifestyle so most MFR residents are younger, in some sort of transition, or have more limited means. With that being said, about 15%-20% of our multi's do have older, long-term residents which plan to live in the home until they need more of an assisted living lifestyle.

The areas in Indianapolis where you can do well with multi's are typically going to be more expensive to get in. The areas we see the most consistency and demand are probably Irvington, Emerson Heights, Mapleton-Fall Creek, Herron Morton, and Broad Ripple. Also, any 3 bedroom duplexes or larger outside of Indianapolis Public School district do pretty well. Decent duplexes in these areas usually start at $90k+ though.

Duplexes can also be slower to appreciate if you don't purchase them in the right areas. They are usually in areas with a higher concentration of investment properties and investors tend to suppress the pricing market (go figure... everyone wants them cheap.) They can be difficult to appraise well which will impact your ability to refinance the majority of your capital out. I've seen it go both ways though. I've seen appraisers look at the income and appraise a duplex higher than I expected and I've seen them get very poor appraisals because there is less inventory to compare them to and they are usually purchased at lower price points. I imagine that a lot of markets are going to be like this unless you have a high population density making MF lifestyle more of a common place (NYC, DC, etc.)

In order to successfully pull off a BRRRR you have to have a decent appraisal which isn't always easy. MFR's are just a different product. Not good or bad, just different metrics that impact the cash flow and equity differently.