Where to start investing

Question

Hello all,

First post on here. Got my realtor's license in early September and have been having a fun time with my new job as a Property Manager as well as prospecting for buyer and seller clients.

I'll jump quick to my dilemma. So, next September, I will be fortunate enough to receive a sum of money. I'd like to put it into investment properties but am conflicted as to where I should put it. Currently i live in Champaign, Illinois. It is honestly a less than ideal area to invest in. Since 2013, there have been around 4600 beds added for student housing but college attendance has only increased by 2000 in that same amount of time. Even outside of student living, the market for SFR rentals is pretty oversaturated. Add in that the supply of homes in the $130K-$170K range is extremely limited (due mostly in part to the aforementioned market saturation), thus making finding a good deal an even harder search, makes me think that my money would be better invested elsewhere. I've used the cash flow calculator on here for a couple properties that interested me and positive cash flow on all of them was negative the first 5 years, assuming I bought near list price which is most likely. In addition, it's Illinois, and property taxes will eat my margins more than elsewhere.

If I did decide to invest outside of my market, I would be able to go to wherever the top markets are, and could use a property management company to help decide which houses and neighborhoods would be ideal for me to invest in. I am not so concerned with the quality of the PMC, as I would probably use this website and multiple references to decide on which one to go with, but I am concerned that the cost of using one, even in better markets, would give me worse cash flow than investing locally and doing the management myself.

Any advice or opinions on the situation would be greatly appreciated. It is still just under a year away but I'd like to be equipped to make the best decision when the time comes.

Thanks,

John

Remington Lyman · Answer

@John Boland I would recommend starting to invest in small multifamily properties near you. You could even house hack if you are willing to do that. This will allow you to have a better debt structure. You will also save costs by cutting out the property manager and hiring your own subcontractors.

Once you have a strong base you can start investing anywhere like Columbus, Ohio! That is how I would do it but you need to figure out what your goals are and pick the best path for yourself.

Adrian Birchler · Answer

Hey @John Boland, also Central Ohio based and also a Realtor. To counter @Jesse Houser's point just a bit, Columbus still has tons of opportunity for cash flowing rentals even in some B neighborhoods. However you aren't going to find many options directly on the local MLS or the zillows - you'll need to seek off-market properties. I'd imagine this is the case pretty much anywhere around the country right now so definitely keep this in mind in your search. As for pm companies, I am a property manager and investor and I would say pm vs. self management comes down to your knowledge, time, and energy preferences. If you're confident in your knowledge of landlord tenant laws, ability to manage tenants, etc. and have the time and energy to deal with the issues too then you can definitely "cut costs" self managing but really you're just paying yourself the management fee and I would definitely figure that into your numbers.

Jesse Houser · Answer

@John Boland If you're looking to invest out of state, I would take the next couple months and look at what markets are growing in the US. Population, employment, median salary, etc., and I would let that determine where I'm going to invest. And that doesn't mean you have to buy specifically in that city. For example, I live in Ohio, and Columbus is growing like crazy right now. You're going to pay two arms and both legs for anything there right now. But unlike Florida, it's not landlocked, so it's just continuing to spread out over central Ohio to the other cities and counties that are close to Columbus. What if you look at buying there (or somewhere similar), "knowing" that the city is going to continue to bloom outward. You're not buying in the top market area where everything is crazy expensive, so you could pick something up now that's reasonably priced with the potential that it grows into a prime market because of it's proximity to a city that's seeing extensive growth. And given projections about population growth, the demand for housing is going to go up. More demand, higher rents, increased property value providing you with equity. And it gives you multiple exit strategies. Rent it and cashflow like crazy, pull the money out and leverage the property to buy something else, or sell it to someone who is wanting to buy an investment property in the area but didn't get in before that market grew.

One side note, I wouldn't buy something purely on the belief that it's going to appreciate, and all of the amazing things I listed above are going to happen. But who wouldn't want to buy something where appreciation, both in property value and rents, is strongly projected to occur. That's why I'd suggest determining the market to buy in before you look for a property.

Ivan Guillen · Answer

I live and invest locally in Indianapolis and have had great experiences with my units so far. Since you live in Champaign, IL, Indianapolis could serve you greatly. Property values here are relatively inexpensive when compared to other major cities. Indy is going through a lot of changes, and OOS investors have started to notice the rapid change! My team and I specialize in residential investments in the are, so if you need any guidance feel free to reach out!

Good luck on your investing journey!

Kiera Underwood · Answer

@John Boland I'd add OKC to your list of cities to evaluate. I've seen hundreds of OOS investors come here in the last couple years and secure cash flowing rentals. There's no shortage of very stable 8% cap existing rentals. You can typically purchase between 60 & 80K in those areas. Rent to value is on average at 1% and taxes are around 1% of purchase price annually! Definitely a market to consider.

Oh and property management is 8% of rent per month!

Ivan Guillen · Answer

@John Boland my team and I own a few properties in Indy consisting of SFR and small multi-multi family. We also have some larger multi-family in surrounding cities. The city is starting to progress so that makes it attractive to investors! Feel free to reach out with any questions!

John Boland · Answer

@Ivan Guillen Thanks for responding! How many properties do you own to rent there? Indy is certainly an outside spot I've been considering and it seems a bit under the radar. I went there in October for the first time for a show and really loved the vibe of the city. A lot of character in all the old buildings and the people were really friendly. I'll certainly keep you in mind if I have further questions about it!

Nick Giulioni · Answer

I’m all over Indi and loving it!

Shawn Q. · Answer

I live and invest in Champaign, and you're right about the market challenges. However, there are still opportunities if you're patient. If I were you I'd at least be BRRRR'ing with my personal residence and/or house hacking to keep home-market exposure. Your access as an agent would allow you to find some diamonds in the rough too - they do crop up not all that infrequently. As for your larger question - that will depend on your goals. Are you looking for cash rentals, a safe(ish) place to park your cash, or are you needing principal growth? Personally I would split the funds into thirds. One third would go to a nice 2-4 unit in Champaign to house hack or BRRRR. Depending on the size of the inheritance I would take either one or two of the other thirds and invest in a managed investment property in St. Louis or Indy (or another reasonable driving distance hub nearby). This would have the dual benefit of spreading your risk and getting your money out of Illinois, and giving you a tax-deductible reason to travel to (and fly out of) a hub city nearby. From your post it sounds like you're starting your career and I've found considering deductibility of expenses can be a valuable perk in the early stages of investing. Happy to get together for coffee if you want to chat more, and good luck!

Kiera Underwood · Answer

@John Boland I've heard the same thing so many times.. "70k? I'll get two!"

Grm is typically around 100, depending on the team you're working with and the deals they source.

Rents will very slowly rise, but I would not bank on any substantial increases. Because of this in the downturn rent rates stay steady. As a renter you can't downsize far below 700/month for a 3 bed one bath house. As an owner when you only paid $65,000, this isn't a bad deal!

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