Best Markets to Buy Rental Properties

[Lori Beard]

I'm new to BP, and have enjoyed following forum discussions.  I have a question (or maybe two) about the best markets to buy rental properties.

My husband and I have been purchasing rental properties for about 5 years.  We started in our local area (Colorado Springs), and have ventured into out of state properties.  Our first two out of state properties were bought sight unseen in St. Louis with the assistance of a friend who put us in touch with a realtor, and a property manager.  This has worked out well.  We were able to purchase both properties for $110K all in, and they have been providing a good cash flow.  We then bought a property in Florida with the assistance of friends who live there.  It is rented, and is cash flowing well.  I feel like we have been very lucky to have someone to assist us in St. Louis and Florida.  The problem is that we want to purchase more rental property, but the market in St. Louis is getting tighter and tighter. The good deals seem to be fewer and farther between.  For a variety of reasons we have decided not to purchase anymore property in Florida.   However, we are now considering searching for property in the Kansas City, MO area because we have read that the market there is good for investors.  My question is this - Does anyone have any personal knowledge of the area, and the rental market in Kansas City?  When looking at Realtor.com/Trulia/Zillow there looks to be good deals, but we are unsure about the rental potential.  We are a little uncomfortable to jump in without having some inside information like we did in St. Louis and Florida. 

Having said all that, we are open to properties in other areas, but would likely have the same questions since we do not have an "in" like we have had in the past.

Any thoughts about how to proceed?  

[Paul Birkett]

Jeremy Gunn

We got out of Florida for 3 reasons

1. The taxes have gone up a lot in the past 3-4 years. We were paying around 0.5% of capital value and that has almost doubled in 4 years. We also had a bunch of assessments which really hammered the cap rates. It seems a lot of counties postponed capex during the recession and are now assessing their way out of trouble. We had 5/6 SFH's in Cape Coral/FtMyers hit with assessments of $3,000+ for water and sewer work.

2. Values have gone up a lot but rents have not improved much. When we bought in 2010 it was easy to get 12% cap rates. These are now down at 8% as rents have not kept pace with appreciation

3. Insurance is just too expensive. 

So its a combination of increasing costs and relatively flat rents that puts too much of a squeeze on cap rates.

Still a lovely place to visit or to live....but maybe not to invest in my opinion