Looking for New Cities to purchase SFH for about 125K

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Looking for New Cities to purchase SFH for about 125K

Jonathan MacMillan
Astoria, NYC · Member since 2014 · 13 posts · 6 votes

Hello all, 

I've been reading this site on and off for a couple of years. 

Seven years ago I purchased a SFH in Aurora, CO for 110K. It rented for about 900 as I slowly paid off the mortgage. I now own the property outright, Zillow has it listed for about $260,000 and I'm renting it for $1600. For many years I've had this property on auto-pilot with my manager taking care of most things while I live overseas.

However, it dawned on me recently that a $1600/month rent is nowhere near achieving the 1% rule on a $260,000 property and so I've been contemplating selling it, and 1031ing it into two new properties that add up to $260,000. I also thought it would be a good opportunity to diversify my investment by buying two properties in different locations.  I plan on paying cash for both because my employment is very uncertain and so I struggle to get loans. I also have a bit saved so I could go a little over a total amount of $260,000 for the right places. 

Currently I've been thinking about Orlando and/or Houston. I would also consider Cleveland (I have some friends there who dabble in REI). I'm always a bit overwhelmed when it comes to choosing cities to buy in. I grew up in Los Angeles and don't think I can afford anywhere there. But I live in Australia, (also can't afford anywhere there) and so I don't really have the ability to do tons of boots on the ground research in different cities. I've looked at turn-key companies in the likes of Chicago, Philly, KC, Indy, etc., but haven't found one that I fully trust yet.

The goal would be to pick up two SFHs that combine to rent for about $2600. 

Any advice would be much appreciated!!!

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Jon Q.
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
9y
Originally posted by @Jonathan MacMillan:

Hello all, 

I've been reading this site on and off for a couple of years. 

Seven years ago I purchased a SFH in Aurora, CO for 110K. It rented for about 900 as I slowly paid off the mortgage. I now own the property outright, Zillow has it listed for about $260,000 and I'm renting it for $1600. For many years I've had this property on auto-pilot with my manager taking care of most things while I live overseas.

However, it dawned on me recently that a $1600/month rent is nowhere near achieving the 1% rule on a $260,000 property and so I've been contemplating selling it, and 1031ing it into two new properties that add up to $260,000. I also thought it would be a good opportunity to diversify my investment by buying two properties in different locations.  I plan on paying cash for both because my employment is very uncertain and so I struggle to get loans. I also have a bit saved so I could go a little over a total amount of $260,000 for the right places. 

Currently I've been thinking about Orlando and/or Houston. I would also consider Cleveland (I have some friends there who dabble in REI). I'm always a bit overwhelmed when it comes to choosing cities to buy in. I grew up in Los Angeles and don't think I can afford anywhere there. But I live in Australia, (also can't afford anywhere there) and so I don't really have the ability to do tons of boots on the ground research in different cities. I've looked at turn-key companies in the likes of Chicago, Philly, KC, Indy, etc., but haven't found one that I fully trust yet.

The goal would be to pick up two SFHs that combine to rent for about $2600. 

Any advice would be much appreciated!!!

Jonathan,

With all due respect, it doesn't appear that you know what you're doing.  I think you're lucky that you've experience investing in real estate has been positive...

I suggest that you put in the time and effort to learn the fundamentals of real estate investing.  Initially, to begin selecting a market, you should start by learning about what contributes to demand of real estate...namely population growth forecasts and job growth forecasts.  Then there are numerous other state, MSA, and local variables that you should be examining to identify what market to invest in.

Even before you get to this, you should spend much more time specifically definining your investment goal, which will provide guidance on what to consider when conducting market research... for example, if you're looking for cash flow, you BETTER conduct an analysis of price-to-rent ratios and average cost of housing.

1. Investment Goals: EVERYTHING you do as an invest should tie back to your specific goals.  If they don't you are wasting your time!

2. Market Research (Region: Population Growth Forecasts, Job Growth Forecasts)

3. Market Research (State: pop / job)

4. Market Research (MSA/City) (pop/job forecasts, price-to-rent ratios, city masterplan, path of growth, vacancy rates, average cost of housing, crime rates, demographics, etc...)

Next... What customers are your looking to serve? Why? Where do they work? Where do they spend free time?  How much income do they make?  What are their living preferences?  Can you acquire properties at a good price that rent high enough to generate your return (cash flow/appreciation)?

There are lots of other questions that I don't think you even know to ask...but this should give you a start.

I wish you the best.

jon

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  • Clayton MobleyPro Member
    Birmingham, AL · Member since 2014 · 875 posts · 947 votes
    9y

    @Jonathan MacMillan Since I've not seen it mentioned, I'll throw a hat in the ring for Birmingham, AL ;) Low cost of living, low property prices, some of the lowest property taxes in the nation, good jobs growth and fantastic rental demand. You could find 2-3 solid B/B+ properties here for the cash from your sale. Also bear in mind that while getting 1% or more in rents is great, it doesn't much matter if expenses and taxes eat it all up - so keep the focus on net numbers (cash flow, ROI, ROIE).

    I think you're definitely on the right track with regard to the 1031, but remember that you'll need to adhere to the 45/180 timelines, so make sure you scout replacement props long before you go to market - 45 days isn't long in RE. Also, since you're looking at multiple props (and, therefore, may want to identify more than three to ensure you have options), make sure you're familiar with the 95% and 200% rules for identification so that you don't end up stuck buying more than you bargained for. I'm guessing in your situation the 200% rule is going to be the most applicable. 

    Since you're looking at buy-and-holds, have you considered the benefits of leveraging your capital? It would make the 1031 slightly more complicated, but not much, and you should/have to enlist the aid of a qualified intermediary to help with those things anyway. You mentioned that your current prop has been flowing for seven years, and you currently own it outright - so essentially your tenants bought you 80% (assuming 20% down) of a house over the course of seven years, yes? With $260k in capital you could have yourself a decent portfolio, even if you paid cash for one prop (to limit total liability, if that's a concern for you) and used the other half of your funds as down payments. You mentioned your work might be a little unstable, but that you have some savings (which you should have for CAPEX emergencies anyway). Obviously you'll be the best judge of what works best given your situation, but if you found a turnkey company you trust to manage your investments well (which should be the primary focus anyway) you could essentially have tenants buying you a portfolio, which could then support you later.

    Anyway, that's enough of a ramble from me - clearly I'm biased towards leverage, but only you can judge what is best suited to your current situation. In either case, it sounds like you're in a good position and taking the right steps to make the most out of your capital.

    If you have any questions about turnkey or the market down here in Birmingham, feel free to shoot me a note any time.

    Best of luck!

    Clayton

    0Reply
  • William Allen
    Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes
    9y

    @Jonathan MacMillan

    Take a look at Pensacola FL for a lower cost rental market. No "turnkey" companies here but plenty of rent ready opportunities you could turn over to a local PM. 

    0Reply
  • William Hochstedler
    Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    @Jonathan MacMillan

    I think what @Jon Q. is referring to is that your rent to value ratio (or better) is very doable almost everywhere in the country except the coasts and some major metro areas.

    As a result. lot's of people are going to chime in with how their market can do that.

    The Denver area has done very well in the past decade.  I'd recommend taking a look at your Aurora investment and figure out what the fundamentals were that made that such a good purchase-- including the data points that Jon suggested.  Then look for markets that exhibit those characteristics.

    Your market timing might have been more important than any other factor on your Colorado purchase.  That might be pretty tough to replicate these days.

    0Reply
  • Ron Dayley
    Clarksville, TN · Member since 2016 · 238 posts · 96 votes
    9y
    If you are interested in Clarksville TN, I can send you some samples of what we have available that would make for great rental property investments.
    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    9y

    @Jonathan MacMillan Your situation is pretty common as prices have skyrocketed in Denver metro area. We've worked with several investors in the last year that did 1031's out of their Denver properties in to Indianapolis and Kansas City. You mentioned Houston but I don't think you'd see any better returns there than you do in Aurora. The rent ration will be 1% at best but the high property taxes and insurance will kill your cash flow. Personally I like Indianapolis and Kansas City a lot. We sell turn keys in both of those markets and the returns from cash flow are very strong. The numbers are similar to Cleveland but the economic and demographic factors are much stronger. Both Indy and KC have growing populations and jobs. I would encourage you to consider them also. You can find a lot of info on the markets on my website and feel free to reach out if you'd like any more insight.

    0Reply
  • Andrey Y.
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Rick Shuttleton:

    The Phoenix AZ market is supposed to be the #1 market in the country for 2017. Definitely a place to keep an eye on and pick up some deals. Let me know if you need some help.

     Source(s) on this?

    0Reply
  • Rick Shuttleton
    Scottsdale, AZ · Member since 2015 · 8 posts · 1 vote
    9y
    Andrey Y. The source is Realtor.com. I don't know if this will get kicked off because I am including a link but this is the source. http://www.realtor.com/news/trends/top-real-estate-markets-2017/
    0Reply
  • Chris DawsonPro Member
    Real Estate Broker / General Contractor / Property Manager · Kansas City, MO · Member since 2010 · 395 posts · 425 votes
    9y

    @Jonathan MacMillan, if you are interested in the Kansas City market, give me a call.  I'd be happy to help you succeed here in KC.

    1Reply
  • Henry Omenai
    Akron, OH · Member since 2016 · 31 posts · 21 votes
    9y

    Contact me when are ready to buy. I have two deals I'm working on that could fit your needs. My focus is on Akron and Cleveland. Great areas to pursue your strategy. 

    I look forward to hearing from you,

    Henry

    0Reply
  • Emmett McNulty
    Investor · Northshore MA · Member since 2015 · 29 posts · 16 votes
    9y

    I see some post referrals for KC in Missouri and agree with those.  For 125k the Midwest provides some strong opportunities for both flips and rentals.  We predominantly focus on college towns and have handfuls of rentals with great equity and cashflow after Full Renos.  We started in Denver and as stated above moved a great deal of our assets out of that area with 1031's over the past year to focus solely on our mid west college rentals.  This move in itself allowed us to go from part time to full time investors. As with anything, your level of success depends on how serious you are at trying to make something work and there are always opportunities proportional to the level of commitment you are willing to invest.

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