Cannot decide where to buy, DFW, Indy, Atlanta or Charlotte?

Question

Newbie here is trying to get started. Wasted the last a few years because my husband keeps saying the big crash is coming and refuses to even do some researches. I guess he's now tired of me nagging all the time. He agreed to give it a try, finally!

My goals are cash flow through buy-and-hold.

My situation:

Long distance
Plan to have a property manager

My preferences:

SFR only, no HOA
Can make money from day 1
Newer homes with decent schools
1% rule
Traditional finance, 25% down. If the first one works fine, will buy the 2nd one.
Target purchase price is flexible, as long as it's a right deal

Looking to invest the first one in following places:

DFW or Austin, TX
Indianapolis, IN
Charlotte, NC
Atlanta, GA

Did some research, but hard to make a decision. How do you guys take your first step? throw a dart on the map? :)

Joel Owens · Answer

I do not work on residential but commercial. I have lived in GA all of my life. Texas is about the only state outpacing us for growth. We are slated to add about another 5.5 million people over the next 10 to 12 years to the state.To give an idea the whole state of SC population is about 5 million for 2018 so we are dropping a whole other state's worth of population on our state from what is already here.The 3 you mentioned are in warm belt states. Indy while initial cash flow may be higher there is also more maintenance with a cold belt state and long term rent growth and other metrics tend to not be as strong as warm belt states.Most out of state investors fly in and look around about in a 1 hour direction from the airport at each state's main hub.Austin is expensive to buy in right now for rentals. Both might meet the 1% you are looking at but purchase price might be way different.Why not purchase a quad? You get long term finance and if one renter goes out you still could possibly have cash flow to pay the note.Another option is to buy a house in stage zero of a new home development where homes are just going up. Say 200 homes are being built over 2 years time. You could buy stage zero say for 200's and by the time stage 4 the last few homes are being sold prices are now in 300's. You have instant equity gains that eclipse the cash flow potential and a brand new product with a warranty. The key is that the builder is a known brand and stable to finish out the development even if an economic slow down happens nationwide. If it is a small builder then you can be left with a fractured development if they do not finish.SFR developments many do have HOA's. If anything they can help keep values of the properties up. Some HOA's can be way overboard but those are few and far between.You might want to stay away from older houses and lower income tenants. People get sucked in by low price points because they think of buying for 70k and putting down 17,500 versus putting down 50,000 on a 200k property.The 70k property the tenants do not pay and then the property gets trashed. It's older so needs constant work and problems.The 200k property instead of the bad parts of Atlanta the quality areas you spend more but tend to get better rent growth over time and equity growth.

Joel Owens · Answer

Hi Nina,Thanks for the kind words. I do like the basic footprint of my website but I am working on many more upgrades to it. I am busy with clients all the time so the website kind of gets put on the back burner sometimes."I looked at your website, very nice. Last year, we actually looked at 2 commercial properties, one pub, one fast food restaurant. Because we are too new and we worried about everything is online, we chickened out eventually."I wanted to respond as I feel this would be valuable info for others about commercial real estate. I hear this often from people who read a sound bite or story but do not know the space. ICSC (International Council of Shopping Centers) has been around for a little over 60 years. I belong to the organization and so do about 60,000 plus members or more worldwide. When news reporters run stories they interview places like ICSC and take a snippet and sensationalize something way out of context.An example would be all retail is failing and everything is going online. That's FALSE!!The department store category and really big box 60k,100k sq ft buildings etc. selling mainly clothes and then smaller balance clothing stores in malls have been getting pounded the last 6 years. This is nothing new to those of us in the business. Those spaces are being converted to experiential type tenants such as Dave and Busters, movie theaters etc. The department store model is shrinking size as they figure out how much business is online sales and how much is in store. Surveys show that while some people like ordering online over 90% wanted to return an item in store and shop more. The reason is the buy process is easy. The return process they are talking to overseas call centers, the item takes weeks to get back to the warehouse, the retailer looses the actual item being returned,etc. So consumers could wait 2 to 4 weeks to resolve the issue whereas they can drive right to the store and return that day and get money back, go buy more stuff, or get the same item that is new and works.Retail is overbuilt in weak suburban to rural locations in cold belt states. In those area buildings can sit empty for a long time as businesses are not generally expanding in those areas.Small balance neighborhood retail is in high demand across the board. Well located properties fly off the shelves. Experiential type tenants where people don't usually go online to do something are the main focus. Examples would be karate school, doctor office, vet animal office, restaurant, dentist, salon, barber shop, gym,etc.People like getting out and living. The public at large folks isn't going to sit in their house 7 days a week and drop ship 80 boxes of crap with drones to their door. That's fantasy land.Online sale have went from about 2% of all retail sales to about 8%. Only about 4% of that is online only companies. The other 4% is brick and mortar expanding online that they neglected or never started to begin with. Many of the online only companies at 4% are facing massive changes to their business models. There is a case right now in front of the supreme court for companies having to pay sales tax if they sell an item in a state to a consumer even if they do not have a physical business there. For many small companies online they shave cost to be competitive because they are not charging sales tax. Amazon actually wants this law to be passed as they are already paying the tax nationwide.I could go on about this subject all day but have written enough. I just shake my head when I hear these news stories or investors write a blog commenting to other investors when they have absolutely no clue what they are talking about. They do not look at hundreds to thousands of properties a week nationally, attend the trade shows, close the transactions, talk to the companies owning millions of sq ft of property to have a pulse on the industry. If people do not have an intimate knowledge of something then they do not need to be writing blogs giving people inaccurate information with broad brush strokes about an industry.Restaurants can do well but like any other sub-asset class of commercial retail you have to buy right and know how to properly underwrite. People need to quit making choices based on fear and instead get informed knowledge that clarifies their questions to make a decision on whether a certain type of investment is right for them.Nina I think you should stay away from the cheap and dumpy houses in marginal areas. It might be a small amount ( I do not know your liquidity and net worth, annual business or job income,etc.) but once things go bad your husband likely is going to get soured from doing investment for a long time.Remember it is not what you are paying but what you are getting for your money the QUALITY and not how CHEAP something is.I can go get a 3 dollar burger that tastes horrible. I can get a 30 dollar burger that tastes incredible. I can also get a burger with meal at a sit down place for 10 dollars that is about 90% as good as the 30 dollar burger and very satisfying. It's the VALUE I am after and not how CHEAP it is. Same can be seen for real estate and properties. Ultimately it's what is the return you are getting versus risk,capital deployed, and what is the timeline and headache to achieve it?

Shital Thakkar · Answer

Ali Boone · Answer

Heya! I'm also in California and I've always bought out-of-state. So the thing about the markets that you mention is...more or less...they are all old news. Indy is still going with decent returns, and you can get returns in Atlanta and Dallas and maybe occasionally in Charlotte, but those three cities hit their heydays in ~2011-2012 so now you'd be paying astronomically higher prices than you would have when they were the popular markets (and probably why you've heard them mentioned so much). Austin doesn't really have cash flow, period, so that one's out. Markets move in cycles. Atlanta and Dallas were literally two of the biggest appreciators when they hit their boom a few years ago. I bought in Atlanta and all my properties doubled or tripled in value. That's great for me, having bought before the boom, but bad for people wanting to buy there now because of the prices. The idea, then, is to find markets with more 'boom to be had'. No city is expecting a ton of boom right now because of where the general real estate economy is, but there are less matured cities with much higher returns. Turnkey will get you money from day 1. There are turnkeys in St. Louis that fit the bill for SFR and newer homes and schools and all that. And that market in general is a lot less matured than Atlanta or Dallas.You can certainly buy in any of those cities, but your returns will be minimal compared to other options and prices high. Inventory is low in them too.Reach out anytime if I can help more!

Ethan Anderson · Answer

Hi @Amil D.. I would recommend my main PM because he checks a few key boxes: 1) no time commitment (i.e. he doesn't try to lock you in for a year), 2) uses PM software so you have some visibility into what's going on, and 3) has had strong and frequent communication. I also like that he can GM rehab work, and has provided me with line-item scope docs several times.To be upfront, I am not overly impressed with his marketing. His team will get the property listed on the major sites everyone uses. But you may be better off supplying the listing description yourself, if you end up working with him.Feel free to PM me for an intro.

Amil D. · Answer

hey Ethan,Awesome point, it's not a one-size-fits-all approach!I am also looking in Indy (I am visiting in a couple of weeks) and looking to network. Would you recommend your PM?thanksAmil

Ali Boone · Answer

Well, maybe, but don't try to reinvent the wheel either. Lots of people have already bought and are buying in various markets and have experience with various markets, so just asking where people are investing can save you a lot of time. Then once you get a handful of ideas, research from there. Rather from scratch. If that makes sense?What all have you researched or learned so far? Like where did your initial list of potential cities come from?

Nina M. · Answer

Thanks everyone for the input! You guys are awesome! @Joel Owens Thanks for taking time to explain ICSC and the current trend in the commercial properties. I should be more careful when saying "everything is online" in a public forum. I totally agree with you, that no matter how much we do things online these days, nothing can replace face to face meetings and other social activities. Thanks for pointing it out.In terms of news homes vs. cheaper and dumpy ones, I agree with you too. I constantly get distracted when I saw a cheaper one, and forget my eyes on the newer homes. When you say newer homes, how new are you guys comfortable? Our home was built in 2002. So I have no idea how much work is required for a home in 50 or 60s.@Ethan Anderson Thanks for highlighting the key words several times. Good advise.@Ali Boone Thanks for all the suggestion. I need lots and lots of time to dig deeper :)@Roshan K. Thanks for the useful info. Do you mind sharing the price and neighborhood? We are already paying high property tax here, for sure, I prefer a lower tax area, in case of the vacancy.@Shital Thakkar Good point.

Shital Thakkar · Answer

Everyone, Keep eye on Amazon HQ2 decision...Whatever city Amazon will select will see big jump in price..Finger crossed... :)

Roshan K. · Answer

@Nina M. I am in the same boat as you. I am a new investor looking to invest out of sate. I am also interested in investing in DFW and have been working with a realtor to find a rental property generating positive cashflow. So far I finding it difficult to get the numbers to work here as the property taxes are very high as compared to the rents. Please PM me if you like to chat more and exchange notes. Best of luck.