Location. Location? Location!

Buying & Selling Real Estate
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Location. Location? Location!

Account Closed
Specialist · Sioux Falls SD and Phoenix AZ · Member since 2019 · 45 posts · 17 votes

I have my hands in quite a few different Real Estate pots- but it seems like one thing is always the same.

"Where is it located?"

Its a Valid question but I have come to realize that it carries perhaps to much weight in the eyes of the majority of investors.

I live in Arizona and needless to say it is a competitive market. I moved here from South Dakota and many investors and property buyers I have worked with have been shocked when I tell them that in South Dakota +10% Cap rates exist in plenty for buy and hold rental properties and flip properties come available to me every week for under 50K. This got me thinking- why aren't more people doing these deals?

I moved to Arizona to expand to a 2nd market and currently operate in both markets but it is two completely different obstacles I face.

In Arizona- buyers are plentiful but finding a good deal is the difficult aspect of Wholesaling I face.

In South Dakota- Deals are plentiful but there is a massive shortage in people looking to pay for flips and cash flowing properties.

WHY?!? - Location.

I have people tell me they aren't familiar with the market and don't have the knowledge to make an informed decision. Ok- I get it- But in this business, the day you stop educating yourself and striving for more knowledge is the day somebody else passes you.

Why aren't more individuals looking to do deals away from the comfort of their home- if a property is cash flowing, makes money, and is appreciating- What's the issue.

We were all afraid to get into this business to some degree but once we start to get comfortable to many people are stuck in their comfortable bubble and won't step out to try and better themselves. I don't claim to know it all- or much at all really; but people who are serious investors looking for financial independence and a better life through Real Estate- I don't quite get it.

Would love to hear thoughts on this and why more people aren't investing in markets outside of their own. Obviously this doesn't apply to all investors but generally from what I have been seeing- this is extremely common.

Thank you and Happy Holidays!

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Will FraserPro Member
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
6y

Hey @Account Closed!  I like your question a lot.  I think there are several different answers to this question and I'll focus on one of the base psychological reasons we don't -- because we haven't heard Brandon and David talk about it on the podcast.  We haven't seen it in Paula Pant's blog and we haven't seen it on any of the "big shots" shows, so . . . it must not be safe or that good.

Group-think is a problem at time, but it is also a base survival mechanism that has helped protect us in many different ways.  In the same way that my body still craves fats and sugars always, even though a glance at my waistline shows that it is not necessary to store up quickly-accessible energy, our minds and bodies do things to protect us even at a cost of our immediate thrival, and even when that need is outlived

Thus my assertion that the primary reason that the masses don't clamor to all the locations that supposedly have a great ROI and few investors is because the lack of "publicity leaders" who invest there seems to imply that there's something wrong with the market. In reality that's not necessarily true, but it is a heuristic that we use to simplify a massively deeper issue.

Them's my thoughts.  

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  • Will FraserPro Member
    Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
    6y

    Hey @Account Closed!  I like your question a lot.  I think there are several different answers to this question and I'll focus on one of the base psychological reasons we don't -- because we haven't heard Brandon and David talk about it on the podcast.  We haven't seen it in Paula Pant's blog and we haven't seen it on any of the "big shots" shows, so . . . it must not be safe or that good.

    Group-think is a problem at time, but it is also a base survival mechanism that has helped protect us in many different ways.  In the same way that my body still craves fats and sugars always, even though a glance at my waistline shows that it is not necessary to store up quickly-accessible energy, our minds and bodies do things to protect us even at a cost of our immediate thrival, and even when that need is outlived

    Thus my assertion that the primary reason that the masses don't clamor to all the locations that supposedly have a great ROI and few investors is because the lack of "publicity leaders" who invest there seems to imply that there's something wrong with the market. In reality that's not necessarily true, but it is a heuristic that we use to simplify a massively deeper issue.

    Them's my thoughts.  

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  • Account Closed
    OP
    Specialist · Sioux Falls SD and Phoenix AZ · Member since 2019 · 45 posts · 17 votes
    6y

    Hi @Will Fraser !

    I appreciate your thoughts and I would have to agree most of what you are saying. We have all been guilty of following the crowd and doing what others before and above us have done that led them to their success.

    My follow up question would be- We all want financial freedom and to live a better life for ourselves and our families through real estate. But to be a top 1%er more than just following an already traveled path must be done. Is it our simple and primal fear of failure that keeps most people from exploring outside their comfort zone- or is it people don't believe in themselves to succeed in anything else out there?

    Not everyone was born to be a leader but I believe that everyone can step out from the crowd and take on a new lead in a unique direction if they choose to- but few do. I wish collaboration  in the real estate realm would grow and be used 100X more than it currently is. 

    Not everything needs to be done by ones-self and I think that it takes a lot of hard work and the desire to grind every day for your goals. A mentor and leaders can help point individuals in the right direction but it is up to them to take the next step and really take their life into their own hands.

    Thank you for your thoughts- and Happy New Year to you and your whole family!

    Brady Aman

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  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y

    @Account Closed what do you mean by shortage of people looking for cash flowing deals in South Dakota? I have been watching the MLS and Loopnet for years and I don't see anything with 10% cap rate. Generally if it is advertised as 10%, the seller is leaving out expenses like management or they are over-estimating rents. Regardless, most anything multifamily moves quickly. Even junk in central Sioux Falls is selling for premium.

    I have seen some flips sit a while, but this usually because the asking price is too high for the neighborhood. In South Dakota there is an endless supply of cheap land within minutes of the center of the city. So when you rehab, you are competing with new construction. 

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  • Aaron Junck
    Real Estate Investor · Sioux Falls, SD · Member since 2013 · 415 posts · 84 votes
    6y

    🤔@Account Closed 

    I’m born and raised in SF. Builder and investor  

    1. Where are you finding deals all the time for under 50k ? Building lots are costing that starting now. The last flip I purchased was 62k 2 years ago now. There are so many people investing in SF “deals” are gone instantly. 

    10% cap rate? Where??? Not Sioux Falls. Maybe if you buy a huge portfolio and get a great price on it but not buying 1 property at a time. 

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  • Account Closed
    OP
    Specialist · Sioux Falls SD and Phoenix AZ · Member since 2019 · 45 posts · 17 votes
    6y

    @Joe Splitrock  @Aaron Junck

    If a property is on the MLS I already consider it a less than desirable deal in most situations. Doing Wholesaling in South Dakota I find distressed properties that people need to sell as quickly as possible. Obviously not every deal is under 50K but they absolutely have come to me at that or less in the past. These are typically fix and flip or rental properties that need some amount of remodel but in the past I have found myself having to turn away from a deal from lack of interest from buyers in the area.

    10% Cap rate is absolutely possible in Sioux Falls. I have seen it and dealt with it first hand on more than one occasion. I look for value add properties that are cash flowing from day one. Are the two of you finding deals strictly using the MLS? Would love to hear more about the process you take and if this forum could lead to mutual growth.

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  • Account Closed
    OP
    Specialist · Sioux Falls SD and Phoenix AZ · Member since 2019 · 45 posts · 17 votes
    6y

    @Branden Pfaff

    Messaged you

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  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y

    The problem I find with the $50K deals is they are crap holes in bad neighborhoods. Drunks stumbling around, sex offenders, stabbings and even now shootings in some of those neighborhoods. So when you say investors don't want the deals, it could just be because they don't want to deal with the problems that come from those type of properties. I have owned stuff like that in central Sioux Falls and sold them. You look at the property history on some of these and they sell for $40K, then $115K, then $50K. It is like a revolving door of owners and there is a reason.  

    Of course not all neighborhoods are bad and you are probably finding deals in good areas. For me it is all about location. I am mainly interested I29, some neighborhoods by the universities and Sanford that I would consider or McKennan park area. 

    I like nicer quality properties and better locations. I would rather pay more for a good location.

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  • Andrew AdamBusiness Member
    Real Estate Agent · Sioux Falls, SD · Member since 2014 · 159 posts · 111 votes
    6y

    I am curious if something is a fix/flip can you calculate cap rate the same? It is not purely money in and a % of it out for a specific return. It is less of an investment and more of a job, unless you hire out all the work and someone to manage all the work. And if you did the work yourself or hired it out is that thrown into the calculation? Because buying an investment property advertised at a 10% Cap and actually getting it while not counting any of the labor that went into it is another thing in itself.

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  • Account Closed
    OP
    Specialist · Sioux Falls SD and Phoenix AZ · Member since 2019 · 45 posts · 17 votes
    6y

    Typically when I calculate a fix and flip property I don't look at cap rate. It is used for buy and hold rental properties- and in my case- multi family properties.

    Fix and Flips depend on purchase price, ARV, and rehab costs. If you get a deal at a low enough price to be profitable and that matches your own specific criteria- that is what I classify as the most important.

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