Midwestern markets are like football teams.

Rental Property Investor · Lehi, UT · Member since 2012 · 65 posts · 22 votes

Midwestern markets are like football teams. Many people have an irrational attachment to them. Even if the population is declining, jobs are disappearing, and the city is mismanaged, they still advocate for them.

So, who here can give the BP world an objective reason that midwestern/southern market X is a good one for out of state investors? Is it possible to get appreciation to go along with that sweet, sweet cash flow? I want data, not opinions.

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Nathan Roberts

Real Estate Agent · Kansas City, MO · Member since 2017 · 103 posts · 87 votes

@Jordan Meyer when assessing OOS markets, you should look at the current population, population growth rate, median sell price, median property values, median household income, unemployment rate percentage, etc. You should take all of these metrics into perspective when analyzing a particular market that you may be interested in. Try to connect with local agents to get market demographics or statistics. Many agents will probably sell you on their area so they can get more business; be cautious of this. Always verify the information that is given to you to make sure it's correct so you're not getting the run-around. With that said, I have provided statistics about the Kansas City metropolitan statistical area (MSA). The information below is either provided by Realtors Property Resource (RPR), the Kansas City Regional Association of Realtors (KCRAR), or City-data.com.

Population: 492k (KC)

Population Growth: 8.2% increase in population since 2010 (KC)

Median Sales Price: $200k (KC MSA)

Median Home Value: $211k (KC MSA)

Median Household Income: $52k (KC)

Unemployment Rate: 3.5% (KC)

Housing Supply: 1.4 months (KC MSA)

Historically, market equilibrium has been 6 months of supply/inventory but this figure is likely about 4 months in today's market. We are in an extreme seller's market meaning there is a lot more buyers than available properties.

These statistics showcase a viable market for real estate investors. Out of state investors flock to the Midwest for cash flow, great returns, and appreciation depending on the neighborhood. Great areas for rentals include South KC, Grandview, Raytown, and the core of the city in certain pockets along Troost.

I attended the Bridge Meetup last night that featured Brandon Turner; he stated that KC is in the top 10 cities for the most recession proof markets in the county. Keep that between us though, because we don't need our property values inflated like the East and West coast haha.

I provided you with cold-hard facts, not an opinion. Do your research on Kansas City to find out why we are one of the all-around best markets to invest in!

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Michael J Scanlon
Realtor · Chicago, IL · Member since 2019 · 222 posts · 153 votes
6y
It depends area to area. For example, I work the Chicago market. Overall, Illinois is declining in population. However, Chicago is seeing a lot of young professionals living in the city while the older generations are living in the suburbs and leaving the suburbs. So specific areas around Chicago are growing. The inner parts of the city are too expensive but areas like West Town (where I own) have gone up 181% since 2000. (USA.com). The area just to the west of West Town is called Humboldt park and that is right in the path of progress. There have been multiple rallies of tenants that are lower income complaining that they can't afford the area they were raised in anymore. I'm seeing similar growth toward the south if you stay east of the highway. Areas like Bronzeville and Hyde Park are along the train lines from the city and offer similar amenities at better prices. Plus the Obama library is coming into Hyde Park. Yes, we have higher property taxes and tougher landlord tenant laws, but there is still plenty of money to be made here in pockets.
The main point is that there may be a better overall market if you invest in the southeast but you can still find great pockets in midwest cities and it requires the local knowledge of someone who lives/works there.
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Jordan Meyer
OP
Rental Property Investor · Lehi, UT · Member since 2012 · 65 posts · 22 votes
6y
@Michael J Scanlon thanks for the thoughtful post. I was referencing, to name names, markets like Cleveland, Milwaukee, Detroit--that are losing jobs and population on net. There seem to be people very excited about those markets. I'm trying to understand why given the declining macroeconomics.
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Michael J Scanlon
Realtor · Chicago, IL · Member since 2019 · 222 posts · 153 votes
6y
@Jordan Meyer
Same thing. I know the Cleveland market pretty well and it just moves in pockets. There is a lot of decline but certain areas are exploding. People are moving either away or to specific areas.
2 Reply
Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
6y
Kansas City won a Super Bowl ;)
6 Reply
Chad Stark
Rental Property Investor · Member since 2019 · 36 posts · 29 votes
6y
I personally think Kansas City and other midwest markets are most suitable for out of state investors...especially myself from California. There is no way I could find an investment at 100k renting for 1% in CA. If you choose a midwest market with low unemployment and other driving factors...I don't see how you can lose.
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Marc Edwards
Real Estate Agent · Blue Springs, MO · Member since 2015 · 104 posts · 49 votes
6y
Hey I agree with a lot of what has been stated. The data for Kansas city is that we have low unemployment rates compared to bigger cities and strong job growth which of course some of this has changed since the corona madness. Here is all the data you need Brandon Turner stated last night that Kc is in the top 10 for the most recession proof markets in the country so boom. I'll take his word for it!
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JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
6y
https://en.wikipedia.org/wiki/List_of_metropolitan_statistical_areas
Kansas City: +7.4%; Detroit +.54%; Columbia SC + 9.2%; Indianapolis +9.9%; Raleigh +23%; Houston +19%; ETC.
I'm not sure which southern/midwestern cities you are referring to, but virtually everything in those areas gained population in those 10 years. The areas that lost population are almost exclusively very rural (think Appalachia) or are old, smaller rust belt industrial cities or old, smaller southern textile cities.
What facts were you using when you stated population is declining, jobs are disappearing, and the city is mismanaged? Outside of Chicago proper, which has always been a city of corruption, what set of facts do you have that lead you to that conclusion?
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Steven MayBusiness Member
Real Estate Agent · Kansas City, MO · Member since 2018 · 262 posts · 250 votes
6y
Kansas City:
- Largest city in the state of Missouri.
- Population to grow to 2,200,000 by 2020.
- Median prices up 11.3% year-over-year.
- Cost of living 15.3% below U.S. average.
- Properties up to 10% below market.
- 3-year appreciation forecast of 9.0%.
- Average annual home appreciation rate of 3%
3 Reply
Nathan Roberts
Real Estate Agent · Kansas City, MO · Member since 2017 · 103 posts · 87 votes
6y
@Jordan Meyer when assessing OOS markets, you should look at the current population, population growth rate, median sell price, median property values, median household income, unemployment rate percentage, etc. You should take all of these metrics into perspective when analyzing a particular market that you may be interested in. Try to connect with local agents to get market demographics or statistics. Many agents will probably sell you on their area so they can get more business; be cautious of this. Always verify the information that is given to you to make sure it's correct so you're not getting the run-around. With that said, I have provided statistics about the Kansas City metropolitan statistical area (MSA). The information below is either provided by Realtors Property Resource (RPR), the Kansas City Regional Association of Realtors (KCRAR), or City-data.com.

Population: 492k (KC)

Population Growth: 8.2% increase in population since 2010 (KC)

Median Sales Price: $200k (KC MSA)

Median Home Value: $211k (KC MSA)

Median Household Income: $52k (KC)

Unemployment Rate: 3.5% (KC)

Housing Supply: 1.4 months (KC MSA)
- Historically, market equilibrium has been 6 months of supply/inventory but this figure is likely about 4 months in today's market. We are in an extreme seller's market meaning there is a lot more buyers than available properties.
These statistics showcase a viable market for real estate investors. Out of state investors flock to the Midwest for cash flow, great returns, and appreciation depending on the neighborhood. Great areas for rentals include South KC, Grandview, Raytown, and the core of the city in certain pockets along Troost.

I attended the Bridge Meetup last night that featured Brandon Turner; he stated that KC is in the top 10 cities for the most recession proof markets in the county. Keep that between us though, because we don't need our property values inflated like the East and West coast haha.
I provided you with cold-hard facts, not an opinion. Do your research on Kansas City to find out why we are one of the all-around best markets to invest in!
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Andrew SyriosPro Member
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Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
6y
It depends on the city and the individual market. Kansas City, where I live, is growing, albeit rather slowly. Others are too, although not all. The Rust Belt was what was really hit hard. On the other hand, coastal cities are good for flips, sure, but it's incredibly hard to get anything to cash flow (at least with debt).
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David Stewart
Kansas City, MO · Member since 2017 · 12 posts · 8 votes
6y
@Caleb Brown
And many more to come.
1 Reply
Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
6y
@David Stewart
Yes!
0 Reply
Victor Vella
Flipper/Rehabber · Cleveland, OH · Member since 2014 · 173 posts · 121 votes
6y
@Jordan Meyer
Coastal market are like owning a sports team, constant rise in value and constant tapping equity lines to reinvest in the asset.
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Aaron Burns
Member since 2020 · 16 posts · 13 votes
6y
I don't have stats but two things I look for are diversity of economy (ie no 1 business towns) and proximity to larger-anchor cities like KC, Detroit, Chicago, Indianapolis etc.
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Jordan Meyer
OP
Rental Property Investor · Lehi, UT · Member since 2012 · 65 posts · 22 votes
6y
Originally posted by @JD Martin:
https://en.wikipedia.org/wiki/List_of_metropolitan_statistical_areas
Kansas City: +7.4%; Detroit +.54%; Columbia SC + 9.2%; Indianapolis +9.9%; Raleigh +23%; Houston +19%; ETC.
I'm not sure which southern/midwestern cities you are referring to, but virtually everything in those areas gained population in those 10 years. The areas that lost population are almost exclusively very rural (think Appalachia) or are old, smaller rust belt industrial cities or old, smaller southern textile cities.
What facts were you using when you stated population is declining, jobs are disappearing, and the city is mismanaged? Outside of Chicago proper, which has always been a city of corruption, what set of facts do you have that lead you to that conclusion?

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Christian Hutchinson
Investor · Detroit, MI · Member since 2014 · 360 posts · 354 votes
6y
Originally posted by @Jordan Meyer:
Originally posted by @JD Martin:
https://en.wikipedia.org/wiki/List_of_metropolitan_statistical_areas
Kansas City: +7.4%; Detroit +.54%; Columbia SC + 9.2%; Indianapolis +9.9%; Raleigh +23%; Houston +19%; ETC.
I'm not sure which southern/midwestern cities you are referring to, but virtually everything in those areas gained population in those 10 years. The areas that lost population are almost exclusively very rural (think Appalachia) or are old, smaller rust belt industrial cities or old, smaller southern textile cities.
What facts were you using when you stated population is declining, jobs are disappearing, and the city is mismanaged? Outside of Chicago proper, which has always been a city of corruption, what set of facts do you have that lead you to that conclusion?

What scares people about the Southeast is natural disasters (hurricanes) and wages are not particularly strong. But they are growth driven. So the cashflow is low.
I use to install payroll systems, and wages in the Southeast are not good. When investing from across country it scares people off. Also, because of the nature of economies in the Southeast, the asset pricing is very tied to the economy.
In say Chicago, Detroit, CLE, INDY, Pitt, Cincy, Stl, KC those cities have existing business operations and HQ or major employment outpost directly tied to those regions they cant go anyway in many cases even if they wanted to.
Lots of the major companies in the Southeast relocated there for tax reasons. IM not talking about Coca-cola, Delta, FedEx.
Look at a booming area like the Research Triangle. That's 2M people spread over 9 counties. They have some high wage jobs. But the lack of density and honestly all of those companies have operations there they aren't really headquartered or highly ties to the region. They would move as soon as it was tax friendly to do so. Indianapolis, CBus, Milwaukee are all close in size and those people are typically packed into maybe 2-5 counties at most.
Then honestly, you leave a place like Detroit and you drive a hour in each direction to Flint, Lansing, or Toledo you have decent size cities that have a major-large university, a trauma 1 medical facility, and it's on TV Newcastle and media market.
In many places in the Southeast from my experience that just isn't the case. Maybe its changed in 5 years because my heavy travel was from 2013 to 2016.
Even "not hip" MSAs of the Great Lakes Region are bigger than that and the people are packed in way tighter. So it's easier to get a renter.
1 Reply
Brie SchmidtBusiness Member
Moderator
Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
6y
I sold 14 properties I bought in Milwaukee in 2014 and 2015 that I paid $910k for and sold for $1,430,000 and averaged about $50k a year in cash flow during that time. They were my lowest performing properties
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Rick P.
Rental Property Investor · Grand Haven, MI · Member since 2015 · 71 posts · 108 votes
6y
Midwest investor here. Like the sports analogy. For any baseball fans out there I like to think of it as ‘Small Ball’. Little more strategy needed to make outsized gains. Solid cash flow if you can rehab and manage better than competitors in same market. Allows you to get by with stagnant to declining populations. Not gonna hit Grand Slams unless ya caught the lows in ‘09-‘12 and stumbled upon a gentrifying neighborhood. If you caught Logan Sq or Avondale in Chicago coming out of last Recession you killed it. That said, can’t lump all Midwest markets together. Spots like Columbus, Indianapolis & Minneapolis have seen legit population growth.
1 Reply
Anthony Liguori
Rental Property Investor · NJ (new jersey) · Member since 2019 · 113 posts · 16 votes
6y
Originally posted by @Andrew Syrios:
It depends on the city and the individual market. Kansas City, where I live, is growing, albeit rather slowly. Others are too, although not all. The Rust Belt was what was really hit hard. On the other hand, coastal cities are good for flips, sure, but it's incredibly hard to get anything to cash flow (at least with debt).

which coastal cities?

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Brock Mogensen
Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes
6y
Well put! I invest in the Milwaukee market and I agree that the top data metrics aren't the greatest. A market like Milwaukee won't see great appreciation, but on the other hand the cashflow is strong. In my underwriting I am always very conservative on the exit cap to make up for the appreciation aspect. That being said, there are some pockets in WI that have strong job growth and population growth. Its important to look at all metrics on a neighborhood level, because there are some great pockets that often get overlooked.
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Account Closed
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
6y
@Jordan Meyer

There are good neighborhoods in probably most Midwest markets that give good appreciation, but generally you'll give up a lot of cash flow for those properties. For example, if I can get $1,000 in rent for a $60,000 property (no appreciaition), and only $1,500, for a $150,000 property (w/appreciation), the decision is pretty clear for me, as I invest for cash flow at the moment. As my portfolio grows, and I have excess cash flow, I will then focus on some better neighborhoods for appreciation.

Regarding your question about out of state investors, I've never done that, and honestly don't understand why people subject themselves to that added risk...but if you're going to do it in a Midwest market, at least you know the cost of entry and financial risk is probably lower than somewhere you would find on say the West Coast lol.
O H ....
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y
Originally posted by @Victor Vella:
@Jordan Meyer
Coastal market are like owning a sports team, constant rise in value and constant tapping equity lines to reinvest in the asset.
I dont know i bought a 4 acre property in Sonoma county CA in 95 for 27k never did a thing too it .. it never cash flowed of course just paid the 300 a year tax's and sold it in January for 1.9 million.. so not bad. for west coast non cash flow who needs cash flow when you can make big upside TOTALLY passive..

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Victor Vella
Flipper/Rehabber · Cleveland, OH · Member since 2014 · 173 posts · 121 votes
6y
@Jay Hinrichs

we’re on the same page Jay - I was arguing coastal towns have apprectiating values like sports teams - not the Midwest.

Additionally in sports and real estate( that keeps going up and up) Credit based on the assets potential value is deployed to cover often what is a negative carry.

Sounds like that was a hell of an investment!!! Honestly I would have struggled not selling the property before it reached that max value. Great zen like patience!

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Bob E.
Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
6y
For those who are interested here is a Milwaukee Market Update A little surprising.
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Bob E.

Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes

I keep hearing the appreciation argument. Here is key .02c.

If you buy a house in San Francisco and have net $0 cashflow for 10 years or Milwaukee and have net $0 appreciation over 10 years what one is better?

Say in San Francisco you find a cheap house for $1,000,000 and 10 years latter it is worth $2,000,000 you doubled you money, no cash flow, but you doubled your money, what would something in the boooooring Midwest look like?

Lets say you go to Milwaukee and buy 12x $80,000 houses that rent for $1,000 a month solid workforce housing, not ghetto (realistic numbers for sure). Now apply the 50% rule and you have $6,000 a month in cash-flow. Now say just like San Francisco you don't take money out of the business. Do this for 10 years and you get the table below. Note I hid the boring accumulation months but you can see that the interval between purchases gets much faster at the end where you are growing your monthly cashflow $500 every 7 months.

Summary: In Milwaukee after 10 years you have 12k a month in Cashflow. The San Francisco person has a $2,000,000 house that they can now sell to buy property in Milwaukee so they have enough cashflow to retire.

Month	Properties	Rent	50% Rule	Starting Cash for Month	Properties to Buy (80K Ea)	Avil to Invest	Ending Cash
1	12	$ 12,000.00	$ 6,000.00	$ -	0	$ 6,000.00	$ 6,000.00
15	13	$ 13,000.00	$ 6,500.00	$ -	0	$ 10,500.00	$ 10,500.00
27	14	$ 14,000.00	$ 7,000.00	$ -	0	$ 9,000.00	$ 9,000.00
39	15	$ 15,000.00	$ 7,500.00	$ -	0	$ 13,500.00	$ 13,500.00
49	16	$ 16,000.00	$ 8,000.00	$ -	0	$ 9,000.00	$ 9,000.00
59	17	$ 17,000.00	$ 8,500.00	$ -	0	$ 9,500.00	$ 9,500.00
69	18	$ 18,000.00	$ 9,000.00	$ -	0	$ 15,000.00	$ 15,000.00
78	19	$ 19,000.00	$ 9,500.00	$ -	0	$ 16,500.00	$ 16,500.00
86	20	$ 20,000.00	$ 10,000.00	$ -	0	$ 13,000.00	$ 13,000.00
94	21	$ 21,000.00	$ 10,500.00	$ -	0	$ 13,500.00	$ 13,500.00
102	22	$ 22,000.00	$ 11,000.00	$ -	0	$ 18,000.00	$ 18,000.00
109	23	$ 23,000.00	$ 11,500.00	$ -	0	$ 15,500.00	$ 15,500.00
116	24	$ 24,000.00	$ 12,000.00	$ -	0	$ 16,500.00	$ 16,500.00

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