Looking for a new market to move to.....any suggestions?

Question

Hello BP,

I am considering moving to a solid emerging market to fully immerse in the opportunity. Any suggestions?

Best Regards,

Kody

Lennon Lee · Answer

Account Closed I am specifically looking at the three Florida cities I mentioned. That being said, the other picks on my list are markets that I strongly believe will perform great this coming year.

Sacramento rents are projected to increase way over 6% this year and vacancy rate is projected to be near the 2% mark (driven by minimal deliveries and sustained demand) according to Freddie Mac. Job growth will also continue to be strong at 2.9%.

Also IRR's (Integra Realty Resources) analysis now puts Sacramento among the markets in the early stages of Expansion which tells us that there might be room for it to grow substantially before hitting the Oversupply phase.

All ingredients for successful real estate investment ;)

I hope it helps.

Best,

Lennon

Brandon Willingham · Answer

Kody,

I am looking for identical repositioning opportunities as well. We have some of that type of development here in Portland. The issue that I see is that cap rates are already compressed for those buildings that making the numbers work is hard. We have some new development, and those Class A areas top-notch for with all the latest tech. One of my friends pays less then $30/month in utilities due to green construction. But they will also be the first to scale back rents and have vacancy in during a pull back. I am finding the repositioning in my market really works for B/C class. I like your strategy, as I have the same one, and would like to find an older metro building and reposition it.

Now that we have a shared strategy, hopefully someone will post most concise locations. Here is what I am looking at:

States without rent control due to repositioning strategy. Areas that the short hold reposition makes sense.

Dallas, Indy, San Antonio, Raleigh, Charlotte, Fort Worth, (Iffy: Portland, Seattle, LA).

I like the reposition strategy because as long as you have the market research done, it is not a long term appreciation play. Where as I would have a larger long-term commitment in area. This means I can look for opportunities almost anywhere.

Brandon Willingham · Answer

Do you have a business plan in place? Do you know your target tenant profile (age, salary range, consumer taste)? For example, millennial's might prefer a mixed-use development in a city whose IT/Finance sector is emerging vs a tenant profile of baby boomers in a retirement sunbelt area. Identifying these will also help determine what class profile you want. Do you know what class of property your looking for? What will be your hold time? Different class properties perform different through market cycles. What is the market cycle criteria for your investment? Remember, the same city can have different market cycles based on neighborhoods. If your looking at a sellers market and your hold time is long, I would say be prepared for a depressed market. If your buying in a buyers market, your hold time will be different.

What are your requirements before you invest in a market? What industries/tenant profiles do you want to invest in? Whether you like blue-collar or white collar professionals, there is opportunity and risk in both, just identify your preference and see if the market supports it. What is the market looking to do in order to bring jobs, population growth and incentives to businesses and developers in the area? Look at the city's master plan. Is the city/county/state tenant or landlord friendly? What laws are in place in the area?

Example is Portland. New laws make it hard to reposition the asset, think fix and flip multifamily. This is because it no longer makes sense to have a large capital outlay for deferred maintaince upon acquisition and fix it up, if you can only increase rents 10%. After 10% you have to pay your tenants moving expenses. Portland is passing new rent control (we will see what happens), so in my humble opinion, even though cap rates are low, it is still a good buy and hold opportunity for rent growth over the long term. Look at every other place that has experienced rent control and limited development boundaries. Also, know if where you want to invest is development friendly or has boundaries for growth. Therefore, one strategy might work, while another might not work in the same market.

Are you looking for higher cap rate value-add or more stable lower cap rate opportunity? Are you looking for forced appreciation through repositioning or stable cash flow (we all want both, but which one is the priority)? What are your return metric criteria (IRR, Cap Rate, Cash on Cash)? Do you use a pro forma or any financial modeling? Are you looking to have professional 3rd party management? How many units are you looking at?

As an investor I am sure you already know all of that. But these are all questions that need to be addressed when looking for markets. My biggest piece of advice is to identify your tenant profile, find the market for it, and determine that market's cycle. You can also backwards engineer that, by looking at what is working in a market, and adjust your target tenant profile to match.

Kim Meredith Hampton · Answer

@Kody Broussard I am a Florida gal!!!! Can't go wrong with investing in the sunshine  state

Sam Levin · Answer

Provo UT is basically Disneyland for rental property investing. There's no vacancy and the renter's are all very reliable people.

Lennon Lee · Answer

Kody,

Some of my picks for 2017:

- Orlando, FL

- Tampa, FL

- Jacksonville, FL

- Provo, UT

- San Antonio, TX

- Sacramento, CA

- Las Vegas, NV

- Waco, TX

Ultimately, just like everything in real estate investing, it will depend on what you are looking for and what your goals are.

Kody Broussard · Answer

@Kerry Broussard

Kody Broussard · Answer

Hello BP,

As expected the BP community stepped up and gave me some great ideas to ponder upon.

@Brandon Willingham - Great points and questions that I need be sure of before tackling a new market.  My big picture goal is to do big repositions of older historical buildings into Class A apartments in the stable metros and outfit them with latest and greatest tech for the millennial generation. However, right now I am looking for 50+ units, value add play, growing economy, forward thinking government, and favorable landord laws. Plan: buy, reposition, force appreciation, and then trade up. When market is on the up, get out, and move on to the next one.  I need minimum 8% cap rate, 20% average annual returns over the life of the hold.

Best Regards,Kody

Looking for a new market to move to.....any suggestions?

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