Which markets still cash flow positive?

Question

Hi BP world! I am looking to purchase my first residential multi-unit investment property, would prefer a tri-plex or 4-plex, but would be open to more units. I am located in the San Francisco Bay Area, and there is literally (close to) nothing that will cash flow positive right off the bat. I'd like to start investing, but I don't want to play the market timing game and potentially wait years until we see a dip in prices locally.

I have considered Fresno, Sacramento, and Phoenix because I am familiar with all of those areas. Any thoughts on those? What other markets should I be considering? Thanks in advance!

Joel Osarhiemen · Answer

Phoenix is a great market and will probably start you off with better cash flow off the bat, compared to the others.

Ryan Landis · Answer

@Dan P. just pay in cash, it will cash flow right off the bat ;)

Start thinking about markets. Consider if you want to be in CA or not. If you are going outside of a 2 hour drive, you pretty much can go anywhere else in the country and it will be the same (although your accountant might have some advise in regard to taxes). As you stray from what you truly know, just know different states have different things that will help/hurt. For example, TX doesn't have a state income tax, but they have higher property taxes than CA. So a CA investor pays the higher property taxes and then pays state income taxes on their personal return - wahoo!

Jeff Zimmerman · Answer

Hey Dan, congrats on starting your journey into RE investing.  I've had good luck in Fresno personally.  6-8 caps aren't hard to find here, but like anything else there are a lot of 6-8 caps you may not want, so you will still have to go through 20-30 deals before you find the right one, but that's all good.  In Fresno i'd stick to downtown or tower district, they tend to have the best rental markets for the area as far as caps and quality of tenants.  Most of the people that want to live in those areas are also life long renters so your turnover is less.  There are a few places on the market right now that I think are pretty great.  If you want to talk further about fresno, area's, etc... just let me know.  You can message me anytime.

Jon Passow · Answer

This is something that intrigues me. Both Akron and Toledo, Ohio have consistently declining populations yet the home sales and prices are increasing.

Jon Huber · Answer

Again... my city keywords have exploded in the form of email notifications.

Terry Lao · Answer

@Dan P.

Try any of the Top Ten on Realtor.com 2018 Forecast top 100 cities for sales and appreciation growth. Or see where your target city ranks.

Terry

Top 100 Largest U.S. Metros Ranked by Forecasted 2018 Sales and Price Growth

Rank

Metro

2018 Sales Growth

2018 Price Growth

1

Las Vegas-Henderson-Paradise, Nev.

4.90

6.90

2

Dallas-Fort Worth-Arlington, Texas

6.02

5.57

3

Deltona-Daytona Beach-Ormond Beach, Fla.

5.47

6.00

4

Stockton-Lodi, Calif.

4.55

6.43

5

Lakeland-Winter Haven, Fla.

3.00

7.00

6

Salt Lake City, Utah

4.62

4.50

7

Charlotte-Concord-Gastonia, N.C.-S.C.

5.98

3.02

8

Colorado Springs, Colo

3.12

5.65

9

Nashville-Davidson–Murfreesboro–Franklin, Tenn.

1.00

7.67

10

Tulsa, Okla.

7.54

1.02

11

Seattle-Tacoma-Bellevue, Wash.

2.34

6.21

12

Spokane-Spokane Valley, Wash.

3.50

4.97

13

Austin-Round Rock, Texas

4.04

4.42

14

Miami-Fort Lauderdale-West Palm Beach, Fla.

3.10

5.28

15

Little Rock-North Little Rock-Conway, Ark.

7.00

1.37

16

Denver-Aurora-Lakewood, Colo.

1.75

6.54

17

Orlando-Kissimmee-Sanford, Fla.

1.24

6.88

18

Toledo, Ohio

5.16

2.95

19

Columbia, S.C.

5.07

3.00

20

Palm Bay-Melbourne-Titusville, Fla.

1.00

7.00

21

Jacksonville, Fla.

4.73

3.20

22

Durham-Chapel Hill, N.C.

5.18

2.62

23

Providence-Warwick, R.I.-Mass.

3.72

3.97

24

Akron, Ohio

5.89

1.70

25

North Port-Sarasota-Bradenton, Fla.

3.00

4.50

26

Chattanooga, Tenn.-Ga.

3.50

4.00

27

Worcester, Mass.-Conn.

3.77

3.68

28

Raleigh, N.C.

1.63

5.77

29

Tampa-St. Petersburg-Clearwater, Fla.

1.38

6.00

30

Grand Rapids-Wyoming, Mich.

2.96

4.25

31

Boise City, Idaho

2.00

5.00

32

San Jose-Sunnyvale-Santa Clara, Calif.

2.50

4.37

33

Greenville-Anderson-Mauldin, S.C.

2.80

4.00

34

Madison, Wis.

1.72

5.05

35

Albuquerque, N.M.

2.92

3.71

36

Houston-The Woodlands-Sugar Land, Texas

2.24

4.19

37

Winston-Salem, N.C.

3.00

3.21

38

Riverside-San Bernardino-Ontario, Calif.

0.52

5.66

39

Buffalo-Cheektowaga-Niagara Falls, N.Y.

1.27

4.89

40

Fresno, Calif.

1.29

4.81

41

San Francisco-Oakland-Hayward, Calif.

0.94

5.14

42

Detroit-Warren-Dearborn, Mich.

1.17

4.77

43

Phoenix-Mesa-Scottsdale, Ariz.

3.66

2.26

44

Oxnard-Thousand Oaks-Ventura, Calif.

2.29

3.62

45

Augusta-Richmond County, Ga.-S.C.

2.50

3.34

46

Tucson, Ariz.

3.00

2.71

47

San Diego-Carlsbad, Calif.

2.51

3.19

48

Youngstown-Warren-Boardman, Ohio-Pa.

3.01

2.50

49

Harrisburg-Carlisle, Pa.

2.50

3.00

50

Cleveland-Elyria, Ohio

3.00

2.48

51

Birmingham-Hoover, Ala.

3.00

2.42

52

McAllen-Edinburg-Mission, Texas

2.38

3.00

53

Charleston-North Charleston, S.C.

3.64

1.69

54

New York-Newark-Jersey City, N.Y.-N.J.-Pa.

1.16

4.15

55

Jackson, Miss.

0.00

5.30

56

Virginia Beach-Norfolk-Newport News, Va.-N.C.

1.40

3.82

57

Boston-Cambridge-Newton, Mass.-N.H.

2.55

2.64

58

Pittsburgh, Pa.

3.53

1.62

59

Oklahoma City, Okla.

1.49

3.51

60

Portland-South Portland, Maine

5.00

0.00

61

Cape Coral-Fort Myers, Fla

1.00

3.99

62

El Paso, Texas

2.69

2.24

63

Minneapolis-St. Paul-Bloomington, Minn.-Wis.

0.00

4.93

64

Knoxville, Tenn.

2.00

2.92

65

Allentown-Bethlehem-Easton, Pa.-N.J.

4.12

0.57

66

Bakersfield, Calif.

1.00

3.61

67

Urban Honolulu, Hawaii

1.43

3.11

68

Des Moines-West Des Moines, Iowa

3.20

1.19

69

Greensboro-High Point, N.C.

1.34

2.97

70

Springfield, Mass.

1.24

3.00

71

New Orleans-Metairie, La.

2.00

2.24

72

Cincinnati, Ohio-Ky.-Ind.

1.47

2.32

73

Wichita, Ks.

2.23

1.49

74

Richmond, Va.

2.68

1.02

75

Columbus, Ohio

0.05

3.58

76

Sacramento–Roseville–Arden-Arcade, Calif.

1.00

2.61

77

Rochester, N.Y.

1.56

2.02

78

Hartford-West Hartford-East Hartford, Conn.

4.46

-1.05

79

Albany-Schenectady-Troy, N.Y.

0.75

2.55

80

Dayton, Ohio

3.01

0.19

81

Memphis, Tenn.-Miss.-Ark.

1.37

1.82

82

Scranton–Wilkes-Barre–Hazleton, Pa.

1.18

1.81

83

Philadelphia-Camden-Wilmington, Pa.-N.J.-Del.-Md.

3.78

-1.04

84

Chicago-Naperville-Elgin, Ill.-Ind.-Wis.

0.00

2.57

85

Syracuse, N.Y.

0.00

2.57

86

Milwaukee-Waukesha-West Allis, Wis.

0.00

2.48

87

Baltimore-Columbia-Towson, Md.

0.48

1.82

88

New Haven-Milford, Conn.

2.96

-0.67

89

Washington-Arlington-Alexandria, D.C.-Va.-Md-W.V.

0.00

2.25

90

Omaha-Council Bluffs, Neb.-Iowa

0.00

2.18

91

Louisville/Jefferson County, Ky.-Ind.

-2.74

4.92

92

San Antonio-New Braunfels, Texas

0.37

1.52

93

Portland-Vancouver-Hillsboro, Ore.-Wash.

-3.48

4.98

94

Baton Rouge, La.

0.00

1.50

95

Atlanta-Sandy Springs-Roswell, Ga.

-1.88

2.99

96

Los Angeles-Long Beach-Anaheim, Calif.

-2.10

3.09

97

Indianapolis-Carmel-Anderson, Ind.

3.49

-2.53

98

Kansas City, Mo-Kan.

0.00

-0.12

99

St. Louis, Mo.-Ill.

0.00

-2.83

100

Bridgeport-Stamford-Norwalk, Conn.

-0.35

-2.87

Realtor.com’s model-based forecast uses data on the housing market and overall economy to estimate values for these variables for the year ahead. The forecast result is a projection for annual total sales increase (total 2018 existing-home sales vs. 2017) and annual median price increase (2018 median existing-home sales price vs. 2017).

Jon Passow · Answer

Prefect. Thanks for the clarification, Ryan!

Ryan Landis · Answer

@Jon Passow a lot of it would technically come down to the tax return (i.e. if you were losing money on paper you might not have a taxable amount in either state). In terms of the price/returns they should be the same, just that one investor is investing in a state that does not have a state income tax and then lives in that same state so does not need to pay a state income tax on the rental income while the CA one lives in a state that does have a state income tax :)

I don't think that ultimately would drive a decision, but it is something to think about. A lot of people are familiar with how their system works. When you got into a different state (even cities sometimes - i.e. Oakland has quite a heft city transfer tax for example compared to other states in CA) you really just need to know how those changes may or may not influence your investment.

Jon Passow · Answer

Good information to think about! Just so that I'm clear on what you are saying. Basically, as a CA investor buying in TX, you will pay more money than if you were a TX investor buying in TX? Did I get that right?

Which markets still cash flow positive?

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