Rental cash flow in a sideways market

[Pat Clancy]

Hi all,

First off, I'm a new member. Looking forward to learning more and sharing some of my insights.

I currently have one investment property, condo, generating $1,700/month with a mortgage/HOA around $1,000. It's been great, but I want to pick up a multifam next and keep growing my portfolio. I'm currently looking in several areas and one of the areas that has caught my eye is Auburn, Maine. I haven't visited yet but plan to do so. They have lots of multis for under $200K and I even spotted a few for under $100K that are close to turn key. One of them was a 6 unit for $180K... so I'm thinking, OK, even with low rents, that could generate some solid monthly profit. That one was delisted though.

What I'm perplexed with is why no one is capitalizing off this? Or maybe they are?

According to Neighborhood Scout, vacancy in Auburn is 8.9%. The average rent for a 2 bedroom is around $700, conservatively. Population is pretty stagnant at around 23,000 and it's been that way for around 20 years. Bates College is nearby, but it's very small and most people live on campus. I don't live in the area, but there are several property management companies that seem reputable. With 25% down, mortgage on $180K would be less than $1,000. Fully rented this thing would bring in at least $4K in rents. Even with one or two vacant, $2.8K should be easily doable and the monthly cash flow would still be there. Should I go for it? Or would you avoid Auburn, Maine.

TLDR: Auburn, ME looks legit for cash flowing rentals, but is it too good to be true?

Pat

[James C.]

Pat,

Lewiston / Auburn (LA locally) can be a tough market. It varies quite a bit from house to house, and employment can be a challenge.  The population has been declining, and like the rest of New England the drug epidemic is present. It has been a refugee resettlement area in the past, but I don't know about that currently. 

Maine, in general, outside of Portland can be a challenge Real Estate wise, mostly due to employment,  or lack of it. With the major paper mills shutting down across the state, is added to the economic slump.

There are some great properties in LA, but they are all cashflow and little to no appreciation. That cashflow is really dependent on the economics with limited employers. Watch your numbers like a hawk. I would increase vacancy and Capex to 12 to 15% and plan on losing 20% to 30% of asset value. I'd also stress test with a similar (or more) drop in cashflow.

Pundits have said for years that LA is done, finished, down and out. It's pretty resilient, and hangs on, but it's up and down.

I know it looks great from Boston,  (it's only 2.5 to 3 hours north) but it might as well be on another planet in every way. 

For the record I'm not anti LA. I My first NPN deal was in LA, so I'm familiar with the area. I actually like the cities and find them super interesting, enjoyable and fun. They are their own, unique and fascinating place. That alone demands investor attention to the details.

Good luck!

Jim