Newbie California investor looking to B&H out of state (Milwaukee?)

[Nick Wiswell]

Hi everyone,

I'm a mid-twenties engineer out of the SF Bay Area.

I've been lurking the site for a few months as I've mulled the "Real Estate Option" - we're getting to that phase of the boom-bust cycle that I'm just not super comfortable with my money in stocks anymore, but I'm not big on the idea of letting it sit idle, either.

Fortunately, mortgage interest rates are at historic lows! With the Fed rate hike coming any time now, I'm motivated to execute on a buy-and-hold property deal in the next few months and get some of that cheap leverage. I've got about $50k-$60k unencumbered cash to invest, so my target quadplex price would be around $200k at 25% down. I'm looking primarily to maximize cash-on-cash return - not super interested in equity appreciation, since I'm not really planning to sell.

It didn't take long to determine California wasn't the right place to buy. What I did find out is that quadplexes look really great for cashflow. 

It also makes sense from a financing perspective - my credit score is 760+ right now, but the average length of credit history will come down really fast if I get a few SFR mortgages.

Being an engineer, my instinct was to go straight for the data. I got a bunch of Census statistics and the January Zillow Price/Rent ratio for every ZIP code in the country. I threw this all in an Excel file, then filtered it to exclude ZIP codes with vacancy rates above 5%, fewer than 100 quads, median rent less than $800, median household income less than $50,000 (I am looking to avoid Class C-D), and fewer than 5,000 households in the area.

Then I sorted by the price-to-rent, and got this for the Top 10:

Naples, FL 34105

Town of Horseheads, NY 14845

Plantation Island, FL 34109

Pittsburgh, PA 15211

Homewood, IL 60430

Chili, NY 14624

Penn Hills, PA 15234

Pennsville Township, NJ 08070

Milwaukee, WI 53222

Saint Clair Shores, MI 48082

The rules prohibit me from linking the Google Doc, but if you are interested in it I am more than happy to share - just ask! You can even download a copy and set your own filter parameters.

The first 8 I didn't like for a variety of reasons (Naples has a snowbird problem and is going to be underwater any year now, Horseheads is small and I'm looking for good property managers, Pittsburgh has been struggling macroeconomically...)

I did like the look of Milwaukee.

I listened to BiggerPockets Podcast #73 with Mehran Kamari, another California investor who partnered with Dawn Anastasi to be his "boots on the ground" and help make his first out-of-state purchase in Milwaukee. I'm hoping to do something similar. 

If you think you'd be a good match, drop me a line.

I've also got a few questions:

1) Since this is obviously a lot more work than stock market investing (and a lot less liquid, too), I'm looking for 15-20% cash-on-cash return, given a 4.25% interest rate. The 50% rule suggests it should be possible, but I'm not sure if that takes into account property management fees.

Am I crazy?

2) Should I be contacting a real estate agent at this point? If I partner with someone here, do I even need one?

3) Will I need to take more than one plane trip? I expect to need at least one, but the fewer the better, since I've got a regular 9-5.

4) Any ideas better than Milwaukee?

Thanks for reading.