Investing in two locations simultaneously: Innovative strategy or War on two fronts?

Question

Hello Everybody!

I've made a couple of posts over on the "Starting out" thread but I'm here looking for some input on a potential strategy that I've recently started working on. I'm new to RE investing and it's been a wild ride with a lot of learning and new contacts in my phone and email. So I'm yet to develop confidence in discerning between a hair-brained idea and a good strategy. What I'm seeking here is guidance from the greater experience of the BP community. Thank you in advance for any help you can offer!

So, here's what I'm thinking. I have two areas in which I'm looking to invest: Kansas City, MO and Boulder, CO. The latter is my own backyard and the former is out-of-state but just close enough to make a road trip to if necessary. I've been in contact with people in both locations around the potential for each city.

Boulder has low and declining cap rates, but appreciation has been quite admirable and there is a lot of potential for value-add in small multifamily in the area. Now, KC on the other hand has a cap rate that's about 1.0~1.2% higher and it has been rising in recent history. However, appreciation is lower and prices are roughly one-twentieth of what I'm seeing in Boulder.

With these considerations, I'm considering a double-headed approach. I'm currently actively looking for multifamily properties in both cities. The approach with Boulder is to find a distressed small multifamily (3-4 units) complex that I can rehab and house-hack. Major benefits here are that I can decrease my living expenses and take advantage of the disproportionate appreciation. Simultaneously, I'm looking to get into a larger multifamily (between 6-12ish units) in Kansas City, MO to build up equity faster and get some cash flow as a bonus. After a couple of years, I will move out of the Boulder property, refinance it, and use the additional funding to acquire more property.

Let me know what you guys think. Is this too much too soon? Ambitious but doable? Or a good idea? Any and all feedback/input is welcome!

Thanks in advance!

Hunter

Steve K. · Answer

The value-add plan in Boulder is a good one, I can tell you that! I can’t speak to the KC market but I have a friend from there who lives here now and is crushing it in both places. Multifamily buildings don’t change hands often here, so your challenge will be finding one. Happy to help if you want to connect.

Hunter Kahn · Answer

@Lee Ripma it seems like you were predestined to answer this question! Thanks so much for the input and you can bet I’ll be listening to your episode ASAP!

Kory Reynolds · Answer

Based on observation of a number of clients - build some meaningful experience in your own backyard, and then consider looking elsewhere.  Going two directions at once can be done, and I'm sure there are plenty who have succeeded at it, but it is going to be substantially more difficult.

I have a number of clients that started off investing in cheap markets far from their own geographic area, and in the great majority of cases those initial investments were mediocre at best. Going in the other direction - investing locally first can give you a chance to build your experience on all the problems and successes without it being a plane ride away, and then eventually bring that knowledge to other markets if it makes sense.

It is important to know the market you are investing in really well, the neighborhoods, the trends, the pros and cons of different locations, which property managers are great, which ones to avoid, the restrictions or problems you'll come up with the local municipality on a rehab - when you are getting started it is much easier to do that in your home market.

Lee Ripma · Answer

@Hunter Kahn

Love that you’re going for it! See my podcast episode 373 where I lived in a high priced CA market and invested in KC then started investing locally in LA. I think you can make either the Boulder or KC market work but I think you should pick one and master it first. You could look in both places but once you commit to your first deal in either location finish it before doing your second deal. You’ll make a lot of mistakes on your first deal that you can apply to 2nd, 3rd, etc.

My two cents and keep us posted on what you decide to do!

Travis Biziorek · Answer

Hey Hunter, I'd personally pick one market to focus on.

The reason is simple... compounding benefits. When you stretch yourself across multiple markets your limiting the compounding value of knowledge and networking.

So which to choose? The one that best fits your goals. Most people will tell you to stay in your back yard. I agree... as long as doing so aligns with your goals.

If you want to build cash flow but there's no cash flowing opportunities in your are, then go elsewhere.

Hope that helps!

Liam Naughton · Answer

Hey Hunter,

My two cents is to stick with what's in your backyard before venturing out to concur additional territories.

While you might be able to get more units in Kansas, those units come with additional costs that become multiplicative (X water heaters, Y ranges/fridges). Not to mention the drag on your time to deal with tenants will be more.

In my experience, it's easier to lose money the further you are geographically from a property. Conversely, it's easier to save money on a property you live in or can frequently visit.

My vote is, start in CO then MO once you can refi and pull some cash out. Stabilize the cornerstone/foundation of your portfolio then move to expand.

Investing in two locations simultaneously: Innovative strategy or War on two fronts?

Most Popular Reply