Where to invest?

Question

Hello everyone,

I'm new to real estate investing, but thanks to my logistics business, I have a substantial amount of capital to start with. I'm currently looking for a multifamily property, ideally with 10+ units and a cap rate of 7% or higher. However, finding this in Florida has been quite challenging. As a beginner, I'm hesitant to invest out of state, especially since I don’t have anyone to assist with tenant issues when they come up. I also prefer not to use a management company, as I don't want them cutting into my profits.

My long-term goal is to generate enough income to live comfortably and eventually build a real estate empire. I'd appreciate any advice on whether I should stick close to home in Florida or consider expanding to out-of-state markets.

Thanks in advance for your insights!

Todd Anderson · Answer

Rafael,

Unless you are looking on buying a full time job, Why would you buy a 10 unit with out having it managed.  I did this for myself but it was my full time job, and even then the Olly time that I was really able to scale was when I was using other professionals.

You say that you are doing well in your logistics business.  Keep working on that.  Let someone who has already learned the Real Estate business work in that.   Most of the investors that have been able to scale have their entire team.  Let the pros do their jobs, whether that be Agent, Property Manager, lender or Acquisitions.

You have to keep your long term goals in mind and not just look at the little money that pro's charge.  I have found for me a landlord friendly sate like Florida is hard to beat.  I moved investments down from the midwest where management was getting challenging.  I also believe that the appreciation on a long term is better in an area that people are moving to.

Best of luck and please connect if you need more help.

Melissa Justice · Answer

@Rafael Ramos

Welcome to the wild world of REI! It's a trip for sure :-)

There are many REI opportunities in different markets - markets in the Midwest and Southeast of the country are great - where not only are the purchase prices reasonable for most RE investors, but the homes are turnkey (new builds or completely rehabbed homes, tenant ready, systems 10 years of life remaining on them, property management teams in place) with appreciating home value AND appreciating rent. The amount of cash flow on a home will of course be contingent on the down payment. Putting less down may subsequently put you in a break-even scenario or possibly even a negative cash flow. However, some investors don't mind this strategy if they prefer not to put a lot of liquid in up front and plan to refi out within a few years of closing (which seems to be a great option with the talks of the FED reducing interest rates into 2025).

It really comes down to investing in a growing market, in a good neighborhood & building a great team to support you. It can be a lot of time and work if doing it on your own. It's helpful to work with a reputable team. That is what our team at Rent to Retirement has been helping investors to do for a decade now with BP. I'm happy to answer any questions you have about analyzing markets or getting started. Most importantly, choose a market that aligns with your goals!

Wishing you the best of success!

Melissa

Michael Smythe · Answer

@Rafael Ramos

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

If you buy/renovate a Class A property in Class D area, what quality of tenant will you get?

Similarly, if you put all Class D tenants in a Class A 4-plex, what do you think will happen?

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

The City of Detroit has 183 Neighborhoods we’ve analyzed.

PM us if you’d like to discuss this logical approach in greater detail!

Bob Stevens · Answer

I have been working OOS for 10 years. I know many from around the world as well that do the same.10% NET or better is to be had in the Cleveland markets. We are closing on two more duplex's and 3 SF this month. All with 15- 20% net income, based on cash purchase. Walking a 6 unit today, NET rent about 30k and going higher. This too will have about 15% NET income.  BTW I live in FL. Its crashing down here and getting worse.

All the best

Jimmy Lieu · Answer

Hi Rafael, check out the Columbus OH market. Columbus is a rapidly growing city with a strong rental market. To be successful with OOS investments, you will need a good PM. Consider it a small investment for a bigger payoff. Happy to connect and answer any questions you may have.

Wale Lawal · Answer

@Rafael Ramos

Starting a multifamily property investment in Florida can be rewarding, with both in-state and out-of-state approaches offering pros and cons. In-state markets offer cost-effective management but can be challenging to find properties with 10+ units. Out-of-state markets offer higher cap rates, affordable prices, and diversification. Expanding your search includes smaller cities, value-add opportunities, hiring part-time assistants, and building a network of professionals. Focus on cash flow, learning, and stability for long-term success.

Good luck!

Isaura Orellana · Answer

Hello Rafael, I strongly recommend looking into the Detroit, MI market. Detroit has been a straight shot up since the crash. So much growth going on everywhere there. Detroit has officially turned the corner. Rental market is better than ever with appreciation and cash flow more lucrative than its been in years with much less risk for investors. Even the banks and lenders are happy to do buisiness all over Detroit as of late. Always a wise move to look for a turnkey provider offering properties at the 1% and up rule with in-house property management as well. Also, for Detroit I highly recommend tenanting section 8. Government guaranteed rent is definitely the way to go. Happy to connect and answer any and all questions you might have. Happy Hunting!

Min Zhang · Answer

Hey Rafael, I like starting in the Midwest because it's affordable and offers good cash flow. Good luck on your journey and feel free to reach out if you ever need any guidance or advice

Nathan Gesner · Answer

The vast majority of investors with real estate "empires" use property managers. Self-managing a large number of rentals becomes a full-time job. If you want to scale, particularly if you want to do so quickly, then I recommend you learn how to find a quality PM.

Chris Seveney · Answer

are you looking for cash flow or appreciation? at a  7-cap that is most likely cash flow.

What is considered substantial amount of money? Each of the 50 states can provide both, it is not where to invest, but where are you comfortable investing. Hearing peoples opinions on BP on where to invest is like asking someone their favorite football team.

Regarding the other comment, I would strongly recommend using a PM, while on paper they "cut into profits", I believe they save you money (and time) in the long run if you have a good one.

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