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Updated over 6 years ago, 07/04/2018
Investing in Portland Metro Area Rentals
Attention Portland, OR investors; If you were investing in a rental property in the Portland metro area, what area of town or outskirts would you invest in if you had a 150K-300k range?
I'm 28 years old and purchased my first home 3 years ago in a good SW Portland area, rehabbed & rented it, and now have a home producing $500/month cash flow with 150K in equity in it.
I just purchased a residential home near downtown PDX by OHSU on Marquam Hill that I plan to rent out in a year. While it is in a great area, I don't think I will have positive cash flow on it. I'm thinking I may have made a mistake on this decision... I'm hoping that since I have a long term buy n hold strategy that it will work out.
While I would love to purchase more rental properties in SW Portland, I'm thinking I should look to invest outside of Portland since it seems rather hard to find cash flowing properties now.
Any advice or experience you would like to share would be appreciated. Thanks
Hey Cameron!
I would look into SE from the 100 block to the 130s or so. Also, Milwaukie seems to have some deals as well. Try following the public transportation extensions and the big name retailers. In theory, you would be piggy backing off of their research, and they have the $$$ for research.
I have had good luck in Beaverton, but those deals are few and far between now. SE has been good to me, and I am still looking there, although the traffic from Beaverton is a time killer.
Hi @Cameron Rouse here's a long reply for you. I apologize in advance...
It sounds like you're living in Marquam Hill for a year? That's a great pocket. Kind of isolated, but tree house cool. What's your PITI? Negative cash flow is a no no, but that definitely is a location to hold on to if you can. Maybe some kind of creative rental strategy could help make holding it more bearable in the short term. Any chance it is a historic home eligible for special assessment?
My thoughts on SW Portland
There is one big reason why SW Portland is one of the toughest markets for rental property acquisitions that make sense. That's Property taxes. Properties in SW Portland typically have higher property taxes because the west side had higher valuations during the 1990's property tax measures.
I missed out on a John's Landing duplex last year simply because property taxes were $6,000 (my inner east side 4plexes are less than $5,000). I could've offered another $200 per month in principal and interest payments, if the property taxes were in the $4,000 range like they should be. I knew that. The seller knew that, but that was the difference between me buying her duplex and it going to the open market where we both knew it would sell for more.
I love inner SW Portland, especially Lair Hill, but the property taxes make SW Portland almost unbearable. For this reason I focus mostly on the inner east side. I market to the west side,but I don't really get excited about it.
Getting on to your post though...
Where to invest?
I have to answer your question with a question. Where would you like to invest that is not SW Portland (for the reasons I just stated)? What is it that you want to accomplish? Why do you want to accomplish that? and How are you going to accomplish it?
In my opinion, It's a lot easier to work in a market you love. There are a lot of areas that have better price to rent ratios that Portland, but those areas doesn't get me excited so I don't consider them. Inner Portland gets me very excited so I focus in those areas. Go invest where you will easily stay motivated to do what is necessary to keep momentum flowing. You matter, the market doesn't.
150K is plenty
I wish I had the knowledge at 28 that I do at 37. I was looking at real estate through the same conventional bank financing mumbo jumbo that most people do, rather than focusing on product (inventory), money (private lenders and sellers) and clients (renters, assigns, retail buyers). Conventional real estate methods keep you from honing in on the fundamentals of real estate. Getting face to face with sellers, getting face to face with lenders (brokers don't count), getting face to face with tenants, bureaucrats, title reps, planners, etc.. is what matters. So many people think real estate investing consists of realtors, banks, inspectors and escrow. There is so much more to it than that.
You have plenty of $ to invest in the market you want to invest in and do really well. If you really want to kick *** in real estate, learn how to be a professional at acquisition. Learn values, market rents, NOI, financing and the players in your market place. Talk to owners with investment grade real estate. Everything else falls into place from there.
You're 28 years old so you can really do what you want to do. Take it slow and buy a property "here or there" if you want to or become a mogul. It's all up to you.
@mike ness thanks for the detailed response. My PITI is $1750 including $110 for PMI on a 2bed 1 bath. I plan on updating the house myself throughout the next year. I didn't specifically buy the home as a rental investment property but would like to convert it to one if I could make it profitable, whether that be in 1 year or 5 years from now.
My goal is to slowly build a passive income stream through investing in long term buy and hold SFR's and small MFR's. I plan on spending the next year educating myself on the industry as well as our local market, putting together a specific investing strategy, and then start making moves. Like yourself, I much more interested in investing in inner Portland versus the outskirts of town.
I agree when Mike Nuss said:
"There is one big reason why SW Portland is one of the toughest markets for rental property acquisitions that make sense. That's Property taxes. Properties in SW Portland typically have higher property taxes because the west side had higher valuations during the 1990's property tax measures."
If your Piti is that high realative to potential rent revenue then I think you are making a decision based on emotional attachment to the house not an investment decision. given your stated goal of passive cash flow I think you have much better options then trying to turn a house into a renter when you never purchased it with that intention
backwards justifying accidental landlording seems like a pretty common theme around here so your in good company
If your Piti is that high realative to potential rent revenue then I think you are making a decision based on emotional attachment to the house not an investment decision. given your stated goal of passive cash flow I think you have much better options than trying to turn a house into a renter when you never purchased it with that intention
backwards justifying accidental landlording seems like a pretty common theme around here so you are in good company
Have you considered outside of Portland? Anywhere on the westside, Beaverton, Aloha, Hillsboro, Tigard, etc? Or SE, Oregon City, Happy Valley, Milwaukie, etc.? Maybe even across the border in Vancouver up to Longview? I feel like you would have better luck staying outside of the PDX city limits unless you find a screaming deal.
@Jim Gonzalez I agree. I have been looking at cities that are 20-60miles outside of Portland. Salem, McMinnville, Newberg, Longview etc...
Hey Cameron - I've been in your boat and just abandoned Portland all together. And now I watch the market wishing I had bought when it was 200k, or 300k, or 400k... and now I'm looking at 500k homes wondering if I should jump in...
At all those price points, cash flow was almost nonexistent but the homes keep doubling in price. So do you want cash flow MoM or appreciation YoY? If you want appreciation and cash flow is a distant second, then I agree - follow the tram. Stay out of "suburban hell" type of neighborhoods. Look at New Seasons and where they're planning on building. Look at the roads - you want small narrow roads vs wide. Some neighborhoods can look pretty rough, but when you look at the zoning, roads, schools and tram line, you'll see they have potential. Oh, and look for sidewalks & potholes.
But if you want cash flow first then I'd think about leaving Portland Metro entirely.
@Michell P. it sounds like you're banking on major appreciation continuing, but how long do you see that happening in PDX?
I bought a condo in Southern CA in 2001 and sold it in early 2007 for almost double what I paid. We saw the same "doubling" of market values and buying frenzies back then too. Right now my old condo is almost worth what I sold it for 9 years ago because the bubble burst (it was underwater by about $200k for a few years). So you can see why I'm reluctant to buy into market appreciation as an investment.
I do still think that rents are too low (and/or home values too high) in Portland metro, but is buying at (or close to) current market then waiting a few years for rents to catch up a good strategy here?
You logic sounds good but it is not accurate. If you look at the long-term data in appreciated markets like LA/SF/NYC you will see rents never catch up to home values as an average multiple. This is largely because home prices to home supply is fairly inelastic; much more than rents against housing supply. As I've said before, just like stocks, expected appreciation is largely built into home prices. While rents are stickier than home values they do chase them in a much more linear fashion. So the disparity between home price and rents grow, not shrink as you are optimistic about here in your post, as markets face appreciation.
I do agree with you that I would never invest in a property in which I didn't expect both appreciation and cash flow. Investors chasing non-performing properties based on perceived appreciation potential better be very good at market timing or dumb luck (think San Francisco). This is why I am no longer buying rentals in Portland, but as others have stated the dumb money is still driving up investments here while the smart money is looking outside Portland as an increasing population will drive up previously under appreciated outlying areas as a matter of simple demographics.
@Steve B. Good perspective and insight. My husband and I have started to consider REI as a way to diversify our investment portfolio (currently entirely invested in 401k/IRA savings), provide some extra income as we start a family and grow long term (inter-generational) wealth. Would love to invest in SE Portland, as that is where we live, know the market and would be nearby to manage but I'm having a hard time making the numbers work. Would you say "hot markets" lend themselves more to a flipping strategy than a rental/buy hold strategy? What markets outside of Portland look particularly interesting to you?
@Cameron Rouse depending on what kind of lot and area of the marquam you could possibly demo and build new and sell.
If hold and cant cash flow as is look into adu in basement or detached you should balance you out on your cash flow.
invest in Portland there is deals out there, look at re-positioning something small like 4plex, other great areas North lombard, south of woodstock and 42nd between prescott and killingsworth.
I am always looking for multi family in se and ne
New York City Queens and Brooklyn are hot markets where it is a flipping strategy not a buy hold rent strategy is what I am told
I have a property both in Queens and Brooklyn over $1 million
@Steve Moody real estate is supply and demand that is it, you can get as technical as you want but that is it, if you think supply is going to be factor for a lot of demand then you could do the appreciation play.
@Derrick Aragon it's the components that make up supply and demand that has to be considered when making investments. Saying it's "just" supply and demand is like saying I'm going to open a successful restaurant based around "food". We can all agree that demand for housing is going to go up in Portland in the coming years but if that's the basis for buying everything is sight then good luck with that erudite investment strategy.
@Amanda Coleman Flipping and buy and hold are two completely different strategy's, so yes places with the worst cash flow often make the best flipping markets. Of course locally, as many have mentioned, the ROI are going down on flips in the Portland metro as more would-be flippers enter the game and drive prices up and are willing to expect less profit because the perceive their profit margins mistakenly as "safe". It's no different then stock market investing, bull markets attract more frenzied investment and create their own momentum: "irrational exuberance" and "frothy markets". People see good market returns year-over-year and start seeing a volatile investment as a safe investment based on only recent history.
I wont get into where I am looking to buy and have bought but we can use some common sense to come to some relatively safe conclusions. While looking at LA/SF/NYC/Seattle or any strong market then all "feeder" and nearby markets, barring any special circumstances like public housing, also appreciate well. So while SE PDX may have crappy cash flow I believe there are markets within 30 minutes away that have decent cash flow and just as much if not more appreciation potential.
@Steve B.. and others who keep preaching the outlying markets. I've heard the following statement many times.
"others have stated the dumb money is still driving up investments here while the smart money is looking outside Portland as an increasing population will drive up previously under appreciated outlying areas as a matter of simple demographics."
This position doesn't make sense. You're basically saying that 1) Portland won't have any appreciation because of dumb money increasing prices and 2) outlying areas still have appreciation because of migration. This mindset only looks at the negative in Portland and only looks at the positive in the outlying markets. Either way it’s short sighted.
If 1) is true. Then yes, you'll see appreciation in both types of markets. That is until the dumb money bursts the bubble, in which case these outlying markets will crash faster than Portland.
If 2) is true. Then Portland still has upside in appreciation. If this is the case, Portland has added leverage, so that can increase returns greatly over the alternative secondary markets.
Portland metro prices and rents are increasing right now as a side effect to Portland's rapidly increasing rates (which as @Derrick Aragon correctly stated is a function of high demand and low supply). Either way, Portland is the driving force in both cases.
I believe it is much more advantageous to be a "smart buyer" in Portland, buying properties that make sense with "forced appreciation", creating positive cash flow, a large % of equity and a cushion should the market go down. Buying properties in cheaper areas just because Portland is too expensive will have the same result in the end, just with lower leverage being factored in. We either get 1) Portland crashes, so do the outlying markets. In this scenario the alternative markets help you lose less because of leverage. Or we get 2) Portland continues to go up, which will continue putting upward pressure on the outlying areas. In this scenario the alternative markets earn less because of Portland's greater ability to leverage.
Portland has so much opportunity right now that ignoring it because of "dumb money" is super short sighted. Changing to a cheaper market doesn't make up for the work that you have to do, in any market, to mitigate risk in your acquisitions. If you're going to put the work in to be successful, you may as well put the work into a more expensive higher demand market. Portland's proven that it crashes less and rebounds faster than the suburbs. And it's not like the suburbs create great cash flow, so the lure of the secondary markets doesn’t make a ton of sense to me, unless you’re investing for appreciation, which starts this cycle right over again. :)
@Steve B. you and I must be talking to and meeting a bunch of different people.
This "the ROI are going down on flips in the Portland metro" simply is not the case right now.
You may be right for Portland as a whole, but the experienced people who have stayed in the Portland market are seeing the best ROI we've ever seen. 3 of our last 5 flips have set new records for us in gross returns and ROI and all of our hold properties are penciling very well (even when factoring pm, reserves, maintenance and vacancy).
@Amanda Coleman don't let Steve fool you. Portland is about as ripe as any market can be for the oh so common BRRR strategy. It just takes more "work" than looking at RMLS.
@Mike Nuss Saying I'm trying to "fool" anyone is a unfair accusation. As you and Derrick have something to sell and I don't, I would have no motivation to conjole, deceive, or fool anyone. Reasonable people can disagree and one of them can can even be correct.
Also you are constructing a straw man argument. I absolutely did not say Portland won't continue to appreciate. Barring systematic market downturns the simple demographics strongly indicate continued appreciation. However unlike you I don't use leverage and BRRR so I'm not amplifying my cashflow in an appreciating market at the risk of getting caught with my pants down if we have a downturn. If you do that's fine, just understand the risk and don't try to pass of other strategies as wrong headed because they don't maximize returns. Also your assuming that Portland proper will appreciate faster then outlying areas, that has been true in the past, depending on the outlying area I would argue that may or may not be true in the near future.
Also it's wonderful your return on your last flips have been phenomenal and your superproud about it, I wish you continued success and certainly having a lot of experience can mitigate some risks. However I will stand by my point that on average the returns on flips are down due to increased competition on buying rehabs. That may not be true for you but that's what I've seen. Ive explained the obvious reason for this.
Finally the reason I've re-focused on non-close in properties is because I want cashflow AND appreciation. Perhaps your buying from wholesaling so your still getting both. As most posters have stated they aren't getting seeing cash-flowing properties close in. Taking the equity out due to appreciation is something different and they encompass a different set of risks.
I think it's fair to debate different tactics and strategy s for RE investing but we should make an effort not too get emotionally involved in our particular strategy to the exclusion of others. If it makes you feel any better I wasn't including you in the "dumb money" crowd. However that doesn't mean you aren't going to be affected by their activities.
At a macro level, a realtor friend just posted this today: http://www.simplifyingthemarket.com/en/2016/03/30/past-present-future-home-values/ This data supports the idea of continued appreciation in our area.
I've got a couple properties that can cashflow as long term rentals and also in areas of good value performance. Let me know if you're interested in taking a look. I'm cashing out and moving to Bend...
Hi Autumn,
I sent you a PM, I am interested in knowing what you have.
I think Milwaukee has some potential. Around foster and 82nd, montavilla, some parts of Gresham, NE as a whole. But like another member said follow the mass transit extensions. But to add to that look at what the PDC is doing and what areas they are investing in. Really plenty of deals to be had but it might not be realized for 5 years down the road. One thing I've noticed about Portland then any other market I've been in is mass transit location is key but also changes in the commercial property's in the area. Every neighborhood is seeming to develop its own eco system, so if you have mass transit and a row of under utilized commercial property's eventually the neighborhood will build up around that.
I'm trying to buy my first investment property this year and I live in Portland. After reading his forum it sounds like it is a tough market and I should look somewhere else. Do you guys think Portland prices will decline anytime soon or just keep going up?