Hot market with over priced properties

[Reuben Stone]

Hello BP! 

Here is my dilemma. I have yet to acquire my first investment property due to the fact that everywhere I look the prices are so high or the area has no potential! Here are my choices, I can invest in a building that is in the middle of no where (No jobs, low population, etc), I can invest in 1 out of 2 towns where the prices are much lower but the quality of the buildings/tenants is terrible (Filled with crime, drugs, bed bugs, you name it) not to mention rents have not increases in ten years nor have property values appreciated in recent years. In fact they have gone down. Or I can invest in one of the most expensive markets in the county (14th most expensive town to live in according to a recent article). For me, I dont mind working hard  to make things happen. But when it comes to real estate I would  much rather invest in a building where I can get halfway decent tenants, make some improvements along the way, adjust some rents, and see some appreciation. I dont like the idea of investing in a market where the only tenants I can get are drug dealers, hoarders, etc. 

So that basically leaves me with the hot market area. In this market there are 13 unit properties that have a NOI of 70K being listed for 1.1 million. 3 unit buildings that dont even begin to break even where the owners are asking 500K. Outrageous I know. The high prices and extremely low inventory make it almost impossible to find a good deal. This forces me to explore my other options, but it is hard to consider them when all you see if for sale signs, and business's going out of business around every turn.

So I am coming to you guys for advice. Is there something im missing? Let hear your thought! 

[Yinan Q.]

@Reuben Stone 

I hear you loud and clear. In many areas the market is too hot for investors. I am in the Seattle area and here is just one example of the many overpriced properties on the market:

4plex built in the 1970s. C property in B neighborhood.

Each unit has 3/1.75, rents for $1,150/month, including water and trash.

The listing price? $660,000! 

Using the 50% (probably should use 60% since the landlord has to pay for water and trash) and assuming 5% vacancy, cap rate is only 4%.

Who would buy at 4% cap rate? I don't know. I know I won't.