Where to snag a hot deal in the US

Question

Just finished reading a article on where to snag a hot deal in the US, which was featured in the Canadian Real Estate Magazine this month. The article talks about areas and list the top ten areas. These were based on many factors such as: Capital appreciation forecast, rental return estimates, and price growth drivers. Here is the list:

1.Miami, Florida
2. Orlando, Florida
3. Atlanta, Georgia
4.Memphis, Tennessee
5.Austin, Texas
6.Phoenix, Arizona
7.Savannah, Georgia
8.Charleston, Georgia
9.Manhattan, New York
10.Baltimore, Maryland

I was interested to hear from some investors in these specific areas. Wondering if the statistics are what they seem. What kind or profits are you seeing, cash flow, etc.

Look forward to hearing your input.

James Martin · Answer

My personal portfolio are in areas for skilled investors only! I chose the area because the average property purchase price was $15,000, and I grew up in the neighborhood. Now, for our clients we focus on better areas of town with better tenants & properties. A good deal can be found in what we call the Toy Towns in Memphis like Bartlett & Cordova and so on... What makes these great deals would be the purchase & rehab cost. City taxes in most case only. Great schools and shopping close to one of Memphis biggest malls. We have found great deals buying from relocation companies in these areas. So basically, we shop wherever the deal can be found according to our clients budget. Most peole that shop with me are not looking for a turn-key property.

Jon Holdman · Answer

I was in Austin a month ago. Stayed near UT and walked downtown a couple of times. I was surprised at the number of empty retail locations along the way. And when I walked downtown mid-afternoon on a Tuesday it was dead. I'm sure most folks who were there were at work, but it was much deader than I was expecting. Still pretty lively late at night. And the students weren't back from break. But those students aren't going to open up stores in those empty storefronts.

Jon Klaus · Answer

MY off the cuff impressions: 1.Miami, Florida --International $$ driving recovery in A locations 2. Orlando, Florida -- Now is the time to buy 3. Atlanta, Georgia -- Still more pain for 1-4 years 4.Memphis, Tennessee -- Cash flow in the south (vs, rust belt) 5.Austin, Texas -- Pretty hot near downtown 6.Phoenix, Arizona -- One year ahead of Atlanta in recovery 7.Savannah, Georgia --don't know, small market 8.Charleston, Georgia -- see above 9.Manhattan, New York -- Always prime, but for pros and locals only 10.Baltimore, Maryland -- 2 markets, low end cash flowing class C & D, and DC class A suburbs that live and die by government Just my thoughts, don't shoot me.

Mark H. · Answer

@Rich Weese, Regarding Phoenix specifically, I would advise caution- I watch a very small portion of the market here like a hawk, and I know that area very well- I visit every home for sale in that area, and nearly every rental that pops on MLS in that area - so I feel safe investing there, however, I have done research into other neighborhoods, and the investors there were in a completely different market. In my "pet" neighborhood, in the past year, there have never been more than 2 sfrs for rent at any given time, and the rents are increasing. In other neighborhoods, I've seen 20-30 rentals available all year, and while rents haven't fallen significantly, it is possible for a beautiful, nearly-new home to languish empty for months. I wouldn't want to own in one of those areas where a tenant could reject my unit because another unit has stainless appliances & granite counters- and some investors here are in that situation right new. In my pet neighborhood, most landlords don't have to supply fridges or w/d units, or even update kitchens or baths in these 1980's homes. In areas like Queen Creek or Maricopa, you really need to include everything, and it better be stylish, or your unit will stay empty. And, to add insult to injury, my small, tired, 1980's units will pull $1k/mo, and you'll have to settle for $850 for a much newer & nicer home. Long term, I'm very pessimistic for homes outside the "loop 101", when the economy improves, and gas goes over $5 again, those homes will be in a desert ghetto - your potential tenants will be spending more for gas than rent. I don't want to be a wet blanket, but I get buried with the same spam you do regarding "investments" here, and just about all of them are deals I wouldnt touch.

Chris Clothier · Answer

Mike - I was a source for that article and I can tell you, like most cities on that list, there are areas where you do not want to be investing regardless of paper yield or success of other investors. Every city in the U.S. has the "Big Economic Factors" such as GDP growth, migration stats, unemployment rates, average vacancy rates to name only a few. The reality is that these stats only paint a very broad picture of economic outlook and the actual housing market is extremely macro. That is why you always hear of investors with local knowledge of a market who are able to make money even though every economic indicator says run the other way fast (i.e.- Detroit). Those economic factors I mentioned are what is taken into consideration when that article is written. I haven't seen the article yet, but I would definitely say that when you begin to pinpoint cities as an investor that interest you, the best dollars spent will be the ones you spend in that city. Visiting, exploring, meeting and learning who has the most localized knowledge to help you succeed. I can assure you that the numbers on Memphis are correct, but that does not mean an investor can buy any house or work with anyone from afar and find success. It takes a lot of proper due diligence and homework on the investors part if they are going to earn the yield they are expecting. Don Campbell, with Canadian REIN would be a great resource to read as a Canadian looking to buy in the U.S. Best of luck, Chris

Mark H. · Answer

I think the idea that you could pop into the Phoenix market & make yourself a wall of money is a fallacy. You might beat a cd, but the best deals on MLS are going primarily to insiders or investors who know this market well enough to pull the trigger quickly without shooting themselves in the foot. If you wanted to come out here yourself, spend a few months looking at properties & do a lot of research beforehand, you could do pretty well. If you're going to try to invest by phone & email, you're going to lose your behind.

James Martin · Answer

Mike Jakobczak · Answer

James Martin I'll have to stay in contact with you if I ever decide to start looking Marian Smith What kind of returns on rentals are you seeing in the Austin area? Like in a B-C neighborhood

Marian Smith · Answer

I see foreclosures in the Austin area owned by out of state landlords all the time. We have several realtors that made some serious cash by holding seminars in California to sell homes in new masterplanned neighborhoods to investors. Investors paid too much, underestimated property taxes (some areas over 3%), overestimated rents, and forgot to hold reserves for events like a washing machine overflowing and ruining all the floors (that was in a newspaper article about Cal. investors going bust). Then there was the drought last year and the east half of the city is built on expansive clay soils so now there are a smattering of damaged foundations. And Austin is big. We have the 20 year olds on cell phones and laptops at the courthouse auctions buying 5 or 10 properties a month. So, out-of-towners, invest at your own peril. There are no dollar bills laying in the street.

Rich Weese · Answer

Mark H I have a good friend that just purchased a five bedroom three bath home in nice condition in either Queen Creek or Cave Creek for $91,000. They are going to live in the home so I don't know what the rent would have been, but I'm sure it would be a decent cash flow property with the low interest rates. I've also heard that there are still good deals to be had in Maricopa, if you don't mind the smell from the cows. Chris-I've always had the most success when I've actually moved to an area that I intended to buy real estate in. I've always felt it would be difficult for someone to do adequate research from afar. Rich