Investment strategy for upcoming migration

[Mark-Anthony Villaflor]

I've gotten about 7 homes in the past decade mainly in linear markets, focusing on cash flow and the 1% RV ratio. I've lived overseas for quite sometime so can't really do the BRRR strategy (or hesitate to from Asia).

The more I see the housing news I'm convinced that there's tons of people that are going to leave San Francisco, LA, New York, etc. They were there for work opportunities and the social aspects of city living (which are more limiting now). I might be missing the feel of actually living in the US so excuse my ignorace on the situation. Here in the Philippines folks are terrified of crowds and leaving their homes.

So I'm trying to move forward with continuing my investment strategy much of which I got from @Jason Hartman podcast Creating Wealth though I've listed to Bigger Pockets (love the success stories there).

Investment Strategy

Single family homes, in smaller/mid sized cities. Linear markets less affected from the economy's ups and downs (cyclical markets). These are quite boring and not in mainstream media like New York and what not.

Landlord friendly states- not wanting to have issues with renters paying or not paying and want to have the ability to get them out if possible. 

Section 8? I've got a couple of solid section 8 tenants. Will government housing expand as a result of COVID? That should help these types of investments yea?

3 or 4 bedroom homes- feeling like 4 is going to be more solid now that people need office space and "classroom" space for the kids. 

Outdoor space- gardening and fresh air from the "office"

Markets that seem great would be smaller cities in Florida, OKC, KC, Indiana, Little Rock, Memphis, etc. 

Are any of you doing more investments in these markets? More than before?

Are any of you keeping investments in LA, SF, NY? Why or why not? 

Would love to hear feedback on both sides though I know most of yall aren't big city investors... Or maybe you are haha. 

[Ben Zimmerman]

In the cities you mentioned, there will always be some people wanting to escape the city life.  However I believe that there will be far more people wanting to move TO the city, as opposed to move from it.

We hear stories about people picking up and driving across country to move to LA with their high hopes and dreams.  I've never heard of anyone driving cross country to move to Milwaukee, although I'm sure it's a fine city in it's own right.

Demand for units in these high demand cities isn't going drop off anytime soon.  Covid is severely overhyped and it is only a matter of time before the nation begins to return to normal.  Some industries will take longer than others to recover, but its going to happen.  It would happen a lot sooner if the media wasn't trying to capitalize on fear in every story that they run.  I would not alter my long term investing strategy based on an illness that the CDC pegs at roughly twice that of the common flu.

Personally I don't invest in these markets.  Partially because the rent/purchase prices ratios are so insane, and partially because they tend to be very unfriendly from a political/tax perspective.  Why would I pay a 12.3% state tax rate in California, when I could pay 0% in Florida or other places?  Why put up with very unfriendly landlord laws in California when I can simply invest elsewhere?  States like Arizona, Florida, and several others have enormous growth rates, both in terms of population and economic growth.  

Many of the cities you listed are good from a cashflow perspective, but have relatively low growth compared to some other parts of the country.  Once again I don't know of many people anxious to move to Indiana or Memphis.  If immediate cashflow is what you are after then that may work perfectly, but my investment strategy is a more long term approach focused on growth rate.  In any investment the long term growth rate of the asset is far more important than the current price or economic output of that asset.  

When comparing a home that rents for 1500 and cashflows 200/month with average rent increases of 2% per year, as opposed to a similar priced home in a different location that initially breaks even at 1300/month rent with 0 cashflow but a 4% annual rent increase, the second home catches up to the first on a yearly cashflow basis after roughly 8 years, and surpasses the first one in terms of total cashflow achieved in about 15 years.  Appreciation rates will likely follow closely and mimic these numbers as well.  Since I plan on investing and owning these properties for significantly longer than 15 years, it makes financial sense for me to focus more on long term growth, as opposed to immediate cashflow rewards today.

When your business starts to take off in one of these high growth areas, you don't get this snowball method that people like to talk about, instead you get an avalanche.  Personally I would go crazy trying to acquire enough 100-200/month properties in the midwest to support the type of lifestyle that I want.  To get a 10k/month income, you would need between 50-100 units.  And while at some point you would likely scale up to multifamily, that still sounds like a lot of work to manage that many units as opposed to buying far fewer units in a growth area and let appreciation rates and annual rent increases fund your retirement goals.