Cashflow vs Appreciation - Debunking David - Midwest wins!

[Greg Scott]

In a recent podcast David Greene answered the question of a young person from San Diego.  He commented that total returns in the Midwest are poor because they don't appreciate and rents don't go up.  He specifically called out "places like Indiana" and said this person would be better off buying one expensive property near where he lives vs several less expensive properties in the Midwest. 

I will use data to dispute.

In January 2015, the median home in Indianapolis was $97K.  At that same time the median home price in San Diego was $478K, so you could roughly buy 4 Indianapolis properties for every one San Diego property.  At that same time, the average rent for a typical Indianapolis property was $934 per month and the San Diego average was $1,781 per month.  So, would it be better to have bought one San Diego house or four Indy houses???

If you sold in Feb 2023, here is how your investment would have performed over those 8 years.

Appreciation
- Indianapolis - Those four houses would be worth $852K, a $464K increase in value or a 119% increase
- San Diego - This one house would be worth $884K, a $406K increase in value or a 84% increase

Rent Appreciation
- Indianapolis - Rents rose to an average of $1,458 over this time  period or a 56% increase
- San Diego - Rents rose to an average of $2,959 over this time period or a 66% increase

Gross Rents - Since cash flow would be difficult to calculate without expense data, it is much easier to look at gross rents as a surrogate.
- Indianapolis - Total rents for 8 years from these four houses would be $429K
- San Diego - Total rents for 8 years from one house would be $215K

All total, the four Indy houses look like a better investment than one San Diego house.  As an added benefit, you could sell one of those properties if you want.  With the San Diego house, you can't easily sell 1/4 of it!

Data sources - All Zillow
https://www.zillow.com/home-va...
https://www.zillow.com/home-va...
https://www.zillow.com/researc...

[Jay Hinrichs]

Quote from @Twana Rasoul:

@Greg Scott I would agree with David Greene generally....I sold off my few midwest properties to buy more personally in San Diego as my initial negative cashflow properties here had a higher overall return than my initial cashflow properties in the midwest and I had less expenses here as 1 property here had the same value as 5-15 homes there and replacing a roof on a $50k-$100k property cost nearly the same as a property worth $800k.

That said, I believe most people should start in their local market regardless of where that is in the US. Starting local is typically easier and there are more favorable financing options.

Yup  you have to factor in one roof as oppossed to maintaining 4 indy properties given weather conditions and age of product.  But if folks simply bought in the mid west at the Median price points or above.. they would do better.. the folks that get hurt most are buying the lowest priced properties not understanding the renter demographic and how they treat the properties.