Top B-Class Markets for Max Cashflow-to-Down Payment Ratio in US?

Question

Hi BP-ers,

I have one simple aim: On a per-unit basis, I want to maximize my dollars invested. For example, I can invest (via Turnkey) in say Kansas City and make $250/mo in cash flow with about $25K down (25% of $100K property). My question is: Are there better cash flow-to-down payment ratios to be had in the US? For instance, if I put only $12.5K down (25% of $50K property), and still get $250/mo in cash flow, I can buy twice the # of properties as Kansas City. Do these markets exist? As a reminder, I need B-class / traditional 30 year fixed mortgage / 25% down situations.

Thanks!

Mike

Jay Hinrichs · Answer

50k and under B class pretty much does not exist in major markets.. that would be a home in need of full gut rehab for 20 to 25k.. to get top notch B tenants.. so that's wholesale at 20 to 25k..

just pop on any major metro MLS and look and see what 25k buys you ... 99% of the time high crime and not B class tenants.

also loans under 50k can be tough to secure.

Jeff B. · Answer

Get off SFRs and fight to locate a MFU 5+ as the multiple rents instantly improve the CoC

Cliff Harrison · Answer

@Mike David specific differences will be determined by specific deals.  I can just generally say that #2 is better financially, but comes with more tasks to perform.  #3 is an easier entry, but brings more risk of not making any return at all, or negative returns, over the hold period.  In #3, you are responsible for supplying both yourself and the turnkey provider with acceptable returns.  The turnkey provider WILL get theirs on the buy courtesy of you, the only question is if you will get yours in the hold and exit.  Be careful out there.  :)

Cliff Harrison · Answer

On a per unit basis, you won't maximize your return through turnkey purchases.  Your mission statement might be 'maximize return on a per unit basis while investing only in turnkey'.  This would possibly maximize your return for minute of time invested in procuring real estate investments.  Common buy and hold strategies in order of highest return& work/involvement required:

1. BRRRR - buy distressed, full rehab, rent out, refinance, repeat.

2. MLS property - buy nearly move in ready property off MLS or other sources, hire PM services

3. Turnkey

Note - in my areas, it still doesn't take too long to find $200 cash flow properties in the $70,000 ballpark if you pursue strategy #2.  Or $300 cash flow in the $95k ballpark.  Now, if you are taking a turnkey providers proforma cash flow number as your $250, after looking at dozens of them I am confident you need to reduce that number substantially to reflect the true long term cash flows of the property.  If you post sample numbers I will point out why that is, or eat my words.

Strategy # might seem daunting to manage from out of state, but you are already here doing research, and with the right references and help you could do it.

Good luck!

Cliff

Account Closed · Answer

@Mike David This is an thought provoking challenge that you pose. I am not an expert of every city, but I do know a few in the mid-Atlantic and have properties in the Philly are surrounding areas.

For the areas I know, you can get what you are talking about in Kansas city also in Philadelphia, Baltimore, Allentown PA, Troy NY, Trenton NJ, Wilmington DE, and Camden NJ. The key items you will want to look at is not just purely cash flow. Instead you should look at quality of tenants, time to get rented, quality of property, and crime in the neighborhood. These factors will determine you vacancy rate and true cashflow.

If you need help in any of the areas I mentioned above, I should be able to help you directly or connect you to others who can. Best of luck.

Mike David · Answer

Thanks. What strategy would you recommend instead?

Mike David · Answer

Thanks! The reason I want to do Turnkey for our of state is so a. I don't have to go out there and review each property b. Scope out the area c. find a realtor d. Find a good PM, etc (feel free to correct me on this)

I want as little hassle as possible so I can continue my tech job with minimal interruptions. I know as a result I may have less cash flow. My question is how much of difference in cash flow do you see between option 2 and 3?

Jeff B. · Answer

Cash Flow (noi) to down payment is the CoC metric and it can go all over the place.  It's a great measure of how well am I using MY MONEY vs OPM.

I would not create the issues of out-of-state investing for the intent of improving CoC by 1% as you'll toss that gain away with other expenses and reduce the YE profit.

There are lots of variables to maximizing the yield of REI.

Top B-Class Markets for Max Cashflow-to-Down Payment Ratio in US?

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