All Forum Posts by: Abi Horton

Hello @Abi Horton,

I moved to Las Vegas from New York City. I understand why you hate it there. I did too.

Assuming you have the freedom to choose any location, below is what I would do.

Location

The first and most important decision to make is to choose a location. The location determines all long-term income characteristics. I would start with Wikipedia's list of metro areas with a population greater than 1 million and apply each of the following elimination filters. Once you have eliminated all locations that do not conform to all the following criteria, you will have a short list of locations to evaluate. The elimination criteria are as follows.

• Metro area population size greater than 1M. Small towns may rely too much on a single business or market segment. Wikipedia
• Inflation compensation - The location determines whether rents will increase fast enough to offset inflation. Therefore, a critical location selection metric is that rents and prices are rising faster than inflation. Rents lag prices, so you can use the appreciation rate if you do not have historical rental data. Zillow Research
• Both state and metro populations are increasing. Do not buy anywhere if the state or metro populations are static or decreasing. Wikipedia
• Low crime - High crime and long-term appreciation and rent growth are mutually exclusive. Do not invest in any city on Neighborhood Scouts’ list of the 100 most dangerous US cities.
• Low operating cost - High operating costs can turn what appears to be a profitable property into a money pit. The three most apparent are income taxes, property taxes, and insurance. Insurance - ValuePenguin, Metro Property Taxes - LendingTree
• Rent control - Some states and metro areas have implemented various kinds of rent control. Rent control may prevent you from increasing the rent fast enough to keep pace with inflation. It may limit your property manager's ability to select the best tenant. It may make evictions of non-performing tenants difficult or impossible. Never invest in any location with rent control.
• Low disaster risk - When a tornado or other natural disaster strikes a city, it doesn't just obliterate individual properties. The entire community, including jobs, shopping, and retail, is destroyed. Your tenants won't wait for your property to be rebuilt in a year or two; they'll move immediately to a location where they can work and live today. Even if your insurance company rebuilds your property, there may be no one to rent it. Everyone in the community will have resettled in other locations, and there's no reason for employers, retail establishments, or people to move back. Locations hit by natural disasters may take many years or never recover. However, your mortgage, taxes, insurance, maintenance, and other expenses will continue without interruption.

Once you've narrowed the list of locations, the next criteria is the presence of a good local investment team.

Everything you learn from seminars, podcasts, books, and websites is general in nature. You won't be buying a general property in a general location. Instead, you will be purchasing a specific property in a specific location that is subject to specific local rental regulations. The only source of such information is an experienced local investment team that has years of experience. You cannot duplicate what took a team of people years to learn. Plus, working with an experienced investment team costs no more than working with any other realtor.

If I did not find a good local investment team in a location, I would look for another location.

Target Tenant Segment

A rental property is no better than the tenant who occupies it. You want your property continuously occupied by what I call a “good” tenant. A good tenant is someone who stays for many years, takes care of the property, and pays all the rent on schedule.

You can find a tenant segment with a high concentration of good tenants by interviewing multiple local property managers. Once you identify a target segment, determine what and where they are renting today.

Property Selection

If your plan is to house hack, it's always wise to have a backup option. In this case, the backup option would be using the property as a long-term rental. Therefore, buy properties similar to what your target segment is currently renting. This way, if you ever decide to change it to a long-term rental, you'll have applicants from your target tenant segment.

When we work with clients who wish to house hack, we usually select properties with four bedrooms and three baths, and a three-car garage. We have standard renovation items, but when we are doing properties that will be used for house hacking, it does change some items. For example, we usually put commercial-grade nylon carpets in bedrooms. For a house hack, I would install LVP to lower turn costs. House hacking requires other small changes to our standard renovation, but not that many.

Summary

Making money in real estate is a straightforward process. It starts with selecting the right location because the location determines all long-term income characteristics. Next, select a tenant segment with a high concentration of good tenants. Lastly, select a property similar to what your target tenant segment is renting today. You will want a property that is also suitable for house hacking. For example, a four bedroom, three bath, three car garage property.

Abi, I hope this helped.

Quote from @Abi Horton:

HI,

I am currently living in Long Island, NY (and I hate it here). I was going to buy a condo in Miami (I used to live there and would love to move back) but since realized its just not a good investment move to buy a condo in Miami and cant afford to buy something that would give me some kind of return). So now I think it will be smart to buy a multifamily somewhere and would like to house hack and rent the other unit(s) as MTR, so I am considering somewhere near a hospital and have seen OH come up as potentially a good area for cash flow so have looked at Cincinnati and Cleveland. I can afford around $200-250k. My question is, if you were starting from scratch and could go anywhere, where would it be?

Appreciate any advice! :)

I like the idea that you’re willing to sacrifice to make a change in your life! Most people would be scared of this idea. Here are a few things to consider:

No matter where you live, you’ll be able to house hack. How well you do it depends on location and you. It is a business and expectations of yourself and your tenants are to be at that level. No matter where you go, if you lower the bar for yourself or anyone living there, it will turn into a nightmare.

Consider your quality of life: where do you want to live? Consider your long term goals: what is your plan with this property in 5 years? How much appreciation will you capture in 3 years if you hard living there and need to move? I’d consider a place with appreciation and equity over cashflow if you’re planning on house hacking. No matter what, you’re saving a lot of money house hacking! And if you’re able to liquidate $50k in equity in 3 years tax free when you go to refinance/sell, how long would it take you to cashflow that much in OH? I would go that route and then buy something that cashflows. Leverage equity and appreciation while living there and then buy cashflow with it. Hope that helps!

@Abi Horton that is some strong sacrifice for the goal. Willing to move just to meet the investment goals?! Things to consider:

1. Can you qualify for a good house hack in that area?

2. What cash flow numbers (or rent reduction numbers) are you looking for?

3. Where would you enjoy living? This really seems important. I imagine you will burn out if you don't enjoy living there. 

$200-250k doesn't buy much multifamily in most markets so I would encourage you to consider purchasing a single family residence with an ADU (accessory dwelling unit or mother-in-law apartment) as well as small multifamily options.

I know from personal experience that house hacking is a sacrifice so in order to be willing to do it long term, you still need to be comfortable where you are.  Single family homes with ADUs are an excellent alternative and I bet your budget would get you much further with an option like that in whatever market you choose!

Good luck!

@Abi Horton- thanks 1) consider using a FHA loan if buying an owner occupied multifamily property 2) Get a formal pre approval in place for whatever hypotehtical scenario you are considering so you can *determine if you are approvable * get organized * become familiar with the process and the numbers 3) the pre approval process is free / easy and can be done remotely

@Abi Horton

you can house hack just about anywhere.

where do you want to live?  what kind of weather do you like?  Yes, lower price points in OH.  do you want to live there?  =)

Hi Hanna - here is the rough breakdown if you are looking for solid returns on a long term buy and hold investment.

The majority of the bread and butter of CLE RE investing is on the west side. Take a look at the 44111 zip code and that will give you a great idea of the "epicenter" of the solid areas to invest in. Here are the main neighborhoods that you would want to consider investing: Detroit Shoreway, Cudell, West Boulevard, Jefferson, Bellaire-Puritas, Brooklyn and Old Brooklyn. All of these neighborhoods are labeled on google maps. These are all C/C+ class areas. With Old Brooklyn being the most desirable and having the best chance at future appreciation. 

If you wanted to get into a little bit of a higher end neighborhood then consider Lakewood. It's a mix between B/A class. The rent to price ratio here almost matches the RTP ratio of the C class areas but the main trade off you experience with access to better tenants is that the taxes are higher. 

As Shane mentioned- There is also the "Heights Belt" - Garfield + Maple + Warrensville Heights that essentially always have a decent single family property to pick up. You won't find multifamily properties and the houses are generally smaller (which is great for lower maintenance cost).  

I am an investor focused agent here in Cleveland and would love to help you find a solid property to consider investing in! I also have all the resources and referrals you might need in order to make and maintain your investment