All Forum Posts by: Adrian Jenkins

My experience in Rochester NY (I live in SF Bay Area) mirrors Caleb's in many respects other than the fact that I stayed in for about 10 years and at my height owned 6 city duplexes and a few suburban SFR's.

Lessons learned from my perspective:

(1) Do not discount basic things like weather.  Northeast winters beat up real estate like nothing we experience in Cali.  I replaced three roofs on my properties over the 10 years at significant cost.

(2) Do not discount the age of the housing stock.  Much of Rochester real estate is pre-WWI.  I replaced more furnaces (including one octopus from the 1800's) and water heaters than I can remember.  Capital expenditures can bleed all profit out of your deal.   

 (3) If you are serious about taking the plunge, do your own research especially now when there are great resources available on the web (when I started in Rochester even zillow was not there yet).  You need to know the neighborhoods in which you are investing.  Being two blocks on the wrong side of a major artery (e.g., Culver Road in Rochester) can lead to very costly errors.  You simply cannot leave this step to a stranger.  If you do not have time to do the basic research, you are playing roulette pure and simple (but not getting free drinks as you would in a casino).   

(4) I mostly self-managed with the help of friends who were my boots on the ground.  I have heard that there is money to be made even when paying for "management" and I suspect this may be true in some markets but with high NY state property taxes even a great market like Rochester would not pencil out.  I would have done better leaving my money in a four star high yield muni bond fund.  

(5) I now stick to growth markets like SF/Marin County, Las Vegas and college towns where you essentially have endless demand (with parent guarantors).   

@Adrian Jenkins @Darlene Case

You have had interesting inputs. From my experience you only go out of state if you have funds to scale. Buying one or two properties is not improving your financial life in any way

Secondly you have to look in riverside And San Bernardino county. There are still deals available locally.

You don’t have to run out of state because everybody is

@Adrian Jenkins

Search for Morris Invest in the forums for the ultimate out of state scare. The secrets are trust but verify things. Think your turnkey provider is screwing you on the price? Pay $300 or less for an appraisal from third party. Think your PM company is screwing you for carpet install? Very easy to get another opinion. As a PM company here in Indianapolis it’s common for out of state owners to get a second opinion when we give them an estimate of $1200 to tear down a large tree or something. We aren’t offended by it. I’d also recommend a little nicer place with higher rents if you only have one or two. They aren’t as attractive on paper, but don’t have the ups and downs the lower end stuff can. The lower end places can be great, but you need those long term tenants that make you a lot of money to offset the occasional $7,000 turnover because the tenants was breeding pit bulls or had his whole extended move in and never once cleaned a thing.

Caleb, are you comfortable sharing who the property management companies were that you had issues with and if not can you give any advice of how to screen property mgt since I am planning on buying long distance real estate. It is difficult to buy locally here in California. 

Also, if anyone has had a great experience with a turnkey company, I would love to hear about it.

Generally speaking, a fast-growing regions like Los Angeles or San Francisco have low CAP rates. People are willing to pay more in these areas because these regions are growing fast. In other words, investors are willing to sacrifice consistent cash flow in return for future appreciation, which isn't realized until the property is sold.

On the contrary, the properties with high cap are located in areas associated with low-growth, which has less demand relatively. The demand is lower because of their low-growth, not because of the high cap.

If you find a high cap property in a fast-growing region, then the demand for that property will be extremely high. For example, a 7% cap multifamily property in Los Angeles with lots of value-add opportunities... People will be bidding for this property left and right.

Hope this helps!

@Adrian Jenkins The people buying at such low cap rates are fine with losing 50k/yr because they know that they will be making a huge backend profit when they go to sell because of the rapid appreciation of those assets. If you can't afford to lose huge chunks of money like that, most people can't, then you need to be looking in other markets where prices are more reasonable. 

In hot areas like LA, you also have overseas investors buying in cash just to park their money in the more stable US economy so that also drives up prices. So you have a lot to compete with there.