All Forum Posts by: Alex Schukin

Hi BP!

After diligently reading, listening, following and doing some posting, I finally feel like I have something to contribute to the general knowledge pool for beginners. Hope you find it useful.

Based in NYC, it felt very challenging and intimidating for me to get started in real estate investing given the price levels in my area. Most generic real estate advice for beginners encourages you to start investing locally as it’s the area you know best, you understand the nuances of the population, hyper-local zoning & neighborhood dynamics, and so forth; but that wasn’t going to work for me.

After about a year of puttering on the forums/podcast and saving up capital, I started getting serious about purchasing my first property and began researching areas where I could afford an investment property.

Being quantitatively driven, I needed to determine my desired location for investing by something more stringent than just pointing a finger at a map. Below are the steps I took to narrow down my investment market. Any feedback, comments, or questions greatly appreciated.

Disclaimer: Please note that all results and judgement calls are my own and your results may differ based on the factors you prioritize. My resolution to avoid analysis paralysis led me to focus on making directionally correct decisions versus perfect decisions.

• Step 1: Pull census population data for the aggregate US and each state for 1990, 2000, 2005, 2010, 2015 and forecasts for 2030. Calculate the historical and projected compound annual growth rates (CAGR) and the change in growth rates over the last 5 year periods (2010 – 2015 vs. 2005 – 2010)
  • Over the last 15 years, the US average population growth rate was 0.9% and for the next 15 years the growth rate is expected to be 0.8%. I was generally looking for states that exceeded those growth rates OR were located on the East Coast (for proximity purposes)
  • My Results: 34 states
    • Florida, New Hampshire, North Carolina, Georgia, Virginia, Maryland, New Jersey, Rhode Island, Delaware, Maine, South Carolina, Massachusetts, Connecticut, Pennsylvania, New York, Arizona, Nevada, Texas, Washington, Oregon, Idaho, California, Alaska, Utah, Minnesota, Vermont, Tennessee, Colorado, Hawaii, Montana, New Mexico, Wyoming, North Dakota, District of Columbia
• Step 2: Taking the 34 states that I narrowed down to, I pulled the location of each Fortune 500 company and mapped their states to my list. Here I was looking for states that had at least 4 Fortune 500 companies with an HQ in the state
  • This narrowed my list down to 18 states:
    • New York, Texas, California, New Jersey, Georgia, Virginia, Pennsylvania, Connecticut, Minnesota, Florida, North Carolina, Massachusetts, Tennessee, Washington, Colorado, Arizona, Maryland, Nevada
• Step 3: Cross referenced the population growth (historical and projected) with proximity and number of Fortune 500 companies in the state to make a judgement call on states to proceed with more in depth. Increased distance away from NYC had to be coupled with attractive population growth opportunities and affordable house prices
  • My criteria:
    • Too far away / close by
    • Projected population growth in line with historical population growth AND positive
    • 4+ Fortune 500 companies AND concentration (i.e. # of companies per city)
    • General knowledge or stereotypes of location (not the best criteria but given that I had more states to choose from than I had time to explore each individual state in depth, my goal was to find reasons not to invest in a state)
  • My results: 12 states
    • Texas, New Jersey, Georgia, Virginia, Pennsylvania, Florida, North Carolina, Massachusetts, Washington, Arizona, Maryland, Nevada
• Step 4: For each of the 12 states, I listed out all the cities that had at least 1 Fortune 500 company and cross referenced those cities with a list of colleges from http://www.collegesimply.com/colleges/. I also overlaid data from Trulia & Realtor.com for median house prices and population growth by city from the census bureau. And finally, I began to filter down
• Step 5: I chose cities that had at least two Fortune 500 companies and at least two universities / colleges, a median home list price less than $300,000
  • My results: 14 cities
    • Winston-Salem, North Carolina
    • Springfield, Massachusetts
    • Allentown, Pennsylvania
    • Pittsburgh, Pennsylvania
    • Philadelphia, Pennsylvania
    • Newark, New Jersey
    • Jacksonville, Florida
    • Richmond, Virginia
    • San Antonio, Texas
    • Fort Worth, Texas
    • Las Vegas, Nevada
    • Charlotte, North Carolina
    • Phoenix, Arizona
    • Houston, Texas
• Step 6: Look for population centers that have over 500,000 inhabitants to ensure stable rental demand. Now the technical point here is that I was looking at city proper vs. MSA and therefore crossed of a few locations from my list that have significant sprawl, but would still meet the 500,000 person requirement if the full statistical area was included
  • My result: 8 cities
    • San Antonio, Texas
    • Fort Worth, Texas
    • Las Vegas, Nevada
    • Charlotte, North Carolina
    • Phoenix, Arizona
    • Houston, Texas
    • Jacksonville, Florida
    • Philadelphia, Pennsylvania
• Step 7: Going back to the generic beginner advice of investing close to home, I prioritized the East Coast cities that remained on my list
  • My results: 3 cities
    • Philadelphia, Pennsylvania
    • Jacksonville, Florida
    • Charlotte, North Carolina
• Step 8: Leveraging the following two resources from a friend, I was able to cross Jacksonville off my list due to greatest distance from NYC of the three and highest risk of natural disaster, a combination that I did not want to deal with
  • http://money.cnn.com/interactive/pf/real-estate/natural-disaster-risk-map/
  • http://www.nytimes.com/interactive/2011/05/01/weekinreview/01safe.html?_r=1&

Deciding between Charlotte and Philadelphia was challenging, but this is how I did it:

• Step 9: I pulled high level statistics from Trulia, the census bureau, and the Bureau of Labor Statistics (college educated percentage, commuter percentages, house hold income, median age, home owners percentage, marital status, crime, 1900 to present population growth, 10 year jobs growth rates).
  • Charlotte won out on household income, less crime, population growth, jobs growth and more college educated people
  • Philadelphia had more renters, less driving to commute, more single people
  • I also pulled approximate rents and median home prices by neighborhood and Philadelphia won on better cap rates
• Step 10: My final decision: Philadelphia
  • Philadelphia is also closer to NYC (2 hour train ride), has improving demographic trends (gentrification), more affordable for my budget, stronger rents, and larger urban center with more investment options (SFR and MFR)
  • There are obviously downsides such as older buildings, higher crime rates, historical population growth issues

We can debate the merits of one city over another, but eventually one has to get off the proverbial pot and make a decision. Other things that I’m thinking about now include landlord-tenant rules, opportunities to connect with other investors, turnkey company availability, etc.

Nonetheless, a mentor of mine told me that a good investment in a bad city or state is more important than a bad investment in a good city or state. There are good investments to be found possibly anywhere if you look hard enough, but the point of this exercise was to narrow down where to look in a fairly reliable way.

Best of luck all!

Kyle McCorkel - How did you go about verifying and researching the provider? Most of the "providers" I've come across so far just act as buyers agents and pool buying power in certain markets they feel are ripe for investment, but they end up working with a developer or wholesaler in that market to source rehabbed properties. There just seems to be slim pickings of honest reviews.

@Mark Holencik - Property manager first, got it. When you were thinking about building out your team, how did you approach it? My thoughts are Lender, PM, and then Agent/Broker. I feel like you can't engage an agent and look to buy before you have the financing and management team lined up.

@Michael Gansberg  - No worries, I love the long-winded stuff; way more information. I take your point seriously and I would rather avoid the hard lessons learned of low grade neighborhoods by listening to your learning experience.

@Louis A. - All fair points, thank you. I am looking for 15% IRR or 20% CoC post all expenses and reserves. Will to do B or C neighborhoods, but this is where local expertise from a PM would be helpful. I am totally ok with managing the manager, it's managing 4+ tenants that makes me nervous. Lots of good food for thought in your post.

@Kurt K. - Thanks for the advice, managing the manager is ok with me. I am good at that.

@Michael Gansberg - This is quite a real estate philosophy exposition, thanks! Lots to think about, but I guess the key point you made on "upgrading" from C to B neighborhoods makes sense only if you are willing to forgo the additional yield. Obviously, you run the risk of sinking your money into a value trap in a C neighborhood, but can you get a 15% IRR in B neighborhoods?

@Louis A. - Thanks Louis! This is absolutely fantastic information. I have to think about if I am comfortable and have the time/ability to manage a multifamily out of state given that I work 70+ hours per week, but given all the technological advantages you mentioned, you make it sound easy.

Nonetheless, not sure if your property is located in an A/B neighborhood, but the IRRs I'm trying to achieve likely place me squarely in C neighborhoods where dealing with tenants may require a good PM.

Apart from Transunion, do you use any services for a background check?

You also mentioned that your real estate broker lists all of the apartments for you once they are vacant, do all brokers provide this service and at what price. They are effectively providing quasi-PM services.

Either way, this is super helpful.

@Shawn Couch  - Fair enough, just wanted to make sure that I wasn't totally off base with my assumptions on pricing at my unit level. I guess there is a price for everything. Thanks!

Hi BP!

I'm a bit on the fence between the residential classification of 4 unit multi family investment property and jumping over to the commercial side of 5+ units. Ultimately, I am trying to stay within the 4 - 8 range and not going into the institutional-size portfolios.

Assuming that a property manager charges ~10% gross rent, net of vacancy and 50% of 1-month rent for placing a tenant (please correct me if I am way off), what would be the smallest number of doors that a good quality property manager would be willing to take on for that price?

To offer some context, I am looking in the Philadelphia market and also focusing on being hands off since this would be an out-of-state investment for me. Hence, good quality property management is a key deciding factor for the type of property I am looking for.

Cheers,

Alex

@Gabriel Aponte - Welcome to the BP Community! As a NYC-based investor, I look forward to learning from your experience in the Philadelphia market.

@Nathan Fesnak - Thanks for the reply! I'm finding the surrounding towns like Harrisburg to be more appealing as well. College Downs also looks quite interesting. As I'm an out of state investor, I don't particularly have the capacity or experience to renovate properties. 

@Joseph Scorese - Thanks Joseph! Really appreciate the insight. As I'm from out of state, I think it might be difficult for me to attend those meetings regularly and really have an ear to the ground on changes in zoning.

Do you know any turnkey providers in Philadelphia that I could reach out to for local expertise and property recommendations? Unfortunately, I am not in a position, from a capacity and experience perspective, to work on remodeling properties, etc.

Thank you!

@Jason E. Smith - Thanks for the referral Jason. I'll reach out to Kevin shortly. Have you worked with him before?