All Forum Posts by: Account Closed

@Hani Alomar 

That's a pretty loaded question. There are strategies for every market phase that allow someone to invest and succeed in any market. 

The reason a lot of people are investing in the midwest now is cheaper property, and higher cash flow than they can find in major markets that have appreciated heavily- like CA. Another reason is lower volatility- select midwestern markets don't appreciate or depreciate as much as the aforementioned major hubs. This means that, compared to more volatile markets, if you buy them at the bottom you won't get a lot of appreciation, and if you buy them at the top you won't get a lot of depreciation. 

The depreciation buffer doesn't matter so much though, because your goal is to hold this for it's cash flow and not sell it at the bottom. I would add that in working class midwestern neighborhoods, rental demand doesn't generally change a ton during recessions because of the blue collar nature of the subsection of the economy that you're investing in. SO, you should cash flow pretty similarly as you would today if you were to endure a recession with this property in your portfolio. If you were to sell it, you would ideally sell it during a favorable economy, and you wouldn't necessarily expect a profit from the sale. Your focus would be rental income. 

That last statement is really important. You're not going to cash flow in expensive markets, and you're probably not going to see significant appreciation until the next market peak... so no point in buying in those expensive markets until we're in a bit of a trough. However, that doesn't mean ANY midwestern market is a winner. 

If you're going to invest in the midwest, the rental income has to be substantial enough to account for the fact that you're not expecting much long term appreciation. Remember, you're buying high regardless of the market. Don't go invest in some major midwestern city that's been flooded with CA investors for the last 5 years. You're NOT going to get a winning cash flow deal this way. If someone tries to promise you appreciation in one of these sexier midwestern cities in order to compensate for lower cash flow... remember that appreciation is not a part of your strategy right now. 

***I generally recommend seeking out C+/B- rental properties with a 10% cap rate, or a 20%+ cash on cash return with financing*** You will probably find this in secondary markets. Not all secondary markets are good though- look for markets that have sale prices of a smaller city and rents comparable to big cities nearby. Seek out high rental demand, low taxes, low city water/sewer bills (you could end up paying this if you buy small MFR) and landlord friendly laws.

These markets are hard to find. They're hard to find because fewer investors are on BP talking about them, which in itself is part of the reason they still offer some of the returns that they do. 

Don't be fooled by the popular, big, OOS investor midwestern cities that everyone here started talking about in 2013 as soon as CA prices took off again. Our peers have been mining those markets hard for 6 years. Google "blue ocean theory".

I hope this long and drawn out post helps you and everyone else on this thread!

@Daniel DeSurra

Those property taxes cannot be right. 4k a year on a 1.2M purchase is the lowest I've ever seen, and I operate in states with very low expense ratios like Indiana and Kentucky. Make that adjustment and see how the cash flow fares- it might be pretty low afterwards considering it's a bit marginal already. 

My guess, not knowing the state, tax, rate, or assessed value is that your property taxes will be somewhere between 1k-2k per month. 

@Joshua Jackson I love the phrase "generate leads". Off market is the way to go sir!

I mean owning 20 solid SFR rentals doesn't sound horrible, especially if you're not TRYING to be an enterprising investor.

I'm always thinking of how to double my money lol, so the idea of not taking the fast lane irks me. It doesn't have to irk everyone though.

The tag didn't seem to work on the above post, so I'm quoting you instead!

@Dave DeMarinis

Thanks for the mention! I agree with all 3 of the points Dave makes.

If I remember correctly, the point of view Dave's referring to is one of market characteristics buffering the many other risks. They key word is buffering, and not eliminating. 

Here's an example: If you invest in working class small multifamily assets (let's say C+), investing in a market with high rental demand for this segment of properties and very landlord friendly laws will allow you to be successful, even if your property manager isn't a rockstar at marketing units, or selecting perfect tenants, because the product will (to a limited degree) sell itself, and the easy eviction process will make tenant misbehaviors more correctible. 

I always recommend looking for market and asset characteristics that inherently reduce the magnitude of the risks that you face. In addition to picking a market like this, choosing a market where you have multiple options for property management commoditizes the PM service, making you less dependent on any one company. 

If you adopt the mindset if identifying risks and possible solutions to them, then you will be a better market selector as you turn these "solutions" into qualifying criteria that you apply to prospective markets.


 

@Russell Brazil That's a pretty accurate general principle.

However, there are many cases in which two like kind assets, of similar class, demand, market, etc... perform at different levels during the present and/or in the future. I'm going to latch onto the phrase you used: "the market is telling us ______ about the risk profile by setting the yield at ______." Many investors will do fine listening to what the market tells them. Some will underperform by defying the market. Some will outperform by defying the market. 

The market deemed a lot of assets risky in 2010, but savvy investors knew exactly what they had in front of them while others avoided acquiring them. 

I think everyone should question and aim to understand why an opportunity may offer a higher or lower yield than another, I don't buy that the only reason is lower quality or risk. It might be perceived risk, which may be what you were alluding to in the first place. 

@Greg Colligan 

BRRR deals are basically flip deals that you decide not to sell. If you're going to keep it, make sure you have a good reason to keep it. A reason that beats the results of selling it. I can't for the life of me imagine why someone who can create 60k in equity in a 200k house would take 100/mo in cash flow, instead of take your 60k profit and roll it into the next project. Then when you've actually got a ton of cash, go throw it at a big project.

@Tony Marcelle Just don't waste your time making offers that won't be accepted. If you want to make low offers, market directly to a pool of sellers where you don't have to compete with a realtors sales pitch, and a bunch of other offers.

@Russell Brazil even if they don't cash flow? Or if they'd be more profitable to sell?