All Forum Posts by: Joel Florek

@Joel Florek you’ve got a popular thread going!

Regarding PM, could possibly employ a technique I’ve seen in other industries—hire a regional/area manager to oversee projects, contractors, on-site managers, new employee training, etc. Thus could be a good job for a family member who needs supplemental income. Some mobile home park owners seem to employ this technique effectively.

Any thoughts on owning complementary businesses in your rural markets? E.g. self-storage. Self-storage typically has on-site managers that could potentially be cross-trained to assist with your MF property. Tenants can rent a moving truck from you, store their extra stuff in your storage units, and rent an apartment from you. Kinda like owning the whole tenant lifecycle.

Keep the comments coming folks, loving this thread.

-Andrew

Hi all and Happy New Year!

This has been a great discussion that I have really enjoyed reading. I agree with most of what has been stated.

As a new investor, cash flow is more important to me than appreciation in rapidly growing markets and I think rural markets have tremendous potential.

My grandmother is in her 80s and employs this strategy - she owns many SFH, MF and mobile-home parks that have produced tremendous cash flow. It has been very successful for my family and it has been a lot of fun to see how much she loves real estate even in her oldish (LOL) age. :-)

To the point about employer concentration - you can greatly mitigate this risk if you buy in a "rural" area that is 25-40 miles from a decently sized city. The average American commutes ~25 minutes to work but if you are employed in a lower paying job, in the service industry, etc. you may be living in a cheaper area for a number of reasons and driving 30-45 minutes or even an hour to work everyday.

I was surprised to realize how many Americans commute much further than I would personally think is reasonable but it certainly happens. 

I live in Raleigh, North Carolina and originally wanted to invest in my city but as prices have increased I have become very interested in the rural markets surrounding Raleigh/The Research Triangle Park that I had discounted at first thinking it was too risky or I would not be able to exit the property if I needed the liquidity. 

Again, I agree with the above point about not being over-leveraged - if you aren't you should factor a longer wait time to sell the investment into your plans. The prices are typically much cheaper anyway.

Thanks all for a great discussion! I would really love to talk about this more as we each become more educated. 

 Oh boy, did I ever miscommunicate! Sorry, we have only turned over 4 units so 800 per month. The other tenants are still there and only getting minimal increases. I apologize for the misunderstanding. :<(

@Joel Florek

Thank you for making this post! I have had the same thoughts/strategy as you (although you are ahead of me in implementation).

I am purchasing a 4-unit in rural America (10k population, very isolated from major metro) and hope to purchase 20 units by the end of this year. I chose this strategy for the same reasons you mentioned; cashflow, creative financing, and being the big fish property manager in a small pond. My goal is to cut my teeth in real estate investing with this rural portfolio and then potentially move into other markets as well. It helps that this market is my hometown, so I know many people there (instant network).

I have two thoughts about my potential long term strategy. The first would be to move to a larger market to get exposure to appreciating assets, which it sounds like you are doing. The second, and potentially more interesting, would be to find other small towns that have similar characteristics to my current area, but are completely uncorrelated (different state, industries, etc.). This would provide some diversification to protect against local employer risk. A multifamily portfolio in 3-4 rural areas seems like would generate cashflow long term and protect against risk (other than the trend of people moving to larger metro areas). 

I would love to hear about your plans for your 23 units in the rural town. Are you planning to hold them long term? Are you going to try to sell them as a portfolio? Or something else? 

The four duplexes in small college town first time investing, my experience has been they are over priced and high turn over, which in turn every time a apartment turns over your spending funds to clean up and re-rent etc. 650k for a 8 plex seems awfully over priced. unless the NOI supports it,, and provides a nice positive cashflow. is this a A class property or B.

@Joel Florek Great thread you got going here. Two shortcomings in a smaller market for me are a lack of PM and a shortage of more buildings to buy. I self manage-correction my wife manages-so that is not a problem. We only invest within an hours drive and driving in the countryside is more pleasant anyway. As far as appreciation goes on my 12 unit I do not plan on selling; appreciation will either be forced or rise as income rises-which has been pretty steep anyway. Units that the prior owner was reting for 575, we are painting and doing some new flooring as needed and turning them over for 775+35 for garage, and they may even be under market at that. I do understand that small town investing may be at an increased risk, the returns more than make up for that. Also if you are not too leveraged then you can choose when to sell, or not, and that to me is the game anyway. The real risk is that the big city slicker investor types may be reading this thread and wanting in on this action!

We typically look for min 50 units but we prefer 100+ units. If we are in these smaller markets we only buy up to two. Just to minimize the risk. 

When you are investing in these smaller markets how many units do you seek and how many deals is your max? 

@Joel Florek We developed a unique underwriting model for our current rural new development and identified several key factors that, on paper, made this town attractive to us. Before I go and apply that same methodology to your town, let me first get through lease up on this property (Winter 2019) to prove our math was correct. (though i am pretty sure we are correct)

@Joel Florek we are developing a 168 unit $21m property in a rural market that hasn’t had new construction in 30 years. The fundamentals are solid though but always scary investing in emerging markets. Most people will challenge your decision. Not for the inexperienced or starting investor.

Great discussion going on! 

It is interesting to see the perspective of 'the other side' in the small town/metro debate.

We, two partners and I, invest in a rural county - 60K county, two towns of 10-12K and the rest towns of 500-5000 people. LOTS of open farmland etc... It sounds like we have a very diverse economy compared to some rural areas maybe? Two medical centers that each have over 500 employees, almost 20K industrial/manufacturing jobs in the two largest towns, etc... HUGE tourism base too. We are also 1 hour from Madison which has a huge stable jobs base in health care, tech, and education.

What I like about it is a lot of what others are saying - good deals, low turnover, low crime, etc....

I have to disagree on appreciation though. Historically our area has seen about 3-4% over the last 40-50 years. We budget 2.5% when using the BP Rental Property Calculator to be conservative. 

Our general 'target' is 1-4 units that we can get 1% rents on that are 30 years old or newer in good shape. When leveraged with 20% down on 20 year notes we project a 16%-20% return all day long. It seems like that would be harder to find in larger more competitive markets, at least when looking at the metro areas within say a two hour drive of us. 

Dan Dietz