All Forum Posts by: Joel Florek

@Joel Florek I love this topic. Having grown up in a rural Missouri town, I’ve witnessed how one or two investors can corner the real estate market quickly. Cool to read about everyone’s experiences.

For me, the shortage of professional management is a significant drawback to investing in small metros. Managers in sleepy towns are not sophisticated, don’t effectively employ systems, or are plain out of touch with an investor’s needs.

I think market selection can mitigate the challenges of day-to-day operations in a small town. Possibly select a slightly larger town or one closer to metro area that offers more vendors/services to meet your investing needs.

Remember Brandon Turner’s complaints regarding managing his properties in Podunk, WA? He knew the challenges existed and the returns were worth the hassle (at that point in his investing career).

Approach rural markets with an eyes wide open view and enjoy the ride!

Best of luck to all in 2019!

-Andrew

You are 100% spot on.

What I have done so far is manage all the leasing inquiries, manage paying bills and recording who owes what and how much has been paid. For my 23 units that are about 400 miles from me I have a resident manager who can open doors, do showings for me when I schedule them, deposit rent checks at the local bank(I can view them online to record on my end) and receives maintenance requests/calls and schedules contractors.

My goal is that as I scale up enough I can hand over the tenant communication I do to an employee that I would hire. Its easy work and they can do it from where ever. This makes it so I don't need to have a superstar in the local area which has made it easy. Their scope of work is limited and therefore I can't get too frustrated with them.

I am curious to see what this would look like at scale.

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Originally posted by @Cesar Gamarra:

@Joel Florek Congrats on your portfolio Joel! It seems that you found a niche. I live in Miami where prices won't allow that type of return any more but I found submarkets in Central Florida that will. I started looking at the numbers and the 8+cap is achievable. Need more time to find the ideal town but I am working on it. Care to discuss Florida?

St Petersburg is where my wife and I want to call home some day. We love the water and warmth. Both of us a really into sailing and do extensive racing on the Great Lakes. My mother spends her winters in Fort Myers so we will be down that way in March. Always open to discussing. PM me and we can schedule a call.

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Originally posted by @Michael Ablan:

@Joel Florek Glad to hear you're finding success! I'm in a market slightly bigger (25k population) and share very similar pros and cons.

Pros:

Steady deal flow
Lots of tired landlords
Become well known easily and easier to become the "go-to" guy.
Less competition
Steady rents

Cons:

Limited number of contractors
Limited number of large 30+ unit deals
No property appreciation
Slower flipping speeds
Slower closing speeds due to lawyers constantly being bogged down

All in all I'm very happy here, and will continue to grow my portfolio here. However, I'm eventually going to branch into a new market where bigger multi-family deals are more available

Thanks for the input. Have to agree with what you have said on the pros and cons. To be honest I have yet to use a lawyer for closing so that hasn't been an issue for me. But scaling up is a concern as I look to opportunities in other small markets.

I met an owner who had 600 units spread out in about 8 small to medium size markets in Indiana. None of his properties seemed to be running great and can't say he had any good systems in place. The largest market he had was 90 units in a town. Seeing him run around in his truck and have different full or part-time people in each town just didn't seem like the type of business I want to build.

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Originally posted by @Jacob Phillips:

@Joel I live in a small college town of 13k in mid Missouri and am looking to do the same thing! I am 26 and brand new to the game with no properties currently to my name and no capital to speak of. What kind of creative financing have you been able to use for your deals?

There’s a group of four duplexes in in my town that the seller is asking $650k for and it seems like a crazy thing to even consider but I can’t help but be curious as to how I might be able to tackle that (if it’s a good deal, that is).

On my 16 unit and 8 unit I have used 80% bank financing and a 10% to 16% of the remaining as a seller 2nd position mortgage. It has worked well for me to date and I look forward to using the strategy again in the future.

$650k for 8 units seems very high for a rural area? What are avg rents? Typically a multi is always going to be 40% to 60% NOI to gross potential rents which is why I ask. Gives a quick indicator whether or not its in the ball park to dig deeper.

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Originally posted by @Shiva Bhaskar:

Originally posted by @Joel Florek:

My question is simple. Who is investing in rural America, why are you doing it and what is your experience? Is it your longterm goal or is it a temporary goal to achieve cash flow?

Lets define rural America as towns of less than 20k population without a major metro within 15 miles.

I will start by saying that I am one of these investors. I have 23 units (a 3, 4, and 16 unit) in a rural town of 15k population. Overall, my experience has been fantastic from the perspective of stability, modest rent growth and long-term tenants. It amazed me how many people thought I was crazy for buying into the small town, but the cash flow and ability to find sellers who are willing to get creative on closing has offered the ability to scale with minimal funds available.

I have also found that the lack of other options in many of these towns has positioned me to easily be viewed as one of the more or most professional management companies. Its common to only have a few available rental units on the market in the entire town for rent at a given time.

My preference is to expand to larger markets, and I have added an 8 unit into a larger market which has also been a very positive experience.

My frustration has been getting more opportunities in larger markets that offer decent cash flow via purchasing around an 8cap. My ideal property is $1m to $2m right now. There seems to be a regular flow of opportunities in these smaller towns that I can get a 10cap or 12cap on, solid properties that I can depend on longterm, and provide me with cashflow.

The biggest con is obviously the microeconomic risks are more acutely affected by changes in employment by one of the local major employers and the issue of lack of opportunity for appreciation since there arent tons of buyers on the market for these assets.

Would love to get others feedback on their opinion of these smaller towns a long term or short term strategy.

I love this strategy you're using - as a city guy (mainly have lived in LA and NYC and invested locally), I've always wondered about the potential of some of these more rural areas. Seems to me like if it's within an hour's drive of some sizable employers, or a metro area of 150K or more, it could be a good play overall, in the sense that there are jobs for folks. I hear great things, from a cash flow standpoint, about investing in the smaller, outlying towns from major Texas cities, and I think the same is true for CA, if you go deep into San Bernardino or Riverside counties.

One concern I do have, and I think you alluded to, is the concentration of one industry in a metropolitan area. In following the recent GM layoffs in Ohio (near Youngstown I believe), it seems like there are some smaller outlying suburbs that will be hit badly by this. I think in the Midwest especially (not to pick on the region), this seems like an issue.

Assuming that isn't a huge issue, seems like a good play for cash flow - with the kind of cap rates you're getting, it's hard to say no to more deals! Of course, the city does offer appreciation and ease of selling in future, so diversifying makes sense, but as long as these generate strong cash flow, sounds like you should continue to expand.

Thanks for your input. I certainly challenge myself whether I should continue and I often tell myself I will stick to larger metros. Then a deal comes along and I run the numbers and thing about the extra vacation I could go on or that it could provide us with a car payment and insurance to upgrade my wife's vehicle... Such a tease!

Management is my big challenge. If I only have 20 or 30 units in a town I can't hire people full time and there generally isn't a solid management companies to go to. Makes it tough to scale that up. I certainly have an idea on how I will continue to do it but would love to know how other are.

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Originally posted by @Julian H.:

@Joel Florek

Congrats on taking action/executing on your goal. I like your strategy of sticking with cash flowing properties, then moving to more populated areas when able.

The only issue (other than appreciation) is your exit of the property if need be. How long do assets of the size you’re acquiring turnover in your target areas?

Julian

That is a concern. I plan to have an exit take a few years if need be... not ideal especially if there is an issue. Certainly a big negative. Interested to hear others experiences or thoughts.

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Originally posted by @Jaysen Medhurst:

Great topic, @Joel Florek. The downside IMO is that long-term appreciation is going to fall far below more populated areas. Over 20 years you'll see nearly 4X the appreciation from a market with 3% appreciation vs. 1%.

I do hear you on that and its always the big thing I am frustrated with. However, I look at it from the perspective of goals. Right now my goal is cash flow, financial independence, to be achieved via minimal funds. The minimal funds makes it tough to scale in the hot markets while I have been able to find a lot more creatively financed deals via these smaller markets with better cash flow per dollar invested. Then transition to hot markets to try and get an appreciation play long term... One you drink the high cashflow coolaid its tough to walk away from though... Every decision is a trade-off and that's why I am so curious to hear other opinions.

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Originally posted by @Garrett Hawk:

@Joel Florek Congrats on your successes! I also invest in these towns. I currently have a 48 unit in a town of 5k people. I have some section 8 tenants and my crime level is minimum. Mainly retired folks who have grown up in the community and are on social security. I personally like these markets because the returns are steady and there are plenty of low income tenants that will be in these communities for many years to come.

Thanks for sharing Garrett. Great to get the perspective of someone who has a larger property in one of these small towns. I have certainly gotten the experience of lots of retired folks who are on fixed incomes and don't want to take care of a house anymore. I have only had one government-subsidized tenant who I have since asked to leave the property. Haven't ventured any further into that tenant base although I have had a lot of inquiries.

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Originally posted by @Marjeanne Fields:

@Joel Florek We have been finding great deals in tertiary markets of larger cities. Specifically bedroom communities. Close enough to metro to ensure demand but far enough to still find 10%cap rates. Closing on one next week that is only $35k per door. For us if it's less than 100k population it must be at least within 30 min of the major metro.

That is a great rule of thumb. I always find it funny when you go into some of those small towns and wonder why the heck there is a building boom of really nice single family homes... its those willing to drive a bit to their jobs but want a slower quiet life. Thanks for sharing your criteria!

Out of curiosity, is there a unit count that you typically like to shoot for with your deals? Do you invest in a lot of these smaller markets to build your portfolio or just sticking with one or two?

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Originally posted by @Kurt K.:

I have 14 units in a town of 10,000 and they are doing well. I have 3 duplexes, 2 triplexes and two SFHs. The plus is there are a number of different employers in the vicinity, so job creation is a factor so the vacancy rate is good. The negative is its getting harder to find multi-family units.

Very nice! I hear you on that. My challenge is that a lot of the multis coming up for sale need a ton of work and the payoff just isnt very exciting for how much time I would have to put into it. Sometimes no deal is better then a bad deal but it sure would be nice to keep doing good deals every year!

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All Forum Posts by: Joel Florek

Joel Florek has started 35 posts and replied 521 times.

Post: Rural Multifamily, who is doing it?

Post: Rural Multifamily, who is doing it?

Post: Rural Multifamily, who is doing it?

Post: Rural Multifamily, who is doing it?

Post: Rural Multifamily, who is doing it?

Post: Rural Multifamily, who is doing it?

Post: Rural Multifamily, who is doing it?

Post: Rural Multifamily, who is doing it?

Post: Rural Multifamily, who is doing it?

Post: Rural Multifamily, who is doing it?