All Forum Posts by: Philip Anderson

Congratulations on taking this big step toward multi-family investing! Your goal of buying, holding, and potentially refinancing in a few years is a great approach, especially if you're already running numbers and considering market analysis. Here are a few tips that might help as you get started:

Market Analysis: Since you're open to out-of-state investing, look for markets with steady population growth, job diversity, and a balance between rent prices and local wages—those factors often hint at stability and demand. Cleveland and Lubbock are both good options to explore, but also consider areas with strong job sectors, like Indianapolis or parts of the Southeast.

Researching Demographics: Tools like Placer.ai, Costar, and Data USA offer insights on demographics, migration trends, income, and market growth. Zillow Research and Redfin Data Center are also good resources to check property trends.

Finding Deals: LoopNet can be a bit challenging for finding "undiscovered" deals, as most listings there are already on the market. Consider building relationships with local brokers who specialize in multi-family units and may have off-market opportunities. Also, platforms like Crexi and MLS can sometimes yield better results.

Questions to Ask in New Markets: Focus on questions around local vacancy rates, job market stability, average tenant stay duration, and the area’s development plans. Understanding these factors will give you a sense of how well your investment could perform long-term.

I hope these suggestions help, and good luck as you get into multi-family! Feel free to reach out if you’d like to connect with others who have experience in the markets you're interested in.

@Philip Anderson

I grew up in Los Altos and Mt View and spent many a summer day a long time ago on the Santa Beach Boardwalk.

Spent many nights camping at Aptos State Park, days playing golf at DeLaveaga, Ft Ord, and Poppy Hills. We had a family tradition of spending the week before Labor Day in Carmel.

Small world.

We left the Bay Area 10 years ago and moved to Greenville SC. It’s been a great move for us. I can assure you there is intelligent life outside coastal CA. 😀

If I may make one other suggestion - understanding investment aspects are primary. You might really consider buying in a market you may some day move to. You can find good investments in all the markets you mention - AZ might be my least favorite.

Down the road it will be easier to manage the property if you live nearby.

And many make a relocation over time, spending 2 months a year in the new location and then over time increasing time spent in the new location -  while one “winds up” their old life and starts a new life -so say buying a quad or 8 unit building would allow you to establish a beach head in the new location.

Good luck. 

Hello @Philip Anderson,

The goal of real estate investing is financial freedom, not owning a specific property type. Financial freedom isn't a one-time achievement—it's about creating an income stream that sustains your lifestyle indefinitely. This rental income must meet two key requirements, which depend on the city where you invest.

• Rents must outpace inflation: Inflation consistently erodes the purchasing power of a fixed amount of money. For instance, if the inflation rate is 5%, what you can buy today for $100 will cost $155 in 10 years. If rents fail to outpace inflation, you can never achieve financial freedom.
• Lifelong: The rental income should persist longer than you do. To continue paying rent at current levels, tenants must be employed in similar jobs. However, most jobs aren't permanent. On average, U.S. companies last only ten years. Large companies, like those on the S&P 500, last on average for 18 years. Unless new companies move into the city and create jobs that pay similar wages and require similar skills, soon all that will be left are lower-paying service sector jobs.

Summarizing the location requirements for financial freedom:

• Significant and sustained population growth. Wikipedia
• Conditions that attract new companies to set up operations and create replacement jobs:
  • Low crime: Companies have many options when choosing where to set up operations. They are unlikely to select a city with high crime rates. Never invest in any city on this list: The Most Dangerous Cities in America, Ranked.
  • Low operating costs: Companies compete with each other continually. They are unlikely to choose a location where operating costs would consume a significant portion of their profit. I would start with insurance and property taxes: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.
  • Pro-business government: Companies avoid cities or states with regulations that hinder profitability. Research the city's business climate online. Never invest in any city with any form of rent control.
  • Metro population > 1M: Companies require significant infrastructure, such as interstates, highways, major airports, talent pool, and other facilities. These are rarely found in cities with metro populations of less than 1 million. Wikipedia

After selecting an investment city, the most crucial decision is to select the right tenant segment to target. Remember, properties don't pay rent—people do. A property is merely a vessel housing rent-paying individuals. I recommend identifying a tenant segment with a high concentration of "reliable people." Reliable tenants stay for many years, pay the rent on schedule, maintain employment even during economic downturns, and take good care of the property. However, reliable tenants are the exception, not the norm. So, how do you find a segment with a high concentration of dependable renters?

Ask 10 to 15 experienced property managers, "Which properties would you purchase to attract long-term tenants who pay rent consistently and maintain the property well?" I asked this question when I launched my investor services business in Las Vegas in 2005. Surprisingly, 13 out of 15 property managers described identical property types.

Once you've identified where and what this tenant segment rents, purchase similar properties. Don't be constrained by dogma about the "best" property type. The best property type and location enable you to achieve financial freedom. Note that the best property type will likely vary depending on the city.

However, even if you buy properties that attract a tenant segment with a high concentration of reliable people, you still need to work with a property manager who can consistently select dependable tenants. In Las Vegas, I only know of two property managers I would trust to choose tenants for my properties. They possess the rare skill of selecting reliable tenants—something you can't do yourself. Remember, one bad tenant can cost you far more than the fees associated with professional property management.

Summary

Philip, I hope this post has provided guidance on selecting an investment city and the types of properties that will generate reliable income. Remember to focus on the ultimate goal—financial freedom—rather than adhering to any particular dogma.

@Philip Anderson

1. I’d want to be very clear about SDIRA regulations regarding self-involvement. Your “I will collect the rents” sounds like property management functions. I do know for a fact, your SDIRA could NOT pay you as an individual any PM fee. Whether no PM payment to you as an individual negates the concern over self-involvement, I do not know. I suspect it’s not quite as simple as you perceive but I could be wrong. 🤷‍♂️

2. Be sure you understand how UBIT tax works for an investment purchased with debt and SDIRA ownership. It’s not a deal killer per se but I find far too many investors are surprised about this issue after they have already made the investment. Figure this out first. Rates for SDIRA loans are often higher than rates for non SDIRA loans.

3. Be sure to understand how debt will work and how SDIRA purchase impacts this. Given your $450K down, you’ll be looking to buy something for $1.5M - $1M loan. This most probably will be a recourse loan from a local bank or credit union. With a recourse loan, the lender may ask you to sign a personal guaranty. Does that violate SDIRA regs? Don’t know, but you need to find out.

In terms of market, you want to choose a market where you can get to easily - 2 or 3 hour drive or non stop flight. If it takes all day to get there, you won’t be able to spend enough time to get there as often as you need.

4. I am a San Francisco Bay Area expat now living in Greenville SC and loving it - great place to live great place to invest. My caution is there are lots of sharks out there looking to take advantage of a big money CA investor - this is of course a generalization- but often CA investors overpay going to a new market. Be sure you take the time to really understand the lay of the land. Talk to the folks in the coffee shop or restaurant - the Uber driver - people out and about. They have nothing to sell so you will get the straight story from them.

Good luck 

Arn

If you are investing with an SDIRA, then it likely needs to be a passive investment in some sort of syndication.  I don't see how you can buy a small apartment and not have some direct involvement in it.  That would make it a prohibited transaction.