All Forum Posts by: Zachary Young

Columbus, Ohio is a great market to consider if you're looking for appreciation markets that still cash flow. I moved here from Florida after seeing the expansive growth in the Columbus market.

There are multiple billion dollar companies dumping money into the city, such as Intel, Google, Honda, and Amazon. This is causing a huge influx of people moving here for jobs. And a lot of start-up companies are migrating to this city as well because of the OSU campus that has thousands of talented students graduating and looking for positions locally.

Everything that’s going on here in Columbus is attracting investors and other businesses from all over. A recent study showed that 80 people are moving to this city every single week, which will continue to increase housing demand.

@Zachary Young

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

Property Class will typically dictate the Class of tenant you get, which greatly IMPACTS rental income stability and property maintenance/damage by tenants.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

If you buy/renovate a property in Class D area to Class A standards, what quality of tenant will you get?

Similarly, if you put several Class D tenants in a Class A 4-plex, what do you think will happen to the property?

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

The City of Detroit has 183 Neighborhoods we’ve analyzed.

DM us if you’d like to discuss this logical approach in greater detail!

Quote from @Zachary Young:

Hi all, I am looking into buying my first rental property. As with many others I'm sure, looking for guidance on affordable cities that still provide a solid return / cash flow. Preferably looking for properties under $200k, but up to $300k. It will have to be out of state since I live in a HCOL location so I am open to anywhere in the country, but most of my research has taken me to the midwest (e.g. Cleveland and others) and some spots in the southeast (e.g. Huntsville and others). However, from my research, it's extremely difficult to find any cities where the properties cash flow other than places like Cleveland which has its own set of drawbacks. Cleveland almost seems like the best option because of the affordability and rental demand, but worries me due to the high property taxes and lack of population and economic growth. For the most part, due to interest rates, breaking the 1% cap rate still won't provide positive return after expenses. I also have no problem doing some sweat work to build equity in the beginning as well. I just want it to work and be a positive experience because I know that will keep me motivating to continue investing and building my portfolio.

What are some cities that might provide cash flow, but remain affordable? Does anyone have better insight into the cities I named? How can I best find undervalued properties in desirable locations?

How can I best find undervalued properties in desirable locations? - You can cold call, work with a deal finder like a Realtor or wholesaler, or network with people who already own properties. Ideally, you network with people who have owned properties for a long time. Sometimes, they will give you a deal. 

Quote from @Zachary Young:

Hi all, I am looking into buying my first rental property. As with many others I'm sure, looking for guidance on affordable cities that still provide a solid return / cash flow. Preferably looking for properties under $200k, but up to $300k. It will have to be out of state since I live in a HCOL location so I am open to anywhere in the country, but most of my research has taken me to the midwest (e.g. Cleveland and others) and some spots in the southeast (e.g. Huntsville and others). However, from my research, it's extremely difficult to find any cities where the properties cash flow other than places like Cleveland which has its own set of drawbacks. Cleveland almost seems like the best option because of the affordability and rental demand, but worries me due to the high property taxes and lack of population and economic growth. For the most part, due to interest rates, breaking the 1% cap rate still won't provide positive return after expenses. I also have no problem doing some sweat work to build equity in the beginning as well. I just want it to work and be a positive experience because I know that will keep me motivating to continue investing and building my portfolio.

What are some cities that might provide cash flow, but remain affordable? Does anyone have better insight into the cities I named? How can I best find undervalued properties in desirable locations?

I think the Greater Cincinnati market may have exactly what you are looking for. SFH under 200k, definitely exist. 300k for SMF as well. A lot of details I can go into, but would rather do it over call. Shoot me a message if you have any interest in the area and so I can learn how to help you best

Zachary,

Your concerns about Cleveland are valid—high property taxes and stagnant population growth are definitely challenges to consider. Given what you’re looking for (affordability, cash flow, and the ability to add value), Detroit might be worth looking into. It’s a city I know well because I built a 12-door portfolio there between 2019 and 2021.

Detroit offers a lot of value in terms of affordability and rental demand. You can still find single-family homes in the $80k–$100k range and duplexes in the $130k–$150k range, even in C and C+ neighborhoods that are seeing steady improvements. The population is officially growing again, and there’s been a lot of investment in infrastructure and development in recent years, which makes it unique compared to some other Midwest markets.

One thing to keep in mind, though, is that Detroit is very much a block-by-block city. It’s crucial to have local market knowledge or work with someone who does. If you’re willing to put in the work and learn the nuances, it can be a great place to build a portfolio.

Feel free to reach out if you’d like any pointers or resources—I’m happy to share what I’ve learned from my time investing there.

Best of luck!

Hello Zachary,  You are correct in looking at the Mid-West for cash flow.  I have been in Milwaukee WI for quite a while as investing in my backyard in NY is cost prohibitive. good luck on your journey!!!!