{"id":100880,"date":"2018-07-31T16:30:37","date_gmt":"2018-07-31T22:30:37","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=100880"},"modified":"2021-03-16T13:59:26","modified_gmt":"2021-03-16T19:59:26","slug":"buy-fringe-maximize-cash-flow-appreciation","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/buy-fringe-maximize-cash-flow-appreciation","title":{"rendered":"My Secret to Maximizing Cash Flow & Appreciation: Buying on the Fringe"},"content":{"rendered":"

There are tons of guides for out-of-state real estate investors on how to pick an appreciating market. Most of them cover the same principles: Invest in areas with increasing population, job growth, and salary.<\/p>\n

I\u2019m not going to argue that those guides are wrong. Investing in rapidly-appreciating markets has made many investors wealthy.<\/p>\n

However, many investors (like me) want to take a more active role in their local market.<\/p>\n

My knowledge of the local market in St. Louis allows me to choose the right neighborhood. One that provides great cashflow with a high chance of appreciation\u2014and with less downside risk than investing in a rapidly appreciating market out-of-state.<\/p>\n

I would rather invest in a great neighborhood with potential in my hometown than in a hot market like Atlanta that\u2019s seeing a rush of competing investors. Atlanta might be growing fast and appreciating, but my local knowledge of St. Louis gives me the tools I need to make smart investments\u2014investments that have allowed for instant equity on every purchase I\u2019ve made so far.<\/p>\n

The beauty of real estate is that it\u2019s incredibly local. Market prices rise and fall on each block and neighborhood based on specific developments, regardless of the market performance as a whole<\/p>\n

Every city is full of hundreds of unique neighborhoods. Noticing trends before other investors will allow you to build a cash flow-driven portfolio with the chance for rapid growth.<\/p>\n

Buying on the Fringe<\/h2>\n

The strategy is simple: Invest on the fringe.<\/p>\n

I buy in working-class neighborhoods close to areas that are known for being \u201cup and coming.\u201d<\/p>\n

In almost every city, there is a street or neighborhood that used to be rough and is now known for being in the middle of a rapid revitalization. You will usually find investors pouring in to do high-end renovations and flips in that area. What you don\u2019t see as much of are investors moving into the areas that are one or two neighborhoods away, but still close enough to be walkable.<\/p>\n

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These properties can still be purchased at workforce housing prices and offer incredible cash flow, with the potential of huge appreciation if the nearby neighborhood that\u2019s rapidly improving spills over. If the neighborhood doesn\u2019t end up appreciating, you\u2019ve still built an incredible cash flowing portfolio in a stable neighborhood.<\/p>\n

The hardest part of this strategy is identifying the right neighborhood and finding a deal that stands on its own merit as a great, cash flowing investment. Appreciation is only the icing on the cake<\/a>, and while investing near high growth areas increases your odds of appreciation, it\u2019s important to make sure you’re still happy with your investment, even if it never appreciates in value.
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\nRelated:<\/strong> When it Comes to Your Rental Portfolio, How Much Cash Flow is Enough?<\/a><\/em><\/p>\n

Finding Your Fringe<\/h2>\n

If you\u2019re thinking of investing on the fringe, you need to identify the right neighborhood to invest in.<\/p>\n

The first thing I would do is look at all of the available multifamily or single family rental properties available for sale in your city and run a financial model on most of them. The BiggerPockets Rental Property Analyzer<\/a> is a great tool to model potential deals.<\/p>\n

After you\u2019ve modeled most of the deals in your market, you should have a good idea of which parts of town work as investments for cash flow\u2014and which ones you should avoid.<\/p>\n

You should also have built up a decent eye to be able to see a building listed for sale, eyeball its rents and have a rough idea of whether it\u2019s going to pencil out as a good investment.<\/p>\n

Choosing a Winning Neighborhood<\/h2>\n

Now that you know where to zero in, it\u2019s time to research and find your target neighborhoods. Investing in areas that other investors aren\u2019t means that you should expect and look for areas with mixed opinions. If everyone told you that an area was great to invest in, it would be harder to find deals with great cash flow.<\/p>\n

Here are several ways to research a neighborhood:<\/p>\n