Doubts about my current market...

17 Replies

In the town I live in now, the local economy is heavily reliant on the military and with the significant impacts related to potential military cuts my instincts are telling me not to buy here now. Do you think I'm being too risk averse? If I don't buy here I have a few options:

1. Buy in the nearest larger market (1-2 hours away). 

2. Disregard distance as a consideration and buy somewhere where the deal looks good. 

3. Not buy anything until I move to a new location (1-2 years and no idea where I'll be sent). 

Can anyone offer any thoughts or advice? Do you think I'm being too risk averse regarding my current market?

  

hi spencer - if I were to pick from your options then I would go 1, 3, 2.  

1. If you local town economy is good then to me then I would bet the military cut probably won't happen or even it happens it might be better than buying a property far from you.  Where you may not know the market well and more difficult to manage. 

3. If you know you will move soon and you think you will have opportunities in the new town then that's something to consider as well. Unless you are in the military and you have the same concern about military cuts in that town as well. 

2. I'm not a big fan of buying properties far from you live. It can be done but much more difficult than buying in your back yard. 

Spencer,

I'm in a very similar situation to you. I live out in Clovis, NM which is in the middle of nowhere and almost entirely dependent on the military base in town. About 5-6 years ago the base was closed temporarily and the housing prices were chopper in half. Therefore when I started thinking about real estate, I decided to buy in Oklahoma City (6 hours away) because I was familiar with the market and there was a huge upside. I was just too afraid of the long term implications of my local market.

I wont lie and say that it's easy owning a property 6 hours away. It's pretty frustrating at times. However, in a way I think it can be a good thing too. It forced me to create systems that worked on their own without me. And it forced me to assemble a team of reliable people in OKC who could handle the property for me. After all, I'm deployed half the year anyway. So I need to create a business that can succeed without me right?

Another thing that I've started to consider is doing "buy and hold" afar, but flipping locally. Although I'm terrified of my local market in the long term, I think it might actually be pretty good for flipping in the short term.

I'm not too sure what your local market looks like, so I don't want to tell you exactly what to do and give you terrible advice. 

The one thing that I would say is to not wait 2 years until you get another assignment. My one biggest regret is not starting sooner. I think you'll find that a lot of people have that regret as well on BP, because it's always easier to kick the can down the road a bit.

Hopefully that helps a bit. Take it easy

Tyler

Hi Spencer, I understand your situation not an easy question to answer. I too am a long distance investor but that happened with a military move also. I started investing in Oklahoma City like Tyler but was living there when I did that. After 5 years we were sent to Italy and had to find ways to keep the business going. We bought another SFR and a triplex in OKC while we were there. We are now in MD and it has been difficult not being on the spot. Like Tyler says if you have good resources in place, property managers contractors etc it can be done. I would try to take a trip to another market you might be considering to get a feet on the ground impression. Find a local agent there and have them set you up with a link to send you properties that meet your criteria there. Use this site to find other investors that are doing business in that area and to find local resources. The sooner you get started the better. With the military you never know where they might send you next, the market there might be just like the one you are in now!

Good luck.

Appreciate all your feedback. 

@Joe Villeneuve  I like the confidence in your answer haha. It reminds me of my stock investments, at first I tried to only invest in "what I knew." Later I realized I could find better investments by being willing to learn new things and go outside my comfort zone.

@Tyler Flagg  It's nice to see somebody in just about the same situation as me, watertown is about the same size as Clovis. The part that bothers me is I know I could save so much BAH by buying. That's an interesting idea to distance hold but locally flip, my original intent was to stay away from flipping as my complete lack of experience makes the process seem pretty intimidating, but I'm willing to look into it as a possibility.

@Sara Cunningham  Did you do your distance buys without physically walking through the properties? If so, I'm really interested to see how you mitigated that risk.

@Sibbir Noman  I am in the military so the affects of cuts will pretty much follow me wherever I go, just depends on the post. Some posts have a much more diverse local economy than others. Wherever I end up buying, I will end up distance managing or at least distance owning because I will be moved every 2-3 years. I think its the distance buying that concerns me more than the distance owning.

@Joe Villeneuve "I like the confidence in your answer haha. It reminds me of my stock investments, at first I tried to only invest in "what I knew." Later I realized I could find better investments by being willing to learn new things and go outside my comfort zone."

If size matters, go with number 1.

If time doesn't matter, then go with number 3.

If you want to invest in Real Estate, go with number 2

The numbers will tell you where to invest.  You can't force the numbers...so don't try.  The numbers don't lie, so don't argue...you will lose every time.

Spencer - if the right deal presents itself in Watertown take it...caveat being the "right deal". 

Watertown gives lots of reason for concern due to the rapid and continued increase in housing stock (building of newer apartments).  The major concern, if/when number cuts take place, your best perspective tenants (military) will have the choice between your 100 year old duplex or brand new housing.  If a lower rental rate can still be profitable the deal is still good.  Personally, I think rental rates in and around Watertown are going to have to take a haircut.  Demand has been so high, that rates are based on Basic Housing Allowance alone, as soldiers would rather rent a three bedroom house in fair condition than stay in a hotel.  As more and more housing stock comes into play supply will continue evening out.  If numbers shrink, we'll be on the other side supply/demand curve.

Britt Abbey

    Spencer yes I I did buy without physically seeing the properties. In fact I still haven't seen the properties. I rehabbed one with the tenants still in 2 of the 3 units. I now have tenants in all 3 in the triplex. I did a lot of research on the county assessors site beforehand to see its sales history and my realtor did CMA for me. I also know the areas I bought in so was familiar with the general area. The assessor site in Oklahoma is very user friendly and gives you a lot of info. Used google maps etc too.

    @Account Closed  

      

    another point to consider is that you are going to be Long distance landlord  anyway when you move in 1-2 years .  Britt brings up some points about the local economy .   Drum is particularly  vulnerable going forward  i would think 

    Kenneth Hynes

      @Account Closed  

      My husband is active duty Navy. So I understand where you are coming from. Honestly we have turned out transient life style into a positive. We buy all over so I have gotten VERY good at self-managing from afar. That being said military bases aren't as "scary" as you think they will be.

      I actually "LOVE" military bases. The shitter the little town the better

      *transient population exceed natural houses available so with BAH the prices for rent tend to be higher than mortgage

      *Not all bases are created equal- the key is to know your base. I can tell you from what I know about the Navy,  there are bases that are not replaceable right now. So while there will always be realignments it is easier to predict what will happen if you understand the base.

      Also make sure you evaluate the "large" cities.

      We are 30-45 minutes from two "large" markets. I can tell you as an invested they are much worse for buy and hold than my market. The rents are MUCH lower for the price. For example  200k house in my area gets 1600 for a class a market, but its 280-320 in the larger markets.

      Also be careful about the costs of long distance managing. I have gotten very good at keeping costs down through self-manage and no vacancy. On the other hand, not being close as costs me money just because. Like paying loses 120 to "install" a microwave because I can't impose on my tenants. Or $250 for "caulk" because I had to hire a plumber because of a leak that my husband could have done.

      While this by no means, is a reason to not buy long distance. As being military the definition of local depends on orders. I wouldn't not buy in military areas just because.

      @Britt Abbey  Do you have a prediction for what you think prevailing rental rates are going to be "post haircut"? I like your advice about looking for the "right deal" and I want to make sure I'm using conservative values to analyze. 

      @Elizabeth Colegrove I think the situation here used to be such that there was a much bigger demand for housing than supply but as Britt posted above, there has been a large influx of new building so it looks like that advantage will be shrinking. I don't think the army will close this base, I think it definitely has a future, but I think what worries me is that with my lack of experience (both in the area and with real estate in general) I'm not sure what kind of effect troop reductions will have on the local market. I'm not completely scared off quite yet.

      @Kenneth Hynes  Yes, no matter what I do, I will end up being long distance eventually so I'm trying to plan based off of that.

      @Account Closed  What exactly do you mean by "military cuts"? Is it the fewer people coming into service? That may be true, but that gives more of the cash pool/continued stability to the existing servicemembers :) which may still solodify renters.

      @Andrey Y.  By cuts I mean a reduction in the size of the army because of cuts in budget. This could potentially mean less troops at any particular base resulting in less buyers/renters and then would likely follow with decreasing values and rents (depending on the base). I don't think it  would give stability to remaining service members (as far as location) because the army still likes to move people every 3-5 years.

      Spencer, I started buying properties in Watertown in 2002, and there are always deals to be found in the area (and put your BAH to good use). I have amassed 13 duplexes while I was active duty, and now have retired in the area. Contact me if you would like to pick my brain. Most of what everyone has been stating is true, yet there is always a market for Soldiers looking for the $600-800 market (so they too can take advantage of their BAH) vs. the new places that are looking for $1000-1300/mo. I only deal with multi-family, so that it is easy to see a larger ROI, and safety net when one of the places is empty.

      If you want to be a successful investor, you let the market pick you...and not the other way around.

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