Good areas to invest for cash flow?

Question

I've been studying real estate investing for the past 2 months and am now starting my journey to find my first deal. Like many people, my goal is to find a 3 - 4 unit multifamily that cash flows well but I'm definitely open to single family homes as long as the returns look promising.

Can anybody advise me on what areas they're having success in now and perhaps what areas you think may look good a couple of years down the road?

Thank you!

Allan

Jay Hinrichs · Answer

@Brian Fouts

I second you on this... why go half way around the country...

Spokane Wenatchee Tri Cities Yakama follow the server farms into central WA.

Follow Brandon Turner out to the Aberdeen area.. you can hit all those types of numbers in an area you can drive to if necessary... gives you greater command and control. And people are moving to WA not moving away.. big difference

James Wise · Answer

Fair enough

Pros

• Homes can be purchased for a fraction of the cost of higher end markets.
• High rental demand.
• Relatively landlord friendly government.

Cons

• Loosing population to the states with warmer climates.
• Freezing winters leave investors open to the risks of frozen pipes and property damage.
• A small problem can turn into a big problem if your property is thousands of miles away.

James Wise · Answer

Ohio, like a majority of the midwest is a market with a low barrier to entry.

You would need to decide for yourself which path you want to take.

I do not want to go much further into the Ohio market at this time given my business interests it would likely be a biased opinion.

Account Closed · Answer

Allan, 50% guess says that ALL expenses will run approximately half of gross rents and the mortgage will be less than the remaining 50% so there should be cash flow.

A cap rate comes from a buyer analyzing the NOI of a property and negotiating a sales price with the seller. That creates a cap rate that subsequent buyers and sellers will use as a cap rate comp to determine the price they want to buy or sell. NOI is the rents minus vacancy and collection and ONLY operating expenses. It does NOT include Capex which is another reason why it is incorrect to extimate NOI by incorrectly using the 50% guess.

A cap rate should come from sales of similar properties (commercial) and calculated against your analyzed NOI to get market value. If you buy at 12% but later find out all the comps sold for 14% then you over paid. The cap rate does not predict cash flow or profitability, only the markets perception that the lower cap rate will be less risky to collect the same NOI.

I'm between the Aquarium and the Outrigger Canoe Club now next to Jimmy Buffet's new place. Manoa is too cold for me.

Adrian Chu · Answer

What kind of cap rates are you looking for?

Allan L. · Answer

@James Wise

Thanks for you advice! The Seattle area is great for appreciation but very poor for cash flowing properties and I'm open to looking out of state.

How is Ohio? I actually had a contact out in Ohio who invests and manages properties in Ohio and Florida who seemed promising but I think he's too busy to take on new clients. I'd love to hear more about Ohio.

James Wise · Answer

@Allan Leal

Welcome to the site.

I would 1st look locally. The closer to you the better.

Those that cannot find anything that cash flows locally typically look to the Midwest.

Jeffrey Dorman · Answer

Allen - I grew up in Spokane and just moved back from a high priced CA market so I know your dilemma. I am looking at Spokane as a better jumping off point in comparison because of the all of the reasons that Brian mentioned.

Brian - Do you happen to know what kind of cap rates are trending in Spokane area currently?

Brian Fouts · Answer

@Allan Leal, how about Spokane? It's economy is actually pretty steady, it is not as impacted as much by outside influences, low price point for homes, 60% rent market, local, population has increased steadily along with income (follows inflation). And is somewhat local.

Good areas to invest for cash flow?

Good areas to invest for cash flow?

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