Multifamily cashflow property

[Tim W.]

Southern California newbie looking for cashflow, specifically in multifamily deals in the Midwest (I've been browsing Ohio, Missouri, Indiana, and Kansas).

Although new, I feel drawn to multifamilies >5 units. 

I have >$200k to invest as a downpayment but I'm currently hesitant and not sure if I'm being too ambitious.

Any guidance would be appreciated.

Thanks BP!

[Account Closed]

Originally posted by @Tim W.:

Bob Bowling I appreciate your devil's advocate point of view. No one is selling me on the Midwest. I've listened to the podcasts and read through the blogs but no one is selling me on the Midwest. Perusing through realtor.com MLS listings is where I've been able to see the numbers work. Imagine what a great deal looks like in the Midwest.

I don't have a specific answer as to why someone would invest their money in lower return investments. Perhaps there's a perception of "safer" investment when something is nearby. Perhaps one will pay more when they feel the asset has more room for growth. Perhaps they don't know there's better opportunities elsewhere. The reasons are endless.

As a seasoned investor, can you share some experiences with investing out of state? I'm new to this and maybe I'm over simplifying the whole out of state investing. Your profile says your in Hawaii, I'm sure you can understand my reasoning for thinking out of state for investing.

Tim, here is my response to a recent thread on investing in the Midwest vs Hawaii. 

As a Hawaii investor going back to the 70's I can assure you that prices have been going up like crazy for decades. As far as buying high I can see using some caution in todays market but would ask you if you think Kansas City or any where in the Midwest is also not at the possible top of their market or are you just confusing comparatively cheap prices with market bottom?

As far as making money in Hawaii if you'd bought last years median price condo at $338,000 with $67,600 down and them sold this year at the median price of $413,000 then you would have more than doubled your money in a year. Puts that few hundred dollars of cash flow into perspective.

I am not against the Midwest or turnkey investments as long as you are educated but if your education is coming from podcasts and blogs on BP you should know that they are not vetted and probably more than 80% of the information is incorrect and the authors are either ignorant of basic real estate knowledge or counting on your ignorance.  It's like the blind leading the blind or worse the crooks stealing from the blind. 

I was a Kentucky REALTOR in the 70's.  I still have friends and family back there.  A $35,000 property there in the 70's may be worth $60,000 to $100,000 now.  My 1978 $35,000 Honolulu is worth over $500,000 and has generated over $500,000 in cash flow.  Plus I can assure you that the expenses on that typical 1800sf Midwest property were considerably more than my 600sf Honolulu property.  I also had zero vacancy which would be impossible to get in the Midwest.

I did invest in Vegas in the early 90's before their boom and bust.  20 years later and rents are barely more!  My rents increase a minimum of 6% a year.  Stucco and tile roofs keeps expenses down but HVAC replacement is expensive and since you get more sf per $ the turnovers get pretty expensive for paint and carpet. 

Relying on 'numbers" from MLS or uninformed "providers" is not a very good investment strategy. Question everything you are told.

Good luck.