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!
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.
Welcome@Tim W.! Its very normal to be hesitant and/or nervous about parting with large sums of money. You will never know unless you take a chance. Maybe start with a small investment property (like under 50k) and see how it works out and how comfortable you are. By doing much research you shouldn't really bomb the first deal. Make it simple like a non fixer, cash flowing property with management in place? Anyway good luck Sir!
@Dylan Vargas thanks for the words of encouragement and advice. Next step, find a great broker & property manager in the Midwest. No biggie. :)
Welcome take full advantage of the BP resources.
Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and rehabbers (cash buyers). Find them through Google and meetup.com Network via phone till you visit the future locations.
Paul
Welcome @Tim W.. There are lots of great opportunities in the Midwest - I'm an investor-friendly agent and buy and hold investor in St Louis, MO. I'd second the recommendation to connect with local REIA as well as brokers in locations of interest. Personally, I like the opportunities for 2-4 plexes in St Louis, but some of my clients also look at the larger multis. We do have some great local RE groups, some of whom are active online if you'd like contact info.
I will say that commercial (5+ multis) are a very different world than residential (single or 2-4 plexes) when it comes to investing. Regardless of the type of investing you choose to try first, I'd recommend taking time to contact multiple agents and property managers in all locations of interest. Also, go out to visit your top locations. The cost of a plane ticket and hotel is a worthwhile investment, and far less expensive than a bad purchase. This is a great time to meet those agents in person and have them show you a few potential properties. There are things that you can really only understand when you see them for yourself. I send my out of state (or traveling) clients photos and video, but they always comment on how different it is in person.
There are so many different ways to invest in RE; I'd really recommend starting with one area and really getting to know it before digging into the next topic. When I have a new potential client I sit them down and spend an hour or two asking them questions e.g. What level of rehab are you comfortable taking on - even "turnkey" properties will have some deferred maintenance to address. What sort of renters are you hoping to attract e.g. turnover frequency can be impacted by unit as well as location. How do you define risk and what level of risk are you comfortable taking on- this varies a great deal from person to person in my experience. What do you consider a successful investment e.g. paying mortgage in an up and coming neighborhood with good appreciation potential, CAP rate, per door cash flow, etc.
The ones that can answer these questions and have an initial focus on the type of properties they want are the ones I find quickly building a portfolio. Their methods and criteria may change over time, but they are gaining a depth of knowledge which can be easily applied elsewhere. The ones who can't give a definite answer "it depends, that all sounds interesting, I don't want to limit my options, etc" are the ones that I find overwhelmed by choice and struggle to move from research to action, if they do at all.
Southern California newbie looking for cashflow, specifically in multifamily deals in the Midwest (I've been browsing Ohio, Missouri, Indiana, and Kansas).
Any guidance would be appreciated.
Thanks BP!
What makes you think there is more cash flow in these areas than where you live?
@Tim W. Welcome to the boards... Below is some ideas for my market Indianapolis.
You need to figure out your goals and your risk tolerance... You could do flips or rentals.. You could go Single family, or multifamily.. You could go low income or bread and butter...
Single families rent quicker and have tenants that stay longer than mutifams, but your cashflow is lower. Multifams take longer to rent, and you get quicker turnovers, but you get higher returns...
You need to decide where you want your rentals to be.. You can get higher returns in lower income areas(40-80k), but you won't see appreciation, and you will have more hassles with tenants. Bread and butter neighborhoods(80-125k) will see appreciation and better tenants.
Are you planning to get loans on properties from the get-go, then you need to find houses in better shape(will cost more) and there is minimums most banks will lend (40-50k). Banks don't like houses that need work, and that's where the best deals are at. Cash buyers and people not afraid of work(or hiring contractors) are the best deals, but not everyone can be a cash buyer..
If looking at multifams, then you need to try to stay away from properties where you pay the utilities. There's a lot of those in the midwest... Tenants have a tendency to crank the heat up and open a window in the winter in order to cool down.. Ask me how I know...
My tenants in single families tend to stay 3-4 years, but in multifams they tend to stay about 1 year. You also have to realize it takes about 2-4 weeks to find a tenant for a single fam, and more like 4-8 weeks for a multifam... Not for lack of applicants, it's just hard to find quality tenants in multifams.. We recently had 25 applicants for a duplex of ours, but 23 of those were unqualified.
These are all viable investment strategies if you plan for it.
I work with a lot of investors, foreign and domestic here in Indianapolis.. We have quite a few services that may be advantageous to you as well, check out our website and the investors tab... Let me know if I can be of assistance!
great reading all the comments, very helpful.
Any1 knows/recommends an MLS that lists multi-family homes for sale Plz?
I use Zillow but they don't have multi-fam listings apparently.
thanks
check the market place here on BP, you might want to also look at LoopNet
Bob Bowling My area is currently selling duplexes in C/D areas for $400k. After taking debt service into consideration after putting 20-30% down, my cashflow would be close to breaking even if not slightly negative. Instead, I could put $80-120k into a multifamily in the Midwest to purchase in full and the cashflow would be larger than my current market.
Tim, who is telling you this, the guy trying to sell you this stuff? You sound educated. Answer me this? Why is the market only willing to pay $80-120k for these cash flow gems 2000 miles away from you when in your own back yard they pay $400k for less cash flow?
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.
Tim
Let me show you what I have done in Northern California for the last 40+ years. And......I strongly suggest you DO NOT buy out of state. You just loose control, especially if you are a newbie.
I find my groups always in older parts of town, not suburbs and NOT slums. Simple homes in blue collar areas. I rent many Section 8 tenants. At my high point of 250+ rental homes, over 40% were sections 8 tenants. There are many good reasons for this.
See what older areas are, say, 50 miles from you inland away from the ocean.
I've done almost all kinds of investing over the last 50 years.
Here are a few things that may save you a ton of time:
1. I've done many, but flipping and wholesaling are jobs. You pay regular taxes, including social security, like a job and there are not many tax breaks.
2. Long term buy and hold is where you build your real estate wealth. Over time your tenants will pay ALL your bills and for your lifestyle.
3. My biggest success over the years came from buying GROUPS (5-8 houses) of older homes on a single parcel, in older, blue collar parts of town (not slums). Because banks will not finance these types of properties, 90% of the time I got seller financing. The seller knew he/she would be taking back the financing. I did not have to talk them into it.
4. I suggest you read up on a few kinds of investing you are interested in and then pick the one you think would be the best for you, and one that will not require a boatload of cash to start. Then find the best mentor you can in that kind of investing. Learn from that person and stay focused on their kind of investing. Find some of these mentors on a Google. See how many pages of results pop of for them.
You will become an expert in a much shorter time period if you are not going in 5 different directions at the same time.
If you want to find out more, there are 300+ blog posts on my website, organized by categories.
To go to my blog, go to the website address below in my PB signature. fixerjay.com.
I also started a BP blog last week and will be posting weekly, at INVESTING IN MULTI-UNIT PROPERTIES
Good Luck
Fixer Jay DeCima
Tim (my last send to you seems like it was only a partial send, sorry)
Let me show you what I have done in Northern California for the last 40+ years. And......I strongly suggest you DO NOT buy out of state. You just loose control, especially if you are a newbie.
I find my groups always in older parts of town, not suburbs and NOT slums. Simple homes in blue collar areas. I rent many Section 8 tenants. At my high point of 250+ rental homes, over 40% were sections 8 tenants.I've done almost all kinds of investing over the last 50 years.
Here are a few things that may save you a ton of time:
1. I've done many, but flipping and wholesaling are jobs. You pay regular taxes, including social security, like a job and there are not many tax breaks.
2. Long term buy and hold is where you build your real estate wealth. Over time your tenants will pay ALL your bills and for your lifestyle.
3. My biggest success over the years came from buying GROUPS (5-8 houses) of older homes on a single parcel, in older, blue collar parts of town (not slums). Because banks will not finance these types of properties, 90% of the time I got seller financing. The seller knew he/she would be taking back the financing. I did not have to talk them into it.
4. I suggest you read up on a few kinds of investing you are interested in and then pick the one you think would be the best for you, and one that will not require a boatload of cash to start. Then find the best mentor you can in that kind of investing. Learn from that person and stay focused on their kind of investing. Find some of these mentors on a Google. See how many pages of results pop of for them.
You will become an expert in a much shorter time period if you are not going in 5 different directions at the same time.
If you want to find out more, there are 300+ blog posts on my website, organized by categories.
To go to my blog, go to the website address below in my PB signature. fixerjay.com.
I also started a BP blog last week and will be posting weekly, at INVESTING IN MULTI-UNIT PROPERTIES
Good Luck
Fixer Jay DeCima
Bob Bowling Bob Bowling Thank you for your insight. I especially like the real world examples. I'm grateful for all of the advice from the experts on BP and I hope to utilize it soon.
In terms of being educated, is there another outlet you would recommend other than local REIA groups?
Talk to some older Realtors/investors. REIA groups are going to be full of wannabees and possibly hard to weed out if you are a novice. Question everything. If someone can't give a reasonable answer of support be wary. If you are going into multi's then I would look for classes with the Appraisal Institute on valuing them. Find out who is doing the appraisals in your area. They can be very helpful.
@Tim Wong--welcome fellow Californian! A good place to find further education is with the BP book Real Estate Rewind--available on this site for free. I wish I had read it before I started investing :) I would have avoided quite a few mistakes. Hindsight really is 20-20.
Before you run off stepping over dollars in your own backyard to try to pick up nickles out of state, you should talk with some local investors to see how they are doing on their investments and how they operate. I'd attend a few local REI meetups and try to take @Justin R. , @Dan Heuschele (not sure why it is not letting me tag them, but they are on BP), and other local investors out for a micro-brew first. Those that suggest that SoCal does not cashflow well either don't understand the dynamics of this market or are being very short sighted IMO ... all of my stuff here cash flows VERY well, and that is just the "icing on the cake". I have nothing against the midwest, just think that it is way harder to make money out of state than most think and there is no valid reason for a CA investor to go there to invest when they have highly profitable investments sitting right in front of them.