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.
Let's connect. I'll share with you some details on my strategy.
The way I think of it, I want to be able to drive to my properties in a couple hours max. Currently, my property is about 1.5 hours away from my house. This means that I can drive out there to meet someone and the only thing it costs me is a half tank of gas and the three/four hours of time. I have handymen I have vetted in the area that can handle little stuff but being able to drive there to handle big stuff is a great asset.
-David
I have investing for a long time. Let me give you some thoughts to make sure you are looking at real estate investing as a BUSINESS and not a HOBBY.
Every investor should know prices in his investment area whether they buy and sell or hold for rentals (I do not suggest you go out of state especially if you are a newbie.....you lose control).
Tons of information about investment properties is handed out to potential buyers by selling agents and brokers, which don’t mean “diddlysquat” about bottom line results. In the business of profit making, you must focus on two important numbers. First… What will your customers pay for your product? Second… Can you afford to pay (purchase price) to provide your product and still make a profit for yourself? You should not move forward (in my opinion) without the answers.
In the rental business, you need to know what the majority of renters can afford to pay in your area. For example, in my town I rent many 2 bedroom, single bath, houses to young couples with a small child or two and also to seniors. Both these customers cannot afford rents over $750 per month. Knowing what my customers can afford helps dictate how I buy properties. Smart investors will study the marketplace in order to deliver the right product (affordable houses) to their customers. It’s important to remember – if my tenants can’t afford to pay for my houses – I can’t either! It would be very unwise to own a stable of houses renting for $900 per month if you lived in a town full of $750 renters. If the majority of renters in your area can easily afford your houses, it’s much easier to keep them occupied and profitable.
One way you can learn rent values is to pretend you’re a renter in search of housing. Call telephone numbers in the classified ads or Craigslist for different locations within your investment area. Drive out to see what $700 per month will buy you in a two-bedroom house or apartment. Do the same for a $500 rental, etc. Once you become familiar with different parts of your town, you’ll be able to read the prices online and the newspaper ads and then have a pretty good idea about what the properties look like and how well they’re maintained.
Take care.
Fixer Jay DeCima