Rental Property Investor · KY · Member since 2013 · 1k+ posts · 537 votes
What, in your opinion, are the best turnkey rental markets for cash flow in 2017?
I've been listening to a lot of podcasts and playing catch-up on some of them. In other words, I might discover a new podcast I like and I'll begin listening all the way back from episode 1 to current. I've been hearing a lot about different ("good") cash flow markets but some of these podcasts are back in late 2014 and 2015. Obviously things change. Just wanted to hear some opinions on different turnkey markets where the primary goal is cash flow. Here are some I'm considering:
Memphis, TN
Atlanta, GA
Kansas City, MO
Jacksonville, FL
Indianapolis, IN
Bronx, NY · Member since 2014 · 25 posts · 34 votes
9y
I think you'll get a lot of that - people in the business suggesting their market, whether on your list or not - you are not likely to get an unbiased assessment of which market is best. I personally invest in Jacksonville and Indianapolis, but I can't tell you those are the best for cash flow in 2017. There are simply too many markets for me to understand them all. But since Indy and Jax are the markets I know, they are the ones I'd recommend. But I'm sure in any of the markets you listed, there are turnkey operators that have good cash-flow deals. And of course in other markets.
I like Indy because the cost of entry is pretty low with a strong rental market, and I'm working with partners I feel I can trust and have shown to do good work, and I like Jax because of all the job growth and infrastructure improvements, and again because I have partners on the ground I'm comfortable working with. I passed on KC as a market because it is a bit too far for me to drive there myself and flights there tend to be expensive, although there certainly were deals with good cash flow.
My advice - pick a market based on criteria important to you, contact the turnkey operators, visit the market to look at deals and see their work firsthand (very important), find ones with cash flow that meet your criteria, and dive in.
Real Estate Broker · Miami, FL · Member since 2015 · 59 posts · 37 votes
9y
I agree with Michigan. I've been helping clients or investing myself in West Michigan for 9 years and the numbers are great. The east side is really turned around too. Definitely a place you should be looking.
Bronx, NY · Member since 2014 · 25 posts · 34 votes
9y
I think you'll get a lot of that - people in the business suggesting their market, whether on your list or not - you are not likely to get an unbiased assessment of which market is best. I personally invest in Jacksonville and Indianapolis, but I can't tell you those are the best for cash flow in 2017. There are simply too many markets for me to understand them all. But since Indy and Jax are the markets I know, they are the ones I'd recommend. But I'm sure in any of the markets you listed, there are turnkey operators that have good cash-flow deals. And of course in other markets.
I like Indy because the cost of entry is pretty low with a strong rental market, and I'm working with partners I feel I can trust and have shown to do good work, and I like Jax because of all the job growth and infrastructure improvements, and again because I have partners on the ground I'm comfortable working with. I passed on KC as a market because it is a bit too far for me to drive there myself and flights there tend to be expensive, although there certainly were deals with good cash flow.
My advice - pick a market based on criteria important to you, contact the turnkey operators, visit the market to look at deals and see their work firsthand (very important), find ones with cash flow that meet your criteria, and dive in.
Real Estate Investor · Miami, FL · Member since 2013 · 474 posts · 214 votes
9y
I'm gonna suggest staying close to home. Lexington or Louisville are both very intriguing and very close by. For a traditional, established cash flow market, you can't beat Indy being a comfortable drive away. If for some reason thats not good enough, then Charlotte, Atlanta, Birmingham and Memphis all offer plenty while being a manageable 5-6 hour drive.
Rental Property Investor · Ramsey, NJ · Member since 2016 · 72 posts · 55 votes
9y
I just started investing in Atlanta and the numbers look pretty good. Easy to do >8%. But nothing like it was three years ago when the market was bottomed out. I missed the boat on that, but my friends who go in then saw something like 97% ROI in three years. Now I like it primarily for the low cost of entry and strong local job market. There are deals to find for sure. But it's not the smorgasbord it was.
Contrarian Investor · Greensboro, NC · Member since 2016 · 219 posts · 174 votes
9y
Mark, not sure what turn key providers you've investigated but the ones I checked into really underestimated long term holding expenses. I was lucky if I could get them to agree to 5% maintenance and 5% vacancy. But as soon as I tried to negotiate a CapEx expenses they'd stop returning phone calls. One in particular I was looking into was trying to sell a house for one of their investors which they had sold to this investor several years ago and managed since day 1. In the comments they bragged about the condition of the property and even said it had a new roof put on last year. Reading between the lines I'm sure the original investor never considered the cost of a new roof in cash flow calculations because the turn key provider didn't so my gut said they realized there was no cash flow after such a large expense. As the real estate guys would say do the numbers and the numbers will tell you what to do. Best of luck!
Rental Property Investor · KY · Member since 2013 · 1k+ posts · 537 votes
9y
Jason Smith , you are absolutely correct. So far, I've noticed two different companies (one provider and one promoter) who have quoted (on a podcast or website) return projections that really don't consider these.
One of them calculated PITI, management, and that's it. No vacancy, cap-ex, or maintenance.
The other calculated PITI, management, 5% vacancy, 5% maintenance.
The way I've looked at it is that if the properties really are rehabbed to the extent stated (new HVAC, new roof, etc.), then cap-ex should be muted in the beginning. If the rental markets are good, vacancy should be low. With that said, I'd estimate, on average, the following:
PITI
Management at 10%
Cap-Ex + Maintenance at 10% total
(I used to use 10% each, but after rehab, I figured maybe to shave some off)
Vacancy Loss at 8%
With all that said, most of the numbers on a SFR still cash flow about $100/mo. Not great, but when you factor in total returns, not too shabby for something virtually completely hands-off.
I think you'll get a lot of that - people in the business suggesting their market, whether on your list or not - you are not likely to get an unbiased assessment of which market is best. I personally invest in Jacksonville and Indianapolis, but I can't tell you those are the best for cash flow in 2017. There are simply too many markets for me to understand them all. But since Indy and Jax are the markets I know, they are the ones I'd recommend.
We're looking at turn-key as well with the same approach. We went to college in Kansas City and know that area fairly well. It's a short flight/reasonable drive from Denver and we have friends we like to visit there. We figured we can leverage that knowledge so that we won't be buying completely sight unseen.
Mark, not sure what turn key providers you've investigated but the ones I checked into really underestimated long term holding expenses. I was lucky if I could get them to agree to 5% maintenance and 5% vacancy. But as soon as I tried to negotiate a CapEx expenses they'd stop returning phone calls. One in particular I was looking into was trying to sell a house for one of their investors which they had sold to this investor several years ago and managed since day 1. In the comments they bragged about the condition of the property and even said it had a new roof put on last year. Reading between the lines I'm sure the original investor never considered the cost of a new roof in cash flow calculations because the turn key provider didn't so my gut said they realized there was no cash flow after such a large expense. As the real estate guys would say do the numbers and the numbers will tell you what to do. Best of luck!
We have noticed the same thing. There isn't usually a budget for CapEx in their pro formas. We have been asking for references and actually calling their numbers. Obviously, they handpick who they give us for references, but if you can find someone you trust who will recommend a turn-key provider, that's a huge plus.
Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
9y
I will throw in Little Rock to your list of markets. Obviously a bias since I am an owner and TK provider in that market too. 2015 rents up 11.4%, that was # 9 in the country. In 2016, LR was top 15 in the country for rent increases.
But, not to sound like a total Homer, you should look into Columbus, Birmingham, Shreveport and although not a fan, Jackson, MS.
Real Estate Broker · Phoenix, AZ · Member since 2013 · 749 posts · 399 votes
9y
@Mark S. , I am local in Kansas City, MO. We have some great cap rates and rent rates vs purchase price. Feel free to PM me if you want to discuss KCMO further. Best of luck to you.
Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes
9y
@Mark S. I think Detroit has to be near the top, if not the top city, for cash flow. Some other parts of Michigan as well. However, like some others will point out, there are many difficulties in some of these markets due to crime rates, high tenant turnover, difficulty dealing with the city, finding good local contractors, reputable property management companies, capital expenses, etc.
That being said, I've never rehabbed a single property and had bought all my rentals turnkey. True CAP rates for my first few commercial units even during purchase were extremely high when there were a couple of vacancies, but now they are fully occupied (almost 2 years) and at over 50% CAP rate for 2016 based on my purchase price. I haven't been able to find deals like that in a while, but I think it's still possible to get great returns if the right purchase is made, and you have the right team/partner on-site.
Real Estate Broker · MI · Member since 2014 · 594 posts · 183 votes
9y
Originally posted by @Maxwell Lee:
I'm gonna suggest staying close to home.
Not to insult you but I would advise staying within your state if you haven't invested in cash flow properties. Obviously, if you were to go out of state make sure your point of contact/realtor/broker understands the real estate investment mentality and that your PM comes with a high reputation of referrals.
Rental Property Investor · KY · Member since 2013 · 1k+ posts · 537 votes
9y
@Scott Matthew C., I think my first deal will be with Mid South Home Buyers in Memphis, TN. So far, I feel really good about them. I will be visiting their operation in person shortly as well.
Real Estate Consultant · Whitestown, IN · Member since 2014 · 547 posts · 933 votes
9y
I am partial, because I work in a great market (Indy.) I do have several clients who are also invested in Memphis and Kansas City as well. I have had plenty of people come out of other markets (especially the ones that work with another Real Property Management office) and we are the first place they inquire about because of their success in other markets.
Something else to consider... many people have bashed Detroit for a few years due to economic struggles and such, but I visited Detroit last summer and had a meeting with our the Franchise owner of RPM Metro Detroit. I was super impressed with his understanding of the market and where/how to get in. One of my clients just purchased 2 properties in the Detroit suburbs late last year and is really happy so far. Time will tell if he has long-term success. While I was impressed with Detroit, I am still a little hesitant myself.
Once you find the markets that you are most interested in, build a team that you are confident with. If you can't find the right team in one of the cities, look at another city. If you are investing outside of your market, it is vital that you are working with trustworthy experts in their field whose interests are aligned with yours. A lot of us will market ourselves (which is fine) but it's imperative that our interests are aligned with your success and not just the next deal. Evaluate their business models. Are their clients and investors expanding their portfolios and coming back with more business? That's a sign of trust and success!
Real Estate Agent · Kansas City, MO · Member since 2015 · 85 posts · 19 votes
9y
I would have to agree with Tim. Kansas City is a great market. It has been growing for several years now and showing great signs of continued grow with many companies having their headquarters here and/or moving them here. The low cost compared to high rents makes it a great market for investing.
Real Estate Investor · Kansas City, MO · Member since 2015 · 222 posts · 121 votes
9y
We like Kansas City and have most all of our inventory here! The taxes are low and the returns are great! Kansas City is a growing city on the brink of many revitalizations.
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
9y
@Mark S. You can get good cash flow and high COC returns in several markets but when you overlay economic and demographic fundamentals like job and population growth, personally I think Indianapolis and Kansas City are the two best. We sell turn keys in both those markets and I constantly monitor the economic and demographic trends in most of the other ones that you mention which is why I like Indy and KC. Atlanta was played out 3 years ago unless you're ok with 6-7% CAP rates. You can get good returns in Memphis and Birmingham but a simple review of the Census Bureau and Bureau of Labor Statistics will show stagnant populations and jobs in those markets. I don't know the Jacksonville market well enough to comment on it. I have a report on my website and a webinar recording of how to evaluate and choose a market that you might find helpful. Below is a comparison of some of the most popular markets.