Guys, is the time right to buy a rental property in the Midwest?

55 Replies

Thank you guys. I do get from your comments that a drop in prices doesn't have much of an impact on your REI if they were the cash flow performing type in C/B neighborhoods.

Do some research in the Midwest market. Check out the prices in the rental cashflow areas and notice how the prices pretty much stay the same and don't appreciate. IMO, if a correction comes I don't think the prices can get any lower. You may see a very very slight increase in the spring/summer and then drop back down in the fall/winter.   In any event, just make sure your numbers work before pulling the trigger.

@Hani Alomar

Sales shouldn't matter that much. Your looking at buy and hold in a rental. So long as you can make your numbers work for you, and you've done your research with strong data to justify the investment, do it. Have a plan in place beforehand and ensure you follow that system rigidly.

When I hear Midwest, I think Kansas, Missouri, Oklahoma, Iowa, etc. Those states sound a bit more like Rust Belt states. I would never just sit back and wait for the correction (I've had a friend doing that since 2015). But I would be more conservative with my offers given we are likely relatively close to the peak.

It's always a good time to buy real estate!  You just have to make sure you know what your doing.  Stress test all of your deals thoroughly and ensure you have the correct systems in place.  No one knows when the corrections is coming.  It's better to get in the game now so you have the experience to scale up during the downturn.  Also, look into WI, it's a lot more attractive than IL..in my opinion. 

I like to think of purchasing real estate as I would purchase stocks using the "dollar cost averaging" strategy.

For example:

Say your strategy is to purchase 2 homes a year, roughly every 6 months.

You buy one when the market is "high", buy another when the market is "higher", buy another one yet "higher" and BOOM, you were right and the market corrects. But your purchases continue and now your buying houses "low", and then "lower" and then "lowest", and then "higher" etc etc. 

By doing this you remove self doubts about timing the market, which is an outright insane feat to attempt. And of course the assumption is that you're buying your properties correct in the first place, to buy and hold through any storm. 

Just the way I think about it, rock on with anything you feel comfortable with!

@Hani Alomar if you are concerned about a market correction then maybe @Scott Trench has a good strategy for you in his book Set For Life. His philosophy is to buy 1-2/yr to balance out market cycles. If you find markets that have stable populations and rents you will be at even less risk if your numbers are good to begin with.

@Hani Alomar

If your target is cash flow, I can endorse the Midwest. I would aim for at least 12% CoC returns, but ideally 15-20% CoC return.

If you want to place a bet on appreciation also in a midwestern city, consider neighborhoods that are adjacent to “hot” areas, since they are likely to appreciate eventually.

If you get a free login to CrowdStreet, they have an interesting 2019 analysis of “18 Hour Cities,” including the Kansas City and Columbus markets —

https://info.crowdstreet.com/hubfs/market-views/market-views-0819.pdf

I don't factor in short-term price fluctuations for my long-term holds. I can watch the news that the real estate prices are crashing but, if I didn't buy it for short term capital gains and my rentals are cash flowing..what does that have to do with me? All we know for certain is that real estate values goes down occasionally but it goes up more often than not in the long term. I'd vote for you to buy when you find the right deal.

@Hani Alomar I’ve been thinking about things on this way. If I’m going to hold and wait for appreciation or to do a flip, then I personally would exercise caution. However, if my goal is predictable returns, the analytics dictate the decision. Remember that when housing is petering, foreclosures and forcing owners out of homes, they become the best renters. Everyone needs a place to live!

@Matt P. This is exactly correct. Everyone waiting around for a correction to “get rich” will be exactly the same people too timid to invest when the market is tanking.

The main thing is to have your numbers, risk tolerance, and maths in order and decide what is a good investment based on those factors; Not some mythical consensus of speculating know-nothings.

@Hani Alomar - go ahead and buy something. If you buy well, and the market "corrects" by 10% over a year, and your cash flow is pretty positive, well then you've gotten an almost free education and you can now collect checks while the market marches onward. 

I've found that employment and population growth tend to outweigh the direction of local and national real estate markets. If you invest in a place with good population and employment growth, as long as you've paid a fair price, you'll be fine. If you invest in a place that's on its way to becoming a ghost town, nothing will save you. While watching the flight to the suburbs in Detroit decades ago, I would've guessed that investing there was a bad idea(and I'd have been right.) Same goes for Harlem in NYC in the 60's and 70's. Owners let(caused?) their buildings burn. Of course if they'd held through those decades, they'd have made a mint, but I doubt the years of problems would've been worth it. 

A great trend right now is urbanization, which dovetails nicely with the graying population. Future retirees want to be able to walk to amenities. Large towns, small cities, and large cities usually offer that ability, along with generally having good healthcare options. Try to have that trend as a wind at your back instead of seeking an apparently cheap rural property and fighting the trend. 

Actions speak louder than words. 

I would stop talking to people, relatives, or friends who don't invest in those markets. 

It's already been mentioned in the thread, but there typically isn't a lot of appreciation in the Midwest.  So I don't think it matters too much what the real estate market is doing, you're most likely not going to hugely overpay when you buy there.  If the market dips 15% on a $80K property that's what, a drop of $12K?  Compare that to a 15% drop where I live and you're talking about a six-figure drop.

That's one of the ironies of investing out there -- people love to talk about the lack of appreciation, but the other side of that is that you aren't going to have huge highs and lows, while at the same time getting great cash flow.  

@Hani Alomar I invest in the Midwest because I live here. We don’t see the fluctuations like other areas do and we have amazing cashflow. I have purchased 18 units so far in 2019 all in Peoria, IL.

@Hani Alomar

First, everyone has their own opinion, but what you should know is that they often know best for themselves. 

I know dudes with $100 million dollar portfolios, who have been around, that are waiting 

I know others who are going by the numbers they want and buying now. 

You've got to decide what you want and what you have. Can you afford to buy now? Get really smart, learn the market, know that if we have a recession, how well that market will hold up. The wild card is no one knows when it will happen or how bad it will be. There are always risks in business. Choose a market and see how bad it was hit during the last crash - that would be a good indicator of what to expect

Study success, like I said, it's hard to wait but the very big players are waiting. Meanwhile, others are taking their money that would be getting cheaper in a bank and buying now and earning now. It's long term, don't fret the bumps. 

Get educated, go with what you can afford, when you can, and are comfortable. When you learn, you will form your strategy. 

So if anyone tells you to do one or the other, look the other way. Take the info and make your own decision. 

Look at population growth, crime, industry diversification and job growth, property value. You want to see improvements, local gov spending and improvements. Figure your limits and criteria and go get it

@Kalanie Tran thank you so much! I would have never found that info all in once place in online research when I started, I learned it the hard way- in the trenches. Go use it and don't mess up as many times as I have! :)

Originally posted by @Hani Alomar :

@Jingru Sui

Hi, but is the timing right? I’m looking for cash flow rental investment. Something that would require minimum fixing. A Rental that will satisfy the %1 rent rule and a %8-%10 cap rate.

 I can sell parts of my portfolio turnkey at the 1% rule. If you know local areas in OKC, easy to get that and not hard to beat it with some experience.

@Hani Alomar

If you're looking to buy and hold forever and the numbers work for you right now, who cares about a correction! If you sit around waiting for the next "correction" you'll miss out on many great opportunities. What if we dont see a correction for another 4 years? You could have build a nice portfolio by then

My 2 cents