High Cash Flow / Low Appreciation in Suburbs

5 Replies

Hi All, my local market (Central Massachusetts) is pretty overheated right now. Junky triple deckers going for 350-400k, some sight unseen, a lot of cash offers. So I've started branching out further into the suburbs and what I see is a lot of towns where you can buy a good cash flow deal, like 220-280k with rent around 3500-4000 a month, but where there's likely little appreciation. Many of these towns also have little to no population growth (none have declined that I've seen yet). Should I be weary of this, or just go for the cashflow opportunity and factor in doubled vacancy rate on the OPEX? Keep in mind this would be my first deal, so I think there's definitely value in just getting that first property, and these ones would seems to make great cashflow guaranteed in the next 5 years.

Originally posted by @Eric Swenson :

Hi All, my local market (Central Massachusetts) is pretty overheated right now.  Junky triple deckers going for 350-400k, some sight unseen, a lot of cash offers.  So I've started branching out further into the suburbs and what I see is a lot of towns where you can buy a good cash flow deal, like 220-280k with rent around 3500-4000 a month, but where there's likely little appreciation.  Many of these towns also have little to no population growth (none have declined that I've seen yet).  Should I be weary of this, or just go for the cashflow opportunity and factor in doubled vacancy rate on the OPEX?  Keep in mind this would be my first deal, so I think there's definitely value in just getting that first property, and these ones would seems to make great cashflow guaranteed in the next 5 years.

Eric, it's crucial to do a market analysis first. Look at the population trends, employment trends, housing trends, etc. What is the major employer in that area and what is the likelihood they could go away? The worst thing that could happen is that you buy a cash cow, then the major employer in that area leaves taking with them a great portion of the population, and now you have no exit strategy (except to sell at a huge discount). High cap rates typically mean high risk.

 

Originally posted by @Thomas J. Budka :

@Derek Harris hi Derek. New to investing here. What do you use to perform a market analysis? How are you compiling all the information and what resources are you using?

Thomas, there are many resources out there. I recommend the following: BLS (for employment stats), Census Bureau (for population, income levels, housing, etc.), and Datausa.io. Additionally, most municipalities have useful information on their sites. If you plan on investing in Texas, I recommend using Texas A&M University's Real Estate Center.

Originally posted by @Derek Harris :
Originally posted by @Thomas J. Budka:

@Derek Harris hi Derek. New to investing here. What do you use to perform a market analysis? How are you compiling all the information and what resources are you using?

Thomas, there are many resources out there. I recommend the following: BLS (for employment stats), Census Bureau (for population, income levels, housing, etc.), and Datausa.io. Additionally, most municipalities have useful information on their sites. If you plan on investing in Texas, I recommend using Texas A&M University's Real Estate Center.

Awesome! Thank you for the advice.