Where do Landlords make the most money?

48 Replies

I have seen a steady stream of Southern Cal folks and others from across the country asking where they should invest. Rather than respond to each post I am taking the lazy way out:) Here is some more SFH REI research hope this helps.

You can make money in any city and some more than others of course. I think it is important to consider all the profit fundamentals if you are into SFH rentals for the long haul.

The top five for Cali are San Jose, SF, LA, SD, and Riverside. 

That is also the top five for USA. 

Here is the research info from Zillows senior economist for historical averages for SFH rentals.

Good luck with your search!

http://www.zillow.com/research/landlord-profit-735...

Awesome post!   Thanks for taking the time to share!

@Brent Paul Thank you sir! The Lakers are from your state. Not many lakes in LA. They might have to rename to LA Jammers, for traffic jams is more accurate. Happy investing!

@Matt R.

 Thanks for the link.  Makes me happy to San Jose at the top :)

I think in general people want instant results and in the CA markets that may not be possible and coupled that with the high entry point into these markets there will continue to be posts from CA investors (LA/SF Bay area, San Diego)  thinking it is not profitable to invest locally.

Inspite of so many people afraid to invest here I see multiple offers on most properties. I hope more people invest outside so we can get more deals

@Radhika M. That's funny! According to UCLA forecasters, they think the tech boom has very little chance of slowing down long-term. Multiple offers might be the norm for years to come in San Jose. I certainly would not bet against it. It is the tech HQ for the world. Thanks! 

Although there are definitely good multi-family investing opportunities in the Hartford, CT area in terms of cash flow, it is not a good SFR market as these charts indicate.

@Michael Noto That might explain why there is a lot of NY/Conn old money invested in Cali SFRs. One day I will research the multis. I think it will coincide in many locations but commercial is another sport so we shall see. Thanks!

They probably followed the Dodgers and Giants out there @Matt R.

It is not that the California coast market is not a good place to invest.  It is the high entry price that make it undoable for many.  Also there is a timing factor of getting in at an appropriate time as well as the negative cash flow.  Also there is unfriendly environment toward investors. If an investor can handle all of the above factors, then invest there and reap the gold.

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@Michael Noto Great point! That is some really old money there. I was thinking more in mass during the 70s and 80s but it probably started much earlier for the east coast pioneers/fans like you said. Thanks!

@Joe Moore I agree. This is not a post for or against investing in any location. All areas can be profitable. Typically the only Bpers I read who are against a certain general location have something to sell you at another location. CA home owners and tenants do have levels of protection that are not found eleswhere. Will's occupant from hell post is an example of how that can getcha. That one was crazy. Thanks!

@Matt R.

 Great post! Looks like Denver is a good place of balance it has good but not great appreciation and good cashflow.  Also its entry point is not crazy like Hawaii CA or NY.  Dont know much about Denver but it might be somewhere for people to look into.

@Matt R.

 We have been seeing multiple offers I am talking about 20+ offers for the last 2 years. With the tech boom going the way it is you may be right that we will see this for more time. 

@Royce Talbo  

For sure Denver is killing it, especially with the Millenials. That might be something that continues the mo for Denver when the rest slow down. Thanks!

@Radhika M. It appears San Jose is on another level entirely. Outside of a few small geo pockets here and there it is rare to have demand so high and inventory so low. Thanks!

This post has been removed.

Originally posted by @Royce Talbo :

@Matt R.

 Great post! Looks like Denver is a good place of balance it has good but not great appreciation and good cashflow.  Also its entry point is not crazy like Hawaii CA or NY.  Dont know much about Denver but it might be somewhere for people to look into.

 I'm in the Denver area myself, and I really don't want to sound pessimistic.  But, personally speaking here, I don't see initial cash-flow working very well out here at the moment.  I've run numbers on quite a few properties so far, and I've yet to find one that seems likely to turn any kind of profit right out of the gate.  Breaking even and then waiting for a return later seems like the best you can do given our recent appreciation in this area (and that of course can mean putting money on the line without any return on investment for some time).  

I'm certainly not saying it isn't possible to cash-flow in the black around here, and I know some seasoned investors on this site say they are still finding deals here in my town.  Maybe my numbers are too conservative when running estimates on these places?  Either way, I'm starting to look at outlying areas on the Front Range, rather than metro-Denver.  

Your milage may vary, but prices have gone up an incredible amount here in the past year, which makes pickings a lot more slim than they were a couple of years ago.

(NOTE:  I'd love to be proven wrong on this one…  if someone can point me to a few good deals in this metro area, I'd happily eat my hat on that one.  But, so far I've been rather disappointed with the returns I've seen on my spreadsheet.  It is a great town here, and I'm glad I own at least one property here, even if it is my primary residence at the moment). 

@Kevin H. I hear ya. I think something to consider is the rent growth for Denver or anywhere. I doubt much is going to be easy there with shrinking inventories in the ideal locations. But if just initial cash flow is how you want to start, just down the road is SoCO. It cash flows right off the bat there. There are other areas dotted all over Southern Colorado that can cash flow as good as anywhere initially. I hit near 2% in SoCO. But long-term Denver is going to be more profitable.

Originally posted by @Matt R. :

@Kevin H. I hear ya. I think something to consider is the rent growth for Denver or anywhere. I doubt much is going to be easy there with shrinking inventories in the ideal locations. But if just initial cash flow is how you want to start, just down the road is SoCO. It cash flows right off the bat there. There are other areas dotted all over Southern Colorado that can cash flow as good as anywhere initially. I hit near 2% in SoCO. But long-term Denver is going to be more profitable.

 I completely agree, Matt.  In fact, I just posted in another section of the forums about how I was considering a Pueblo area investment.  I do think Denver has better long-run potential, but the idea of begin able to pull good cash flow right off the bat is enticing, and certainly more possible down in Pueblo, etc.  We're actually planning to move out of our current house as soon as we find the home we're looking for in the metro area (we need some acreage for our horse).  When we move we'll be using our current home (in Arvada) as a rental.  So, I suppose we could find ourselves in a "best of both worlds" scenario if we have investments running in both areas.  I'd definitely love to have another home around here to rent, especially with rents on many of the nearby 3-bedroom homes approaching $2K/month.  But, I should have bought such a place 3-4 years ago, since those rents don't mean quite as much when the homes are approaching $350K to buy. 

Hmmm. One other thought about this Zillow study: it doesn't really account for ROI, at least that I noticed. After all, it certainly looks more impressive to see a San Jose income property producing $8,927/month, rather than a Jacksonville return of $1,291/month.

But, that's all pretty meaningless if the San Jose investor is earning their income from a $900,000 home, while the Jacksonville investor is making their return from an $80,000 home.  In that instance the Jacksonville investor would be earning a better return on his/her investment. 

After all, if you had the choice to choose between two types of investments, and could have an unlimited number of whichever category you chose, any reasonable person would choose to make a $10 return on a $10 investment, rather than a $100,000 return on a $10,000,000 investment, right?  Simply put: the dollar value of the return isn't the whole story if it isn't presented along with the cost of getting such a return.  

I should also clarify that my aforementioned numbers are totally arbitrary, and were only presented for the sake of illustrating this point.  I'm sure there are very successful investors in both of these markets, and my numbers were not based on any specific knowledge of either of those areas!  

Originally posted by @Kevin H. :

Hmmm. One other thought about this Zillow study: it doesn't really account for ROI, at least that I noticed. After all, it certainly looks more impressive to see a San Jose income property producing $8,927/month, rather than a Jacksonville return of $1,291/month.

But, that's all pretty meaningless if the San Jose investor is earning their income from a $900,000 home, while the Jacksonville investor is making their return from an $80,000 home.  In that instance the Jacksonville investor would be earning a better return on his/her investment. 

After all, if you had the choice to choose between two types of investments, and could have an unlimited number of whichever category you chose, any reasonable person would choose to make a $10 return on a $10 investment, rather than a $100,000 return on a $10,000,000 investment, right?  Simply put: the dollar value of the return isn't the whole story if it isn't presented along with the cost of getting such a return.  

I should also clarify that my aforementioned numbers are totally arbitrary, and were only presented for the sake of illustrating this point.  I'm sure there are very successful investors in both of these markets, and my numbers were not based on any specific knowledge of either of those areas!  

I hadn't thought about that and you have a great point there.  As someone just starting out, understanding the "true" value/return behind these studies is something I have to focus on a bit more.

Originally posted by @Kevin H. :

Hmmm. One other thought about this Zillow study: it doesn't really account for ROI, at least that I noticed. After all, it certainly looks more impressive to see a San Jose income property producing $8,927/month, rather than a Jacksonville return of $1,291/month.

But, that's all pretty meaningless if the San Jose investor is earning their income from a $900,000 home, while the Jacksonville investor is making their return from an $80,000 home.  In that instance the Jacksonville investor would be earning a better return on his/her investment. 

After all, if you had the choice to choose between two types of investments, and could have an unlimited number of whichever category you chose, any reasonable person would choose to make a $10 return on a $10 investment, rather than a $100,000 return on a $10,000,000 investment, right?  Simply put: the dollar value of the return isn't the whole story if it isn't presented along with the cost of getting such a return.  

I should also clarify that my aforementioned numbers are totally arbitrary, and were only presented for the sake of illustrating this point.  I'm sure there are very successful investors in both of these markets, and my numbers were not based on any specific knowledge of either of those areas!  

You beat me to it. In the end it is really about ROI whether your are investing in cash flowing properties or speculating on appreciation.

Originally posted by @Cal C. :

You beat me to it. In the end it is really about ROI whether your are investing in cash flowing properties or speculating on appreciation.

 Cal, no one is talking about speculation except you and I think you do not know what the word means.  Look up the definition.  

Hmm, here is one dictionary definition which is precisely what I meant by using the term speculating.  

to buy or sell commodities, property, stocks, etc., esp. at risk of a loss, in the expectation of making a profit through market fluctuations. 

Most money comes in the form of appreciation on quality assets in high growth markets - we all know what those are. Naturally, though, most CA people will loose money because of management costs/issues that are part and parcel with long-distance/turn key ownership, which for most will negate the positive effects brought on by solid fundamentals...

Very little magic to any of this, boys and girls :) Figure out how to make money where you are, and stop trying to outsmart the marketplace...

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