secondary markets

13 Replies

ok folks, i dont expect too many tears to be shed for me, but i need some help.

i have 500K to invest and options are 1 large multi family or several srf.  i am looking at turnkey options, but i also what to get some advice on working with reputable folks in secondary markets (indianapolis, kansas city, memphis, nashville, houston)

you get the idea.  So let me know how you might handle this situation

thanks JJ

@JJ GONZALEZ II Take some time to really get to know the city and areas where you want to invest and be careful with the multi-families. I've heard of many out of area investors really getting burned by these and also getting sold turds in the hood from unscrupulous turnkey companies that look good on paper but in reality are much different. In my opinion if you're investing out of state, you're better off buying in quality areas with less cash flow on paper but better demand, tenants, appreciation potential and resell value.

@JJ GONZALEZ II

I invest in multi-unit properties, but that is because I invest in dense urban environments.  I don't think these are the best investments in every market.  You have to really look at the makeup of the housing and what the tenant class is like.  

In areas where multi-unit are not the majority of the housing (they make up about 65%-80% of housing where I invest) I think you might be better off with SFH.

Unless it is a 25+ unit property 

Be very careful in these markets. As a lender I am seeing out of state investors getting into trouble. You are a great target for turds in the bowl roses on paper properties. Secondly in Indianapolis new rules are in effect for rental property owners and new crack downs are coming for out of state investors who buy crap and hold on to it with no care or up keep further depressing areas. Great example would be the Riverside neighborhood in Indianapolis. It could be a viable market but the city owns a couple of thousand tax properties and out of state investment and rental/rent to own companies own another 40% leaving those who are buying home to have to buy in cash as the market is nearly selling at 10% of cost to build.

@JJ GONZALEZ II

All of those cities have an area known as the hood. You just have to determine if you want to invest in the hoods or not. If you do not then you can ask realtors, property managers, other investors as to what zip codes are the bad areas and stay away. I personally like and invest in Kansas City as it has a good economy and great cash flow. A person can buy houses for 50k to 100k with rents from 800 to 1100 per month in working class neighborhoods.

Every city has rei clubs that you can google and you should be able to contact them about the areas the investors are buying houses in. Then the key is getting a good property manager and don't be afraid to get rid of them if that person doesn't perform.

Well, I do see that you're at a disadvantage with only a half million, poor guy, but what led you to think along these lines?

Off hand, I'd say marketable, neat, well maintained SFDs in decent areas less than 15 years old in appreciating areas. 

But, there are better uses of funds IMO. Good luck :)  

@JJ GONZALEZ II All of the markets you mentioned are good cash flow markets with the exception of Houston in my opinion. I particularly like Kansas City and Indianapolis. Both have strong, diverse economies with affordable home prices and good rents. I've analyzed the economic and demographic factors of some of the most popular markets that I'd be happy to share with you if you'd like.

@Aleks Gifford You can't judge Indianapolis by areas like Riverside. Indianapolis, like any major city has good areas and bad areas. Riverside is part of the cities "Weed & Seed" program and is one of the worst areas in the city. Anyone buying properties or lending on properties in those areas are going to be in trouble. Out of state investors are vulnerable to the promises of high returns on these cheap properties but they don't pan out. Indy varies neighborhood to neighborhood so it's critical to know the area or work with someone that does and who you can trust. 

JJ, 

I work directly with several investors in Kansas City, and can give you info on what areas to invest in, depending on your level of risk, and connect you with investors that have properties that fit you. 

Polly Jones

Funny seeing Houston referred to as a "secondary market" and placed in the same category as KC, Nashville, Memphis, and Indy.

It's the fifth most populous metro area in the US with 6.2 Million people, and the fourth most populous city in the US with 2.2 Million people.

The other markets mentioned are all 2 Million and under population.

Originally posted by @Mike D'Arrigo :

@Aleks Gifford You can't judge Indianapolis by areas like Riverside. Indianapolis, like any major city has good areas and bad areas. Riverside is part of the cities "Weed & Seed" program and is one of the worst areas in the city. Anyone buying properties or lending on properties in those areas are going to be in trouble. Out of state investors are vulnerable to the promises of high returns on these cheap properties but they don't pan out. Indy varies neighborhood to neighborhood so it's critical to know the area or work with someone that does and who you can trust. 

I believe you may have misunderstood me. I am not judging Indy by Riverside. For goodness sakes I am on two of the development boards. I was using Riverside as an example of how out of towner's get taken because they do not do their research of the community.

@Aleks Gifford Sorry, I must have misunderstood. You're absolutely right though. Out of state investors get lured in by the low prices and high returns on paper in these kinds of areas and get taken. I love the Indianapolis market but like you say, investors need to do their research and not get blinded by unrealistic pro forma's.

@JJ GONZALEZ II

What are your goals? what is your time horizon? how much risk are you looking at? why did you choose the markets listed? 

Assuming you are accredited, have you thought about syndicated investments? 

Just my 2 cents but if you are going to be 100% passive this could be a good option. It can also be a really good learning experience or at least it was for me. 

Disclosure:This above is for information and illustrative purposes only and is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action. Opinions expressed herein are my own and not represent the opinions of my firm. In addition current opinions as of the date appearing in this material only and are subject to change without notice.