Team Building Recommendations and a Big Question

5 Replies

Hello BiggerPockets! I am looking to invest in a multi family property in the Springdale or Rogers areas of Arkansas for the purpose of cash flow. I am looking to take the first step in building a team in the area, beginning with finding a real estate agent who is intimately familiar with these markets. I plan to visit the area mid month to meet some potential agents and more closely familiarize myself with neighborhoods, and look at some properties. For a brief history, I am in the process of finishing my second house flip in Southern California and am looking to transition into the multi-family sector. Specifically in an up and coming area where the > 1% rule is still attainable. (Rent equaling 1% or more of the purchase price/month). I am not interested in anything that does not meet this criteria, and expect to do rehab to increase the quality of the property and cash flow. My target is 5 - 20 units for the commercial valuation and value add potential. I’d like to put $20% down on a purchase price no greater than $750k. I have no property management experience and am aware jumping into this type of deal opens the door to many unforeseen problems, but 10X baby. After listening to a plethora of Insightful BiggerPockets podcasts I believe this is the most advantageous way to proceed. I have no problem getting my hands dirty, and have adequate reserves. My reasons for selecting Springdale and Rogers are as follows: Ability to obtain 1% rule, good school districts in general, low crime rate, stable tenant base (Wal-Mart and Tyson), potential for appreciation as Fayetteville has seen substantial growth, and lastly I know a few people who live there and love it. If anybody else is familiar with or in investing in the Springdale or Rogers areas, I would consider partnering and going in on a larger enterprise. I am able to fly for free as I am a commercial pilot, and I have plenty of hands on experience with rehabs I plan to put to use overseeing this endeavor. To add a huge question into this mix, the property I currently have is in the south end of Oceanside .5 miles from the beach. Option A is to sell it in a few months when the project is complete and put the money into the above investment. Option 2 is to rent it for around $800/mo cash flow, hope for appreciation, and make a smaller investment into Springdale. Thank you for your time, insight, and real estate agent references. -Danny LaMontagne

@Daniel LaMontagne feel free to reach out when you get into town. I will tell you for the reasons you mentioned above (Walmart & Tysons) the entry level rental market (residential and commercial) is pretty saturated and there is a lot of folks over paying for property. Not to say there aren't still deals out there but most I've seen actually get listed get run up to where the numbers don't make sense. I think there will be more opportunity here in the new 2-3 years but right now people are being silly with money... I'd encourage you to do some research into whats going on here in regards to building and where we are in the cycle as well as vacancy of some of the newer apartments that have been built in Rogers and Springdale. Don't get me wrong, I'm not telling you to not invest here just advising caution and due diligence. PM me if you have any thing I can help with. 

@Daniel LaMontagne I'm another San Diegan that invests in Arkansas, but central rather than NWA.  If I were a guessing man, NWA is going to grow a good clip faster than Central Arkansas over the next 10-20 years.  However, the mid-sized multis that I have looked at in NWA tend to be on the outskirts.  It's not a "bad" thing but I don't think it has the same shot as appreciation as if you were - hypothetically - investing in the core of Fayetteville.  Once you look at the core of Fayetteville you do end up with some (as @Dustin Davis notes) some prices that aren't exactly cheap.  

One other thing to keep in mind is that "increasing values" doesn't 100% always correlate to appreciation.  What I have notest (and this is a little on the anecdotal size) is that a lot of the new developments in Arkansas (NWA and Central) are nicer.  The homes are bigger, wood floors, slab granite, etc.  Some of them just look like the same standard mini-Orange County look.  It's great that the sales prices are higher and it's awesome that the economic growth can support it, but sometimes it's fit-and-finish as much as it's "dirt" appreciating.

So what would I do in your shoes?  Sell the Oceanside place and go heavy into NWA.  Go for a small scale commercial apartment building so that you can get appreciation through nudging rent increases.  I really like Arkansas but I don't want to depend on the dirt increasing in value.  But that's just me.  It's not a market where I'd buy SFRs.  Well, okay, I would but it would have to be a heck of the deal.

@Daniel LaMontagne ... @Andrew Johnson is pretty accurate in saying that dirt appreciation is limited to the "core" areas... I'll detail it a bit more just to keep us all on the same page... I view the 2 cores in NWA as the University of Arkansas and downtown Bentonville/WM Home Office. These are areas where some of the appreciation we are seeing currently will continue and maintain (it's where the money is)... Just to note on a quick exception, housing in DT Bentonville cannot continue to demand $200+ /sqft long term, just sayin'.

Then you have working class cities like Rogers and Springdale where a lot of blue collar folks live and need affordable housing... You won't see the appreciation in these areas continue very long because wage rates for the hourly folks are not following the same upward path and that will naturally keep the balance. 

If I had the money and the time, I'd be looking at Tulsa first, then over to Ft Smith... 2-3 years ago would have been the time to jump on NWA property, now with the inventory level about to correct and values WAY over what they should be caution is highly advised. 

Thank you @Dustin Davis and 

@Andrew Johnson for your replies in light of my failure to ensure proper formatting.  

My goal is cash flow; the appreciation is merely a bonus. The numbers simply have to make sense. I’m on board with the fact that a plethora of investors seems to be driving prices sky high at this point across the country. This is why I’m doing my due diligence to find the few areas where investing has the potential to make sense.

There has been a development surplus across the country in A class apartments as @Dustin Davis noted, which has already led to a minor rent correction in this upscale apartment class. The fact that the working class hourly wage is not following the appreciation trend is a significant concern. I will dig deeper into specific market research and look into Tulsa as well. @Dustin Davis I will contact you when I get my travel plans sorted out. 

@Andrew Johnson I appreciate your thoughts regarding my decision, and I plan to push forward with the small - midsize commercial apartment building as you suggest.

I would also be interested in hearing how the property management situation has played out for you in AR as I am working towards a similar investment setup to what you have. If you have some time at some point I would love to take a few mins to pick your brain. 

Thanks,

- Danny LaMontagne

@Daniel LaMontagne Property management for me has been fine.  In two out of my three purchases there were stabilization issues for the first year.  Tenants move out even with no rent increases.  You find out funky little things that you didn't know before like random "verbal promises" about a 13th month of free rent...that aren't on the lease...and aren't "confirmable".  And I don't know if "great" property management can get those under control any quicker than mine did but those issues just pop-up...par for the course.  That said, I tend to focus on newer buildings with above-average rents so I'm not dealing with bottom-of-the-barrel tenants.  While I wouldn't say my units are "upscale" (no amenities like pools or gyms) they definitely aren't the "1971 build in need of new kitchens" if that makes sense.  So I'm stacking the deck a little more in my favor.  The rents aren't as high as going down-market but it's a little more predictable and much less hassle.

I, honestly, don't know how median income has fared in much of Arkansas.  It's ticked up where I invest but not like much of the rest of the country.  So I don't think it's viable to assume I can raise rents $50/year or something of that nature.  But maybe nudge them $5-$15 at unit turnover and see how that progresses over time.  At least then I'm "forcing appreciation" through rent raises (however slight) rather than depending on dirt.  If I was investing in Fayetteville, I do think it would make much more sense to look at "the dirt" as there's been development there, gentrification, etc.

And all of that is going on while the football program is in a reboot and the Hogs basketball team losing to LSU :-/

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