Huntsville, Memphis, Charlotte, Omaha, Columbus, or Atlanta?

Question

I'm trying to narrow down to 1-2 focus markets for buy-and-hold SFR/small multi-family investments. I've come down to the following options and am curious about any feedback:1. Huntsville, AL

2. Memphis, TN (high crime)

3. Charlotte, NC

4. Omaha, NE (steady but not super growth oriented)

5. Columbus, OH

6. Atlanta, GA (already overheated market)

I like all of these markets from a population / job growth perspective and affordability as a new investor. I've included any negatives I've been able to surface in parentheses above.

I'm curious about any major positives / negatives about these markets I might be missing - high crime, new employers, high poverty levels, etc.

Owen Dashner · Answer

Omaha...

Pros:

- Strong, diverse local economy with low unemployment

- Strong rental market with good price/rent ratios

- Good appreciation in better areas, withstands economic downturns well

- Affordable price points for starter homes

- Landlord friendly, evictions can be done in a few weeks

Cons:

- Property taxes are brutal - around 2%

- Weather extremes are insane - extreme cold and snow in winter, flash flooding, tornadoes and hail in spring, sweltering heat/humidity in July/August. This is hard on roofs, concrete, and HVAC systems (i.e. more operating expenses over time). Insurance costs are higher here too because of all the hail.

Remington Lyman · Answer

Columbus, OH demographics are great

JJ P. · Answer

I've been looking in Ohio and haven't found any prospects that don't have a staggering tax bill.  I'm looking around Cleveland, and the taxes are ruining the returns.

Zeke Liston · Answer

Columbus, OH is great for investing as the population and job growth is great @Kerrie Dare!

Daniel Judge · Answer

@Kerrie Dare I have lived in Columbus for the past 10 years or so and lived in Lincoln, NE (only about 50 mins away from Omaha and visited regularly) for about 25 years prior. I can't speak to the other markets you're considering, but I think your comparison of Columbus, OH and Omaha, NE are accurate in terms of growth and affordability. I think it somewhat would come down to your goals, budget, etc., as far as which would be a better fit.

Omaha is probably more affordable but without as much growth opportunity as Columbus. Omaha would have an advantage in terms of being less competitive. Owen Dashner is correct that the weather can be a lot harsher there, though, and that can create some challenges. I think if you're looking towards long-term wealth building, especially what's possible in terms of building and using equity, Columbus would have a leg up on Omaha. Personally, if I was near retirement and looking to invest in real estate, I would probably gravitate more towards a market similar to Omaha's where I could get some easier yield. I'm not retiring for awhile, though, so the wealth-building possibilities with Columbus are a lot more appealing to me. It's been incredible to see how much it's grown in the last few years and, being local, it's easy to see how much more of a growth runway it has.

Victor Menasce · Answer

Kerry,

This is a great question. I’m a believer in the laws of supply and demand. But it’s more than just demand that matters. I’m talking about demand and ability to pay. The current job market turmoil puts a big question mark around ability to pay. For now, millions of people are collecting unemployment benefits. But it’s unclear how long those benefits will be in place. At some point, the weakness in the job market will cascade into the financial markets, which may precipitate a shortage of lending. The last time we saw this was 2008. The cause was different, but the effect is likely to be the same.

There are several considerations you want to examine.

• The partnership and the team.
• The city. Is it attracting jobs.
• The micro-market. Real Estate is always hyper local. Some neighborhoods maintain value while others don’t.
• The asset class
• The deal structure. How much debt is on the property.

Personally, I like Huntsville because it has a strong jobs story with the auto sector having selected Huntsville for manufacturing. There is a history of technical expertise in both radio and military R&D centers. The drawback, is that the rent per square foot in the market is low, averaging at about $1.10. While there is a shortage of rental housing, there doesn’t seem to be much upward pressure on rental rates, which is keeping new supply from coming into the market.

I personally would stay away from Memphis. It’s a tough market and you need expert property management to make money in Memphis. I know several investors who own property in Memphis, and it’s got more risk than I’m comfortable with.

Charlotte NC is a growing city and has attracted a several financial institutions. It’s emerging as a banking center in the South. It’s not very high priced, but overall it has good fundamentals. It’s hard to say what the impact of the current economic downturn will be on Charlotte. I simply haven’t researched it. Charlotte is definitely worth a closer look.

I don’t have an opinion on Omaha. I simply haven’t researched that market.

Columbus Ohio is likely to suffer from its higher than average exposure to retail in the current economic conditions. Columbus is also a financial and insurance center in the middle of the country. Overall, Columbus has been one of the fastest growing cities in the country for a number of years now. It’s definitely worth a closer look.

Atlanta is also a growing city. But like any city it has a lot of areas. Some that I would not consider investing in, and others that are growing.

But before choosing a city, I would focus on finding a team to work with. Having the right people on your team, is more important than choosing the city.

I would also be patient about investing right now. There will be opportunities to buy properties at a deep discount to the market. This will take some time. We currently have a moratorium on foreclosures. That will eventually be lifted. Much like the period following the 2008 recession, the opportunities took years to materialize. The best years for finding deals were 2010 and 2011. It took a while for the deals to show up, and I believe that will be the case this time around too.

Given the choice between investing in single family homes or small multi-family, there is a tradeoff. These products attract different tenants. The small multi-family buildings tend to rent at a discount to the market averages, whereas single family homes tend to rent for a bit more. In my experience, single family homes offer a more stable investment. But the problem is that they’re more difficult to manage. You end up requiring a strong management team in both cases. Income stability is key to making any investment today. If your tenant loses their income, and there is a moratorium on evictions, you can go from 100% occupancy to 100% economic vacancy in a heartbeat. If you own a portfolio of single family homes in the same neighborhood, then you can effectively manage them much like you would a multi-family complex. ‘

I would make sure that your purchase is not over-leveraged in today’s environment. Once economic stability returns, it could be an opportunity to refinance and pull some equity out.

Remington Lyman · Answer

How many offers have you made?

Ruth Blue · Answer

@Kerrie Dare

I love Huntsville, AL. I was born there and have family there. My Mom @Rhonda Blue has 4 rentals there also. She uses Carolyn Dietrich as her PM and they have been totally great.

Robert Ellis · Answer

Columbus is even higher, 2.87% taxes

Robert Ellis · Answer

I'd disagree with columbus and the retail comments lol

Huntsville, Memphis, Charlotte, Omaha, Columbus, or Atlanta?

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