Close and expensive, or cheap and far?

Question

Hello,

I'm from Buckeye Lake, OH. I'm looking to invest really anywhere in Ohio. Closer the better, but if it's a good deal and the numbers are good, then that seems good too.

I'm looking for multifamily properties in Columbus, OH or Sandusky, OH.

Columbus: closer to me (35 min), more $ to buy, most don't meet 2% rule, but around 1%. Industry seems to be growing and so is population. With higher property cost, would be harder to cash flow well. Properties I'm looking at are average to just below average. 2/1 goes for around $500-700 neighborhood depending.

Sandusky: farther (2:45 hrs), less $ to buy, most exceed 2% or are close to it, not sure if industry is dying or growing, neighborhoods are C-B, but seems mostly poverty, and not necessarily surrounded by worse neighborhoods and other crime. Just kind of a small lake town. I sail up there occasionally. Properties are average to below average. Rents for 2/1 are again $500-750 depending on building.

Better to go in on something cheap, with decent quality and potential to make better, better cash flow, but potentially dying city and a little farther (3 hrs)

OR

something closer, less cash flow, higher mortgage, but more/growing city stability?

If I'm cash flowing well, does it even REALLY matter?

I'm conventionally financing, plan to buy and hold, but don't have much capital (around $15000) to invest. Cheaper, potentially higher cash flowing area seems better option as of right now.

Thoughts? I'd appreciate any. Thanks.

Marc Winter · Answer

The 2% rule may work on paper and spreadsheets, HOWEVER, if you are in a c class or lower area surrounded by even lower-end properties, that 'extra' cash flow can evaporate with lower quality tenants, more repairs, higher turnover, slow or no-pay occupants, etc.

The trick is to get a deal where you have a good neighborhood, good schools, pay a reasonable price, and make sure you can 'value-add' to boost your returns.

Dave DeMarinis · Answer

I’m mostly in the Midwest and southeast. I’m a lender (hard/private/bridge) and a heavy value add investor. I was the lender on a Multifamily in Dayton and the borrower defaulted so I took over the property. It was a massive stabilization project and that is how I got pulled into the Dayton market. I really like the investor community and environment there so I am growing there.

I went to school in Columbus and would definitely invest there but I’m not actively searching. I’m in a couple high growth markets in South Carolina and Alabama that are my focus for growth.

Dave DeMarinis · Answer

I think Dayton is WAY better for you than Sandusky AND it is closer. If you can hit 1% in Columbus, those should be good deals and make you very happy.

If you decide to include Dayton, you will need to learn the areas and neighborhoods but there are definitely better cash flowing deals there. There is a very active and helpful and large investor community in Dayton as well.

Robert Ellis · Answer

Couldn't agree more Steven!

Steven Segal · Answer

Make sure you are factoring in reserves for roof, appliance, hot water heaters, ect... These can really kill these types of deals. If you are only getting $500 in rent, a new roof and A/C in ten years would really crush the cash flow you have accumulated to that point. I see a lot of people newer to the game not factor in reserves.

Zeke Liston · Answer

Good advice @Dave DeMarinis, is Dayton where you mostly invest? Or have you done deals in Columbus as well?

Remington Lyman · Answer

I recommend that you start writing offers and see what shakes loose

Mikael Winkler · Answer

@Kyle West I think Columbus is the way to go. You can still get cashflow here with the right deal AND appreciation. The market is rising, so it is certainly tougher to find deals priced low enough, but they are out there. Especially if you are maybe willing to do some direct marketing or at least team up with a solid agent that can help find you off-market deals.

Theresa Harris · Answer

I don't know either area, but from your description, I would do the closer option.  While the other is cheaper, it is also in a 'lower' quality area and you will have higher turn over which will cost you.  Plus any service you will either have to pay someone or drive almost 3 hours there and then back again.

Remember in the long term your tenants will be paying down your mortgage.  It isn't cash in your pocket now, but is in the long term.

Steven Silman · Answer

Population-wise Columbus is growing and Sandusky is shrinking. If you are at the point in your investing career where income is very important then Sandusky may be better for you but as long as you can get Columbus to cash flow, I would recommend you invest in that community since it is growing.

Close and expensive, or cheap and far?

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