Picking a cashflow market to scale

Kenny Hall

Property Manager · Indianapolis, IN · Member since 2020 · 122 posts · 64 votes

5y

@Vasyl Levchenko happy to talk about my experience and knowledge of the Indy market. Feel free to shoot me a message.

1 Reply

Vasyl Levchenko

OP

Rental Property Investor · Chicago, IL · Member since 2021 · 24 posts · 30 votes

5y

@Kenny Hall

Thank you Kenny

1 Reply

Gregg CohenBusiness Member

Rental Property Investor · Jacksonville, FL · Member since 2011 · 143 posts · 136 votes

5y

@Vasyl Levchenko - Great post. I wish more investors did this type of due diligence when comparing markets. I'd be happy to chime in on the Jacksonville, FL market as I've been investing here since 2006. This year my company will be buying around 700 homes in Jacksonville (just as we've done in recent years.) I believe this is absolutely the best time to invest in Jacksonville because of the reasons you described above along with historically low interest rates which boost up your positive cash flow. Generally, in a growth market like Jacksonville which has appreciated 19% more than the US avg since 1991 (source: Federal Housing Finance Agency), you usually have no shot of positive cash flow. Now, we do in Jacksonville. Many investors have a very myopic view of what makes a great rental property investment and they only focus on cash flow. However, your job as an investor is to produce the best risk-adjusted return on investment. If you compare Jacksonville with Cleveland, for example, you'll see a small difference in cash flow earned but a large difference in home price appreciation over a full market cycle.

Cleveland has a slightly better rent-to-price ratio than Jacksonville and will produce a better cash-on-cash return in year 1 from the net rental income. However, Cleveland's average home price appreciation since 1991 is only 2.3%. Jacksonville's average home price appreciation annually is 4.3%. If you plan to buy and hold for a full market cycle (10-20 years), you should expect the home price appreciation rate over the cycle to be similar to the historical average because that's how market cycles work. Holding that property in Cleveland literally would be like leaving hundreds of thousands of dollars in home price appreciation on the table versus choosing to invest in Jacksonville.

My viewpoint here on how it is important to evaluate home price appreciation is based on the idea that you are buying and holding for a full market cycle though. If you're only in for a few years, I'd suggest not factoring in the potential home price appreciation as it is highly speculative at that point.

As far as the cons you mentioned in Jacksonville, you just have to find the right partner in order to find inventory. We've been buying renovations as well as building our own new construction inventory and you should be able to find the right property as well. Also, insurance costs are pretty low actually. Annual premiums for a new construction house will range from $400- $500 per year (around $800 per year for a renovation.) This is one way reason we can still achieve positive cash flow even though it is a high growth market.

Hope this helps!

904-677-6777

Gregg Cohen, Not Your Avg Investor Show4.6237 Reviews

Website View Page

4 Reply

Marc RiceBusiness Member

Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votes

5y

@Vasyl Levchenko

I also recommend evaluating Columbus if you’re looking for appreciation on top of cashflow. Yes it’s really hot here but the city is growing population and economic wise.

[email protected]614-363-2787

Marc Rice | Investor Friendly Agent at Reafco Tailwind Team574 Reviews

Website View Page

1 Reply

Ryan Poske

Specialist · Indianapolis, IN · Member since 2016 · 133 posts · 43 votes

5y

@Vasyl Levchenko

Indianapolis is a competitive market. Inventory is tight and finding solid deals takes time and due diligence. I am in the Indy market and it is a stable investment market. Multi-family housing is difficult to find. They are out there and good deals can be found. You also have to be careful with location in Indy. Indy is a street by street and block by block city. Feel free to shoot me a message if you would like to talk more.

2 Reply

Jonathan KlemmBusiness Member

Moderator

Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes

5y

@Vasyl Levchenko - I understand your concern regarding Chicago, but that is somewhat of a glass half empty view. There are tons of areas around Chicago that still cash flow well with low crime rates and the numbers still work with the higher taxes (check out western suburbs Berwyn, Cicero, or even Elgin and Aurora). I am a believer that you are going to pay uncle sam one way or another where ever you go, which is why I still prefer investing in areas closer to home.

If you decide to look into NW Indiana definitely link up with @Eudith Vacio, she's helping many clients in that area and has an investors mindset when assisting clients.

[email protected]

Quality Builders4.966 Reviews

Website View Page

2 Reply

Zeke ListonBusiness Member

Real Estate Agent · Columbus, OH · Member since 2018 · 1k+ posts · 1k+ votes

5y

Originally posted by @Vasyl Levchenko:

Hello community,

I am evaluating some cashflow markets that I am interested in and would like to share my findings and thoughts on the subject and listen to your feedback. Critiques are encouraged as this is a combination of research and personal opinions.

I'm based in Chicago, own 2 properties(6 total units), really discouraged to invest in Chi because of anti landlord policies, rising crime and taxes etc. Currently debating between 4 options:

1. NW Indiana(Hammond, Portage, Lake station).

Cons - Low appreciation, less options for pm and contractors, population loss.

Pros - Close proximity/more control, landlord friendly, less competition, low prices, decent housing stock(small MF), predictable taxes.

2. Cleveland, OH and suburbs

Cons - High crime rate and unemployment will result in property tax increases over time, tenant friendly, population loss from Cleveland proper. Relatively high competition, seems to be a problem to find good pm. Suburbs have high taxes.

Pros - a lot of big developments, great cultural life, cheap properties, great housing stock(a lot of small and medium size MF) suburbs offer solid class B for low price, good appreciation.

3. Cincinatti, OH

Cons - very high crime, a lot of inequality - taxes are going to go up, tenant friendly leaning housing council, somewhat competitive, population loss over time.

Pros - Some development going on, good apprectiation, low prices, can diversify in Kentucky/other bank of the river, good housing stock(Has some small/medium MF)

4. Indianapolis, IN

Cons - too hot/very competitive, no housing stock(mostly SFR).

Pros - high appreciation, close proximity, low prices, landlord friendly, stable taxes, population gain.

5. Jacksonville, FL

Cons - too hot/very competitive, no housing stock(mostly SFR), high insurance costs.

Pros - Great appreciation, relatively low prices,

Population gain, landlord friendly, desirable sun belt, landlord friendly, predictable taxes.

I would agree with Marc. I would also evaluate Columbus, OH. I've heard good things about the above properties as well.

[email protected]614-665-5793

Forge Real Estate Advisors535 Reviews

View Page

2 Reply

Vasyl Levchenko

OP

Rental Property Investor · Chicago, IL · Member since 2021 · 24 posts · 30 votes

5y

@Jonathan Klemm

Thank you for you suggestions Jonathon,

I did look at both Berwyn and Cicero and at 100k+ a unit it's a little too expensive for me to be able to scale. As for the crime problem, House Bill 163 passed about a week ago and waiting for governor's signature, will negatively effect policing and crime rates in the whole state of Illinois.

1 Reply

Vasyl Levchenko

OP

Rental Property Investor · Chicago, IL · Member since 2021 · 24 posts · 30 votes

5y

@Marc Rice

Thanks for your input Marc,

it looks like you're all over BP promoting Columbus! Very impressive commitment, I'm sure you're generating a lot of business.

I will take another look at Columbus market

2 Reply

Mike D'ArrigoPro Member

Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes

5y

@Vasyl Levchenko I would recommend focusing on markets with strong economic and demographic trends. Look for growing jobs and growing populations with modern, diverse economies. I know Indianapolis well but I don't know NW Indiana. I would be concerned about the small, declining population. I understand that Indianapolis is a highly competitive market with low inventory but it's a far stronger market with much better long term potential. We've been active there for 10 years and have had a lot of success.

1 Reply

Brandon SturgillBusiness Member

Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes

5y

@Vasyl Levchenko Define cash flow...

If you are buying with cash, you can create the cash flow you want. The variables involved in real estate investing and management make cash flow impossible to predict, especially if you are looking in cheaper markets...$100k/unit lands you in the C-class in my market, but you're not going to get a fully stabilized property with tenants paying above market rents and no deferred maintenance. Check your cash flow calcs at the end of the year and see how they look compared to assumptions going in...

And there is no such thing as a cash flow "market" ...real estate just doesn't work like that...it's not that easy. Macro data is fun to look at and makes us feel like we understand the "market" but its not accurate.

937-979-7000

Realize Multifamily Group11 Review

View Page

2 Reply

Remington LymanBusiness Member

Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes

5y

Originally posted by @Zeke Liston:

Originally posted by @Vasyl Levchenko:

Hello community,

I am evaluating some cashflow markets that I am interested in and would like to share my findings and thoughts on the subject and listen to your feedback. Critiques are encouraged as this is a combination of research and personal opinions.

I'm based in Chicago, own 2 properties(6 total units), really discouraged to invest in Chi because of anti landlord policies, rising crime and taxes etc. Currently debating between 4 options:

1. NW Indiana(Hammond, Portage, Lake station).

Cons - Low appreciation, less options for pm and contractors, population loss.

Pros - Close proximity/more control, landlord friendly, less competition, low prices, decent housing stock(small MF), predictable taxes.

2. Cleveland, OH and suburbs

Cons - High crime rate and unemployment will result in property tax increases over time, tenant friendly, population loss from Cleveland proper. Relatively high competition, seems to be a problem to find good pm. Suburbs have high taxes.

Pros - a lot of big developments, great cultural life, cheap properties, great housing stock(a lot of small and medium size MF) suburbs offer solid class B for low price, good appreciation.

3. Cincinatti, OH

Cons - very high crime, a lot of inequality - taxes are going to go up, tenant friendly leaning housing council, somewhat competitive, population loss over time.

Pros - Some development going on, good apprectiation, low prices, can diversify in Kentucky/other bank of the river, good housing stock(Has some small/medium MF)

4. Indianapolis, IN

Cons - too hot/very competitive, no housing stock(mostly SFR).

Pros - high appreciation, close proximity, low prices, landlord friendly, stable taxes, population gain.

5. Jacksonville, FL

Cons - too hot/very competitive, no housing stock(mostly SFR), high insurance costs.

Pros - Great appreciation, relatively low prices,

Population gain, landlord friendly, desirable sun belt, landlord friendly, predictable taxes.

I would agree with Marc. I would also evaluate Columbus, OH. I've heard good things about the above properties as well.

I would agree with Zeke. Columbus, Ohio has great job and population growth

[email protected]614-541-8475 Podcast Guest on Show My Job Laid Me Off, So I Replaced My Salary with Rentals

Reafco512 Reviews

Website View Page

1 Reply

Andy Miller

Member since 2018 · 10 posts · 4 votes

5y

@Ryan Poske I agree! Indy is great but there are numerous other markets in IN that have strong rental markets and tremendous LT potential.

@Vasyl Levchenko Have you looked beyond NW IN and Indy? I don’t know your criteria, but there are probably 6-7 other cities that could be a good fit and more affordable for your goals.

2 Reply

Vasyl Levchenko

OP

Rental Property Investor · Chicago, IL · Member since 2021 · 24 posts · 30 votes

5y

@Mike D'Arrigo

I completely agree Mike,

The only real benefit I see in NW Indianna comparing to other markets on the list is the close proximity to me and low prices. Job market and population gain is not there for now

0 Reply

Vasyl Levchenko

OP

Rental Property Investor · Chicago, IL · Member since 2021 · 24 posts · 30 votes

5y

@Andy Miller

Thanks Andy,

I'm not that familiar with the rest of Indiana, so I've only researched markets that I came across.

I'm sure there are hidden gems out there that are under the radar.

My criteria is 2-12 unit brick buildings in C+, B- areas, not older than 70 years, rehab costs 5-10k per unit, cashflowing $300+ per door, at a price of around 50k per unit.

0 Reply

Vasyl Levchenko

OP

Rental Property Investor · Chicago, IL · Member since 2021 · 24 posts · 30 votes

5y

@Brandon Sturgill

Thanks for pitching in Brandon,

I am a little confused by your statement about cashflow being highly unpredictable. Besides normal "surprises".

Correct me if I am wrong but the whole 5+ unit multifamily industry defines value by cashflow produced or assumed.

I define cashflow as profit after debt service and expenses, everybody here seems to share this definition. Same goes for cashflow markets.

I will be using financing so, no all cash. Also definitely not interested in C class properties at 100k per door!

0 Reply

Andy Miller

Member since 2018 · 10 posts · 4 votes

5y

@Vasyl Levchenko the South Bend / Mishawaka area and Ft Wayne have plenty of opportunities with promising economic growth in the future.

0 Reply

Vasyl Levchenko

OP

Rental Property Investor · Chicago, IL · Member since 2021 · 24 posts · 30 votes

5y

@Andy Miller

Will definitely explore those,

thank you Andy

0 Reply

Crystal SmithPro Member

Moderator

Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes

5y

Originally posted by @Vasyl Levchenko:

Hello community,

I am evaluating some cashflow markets that I am interested in and would like to share my findings and thoughts on the subject and listen to your feedback. Critiques are encouraged as this is a combination of research and personal opinions.

I'm based in Chicago, own 2 properties(6 total units), really discouraged to invest in Chi because of anti landlord policies, rising crime and taxes etc. Currently debating between 4 options:

1. NW Indiana(Hammond, Portage, Lake station).

Cons - Low appreciation, less options for pm and contractors, population loss.

Pros - Close proximity/more control, landlord friendly, less competition, low prices, decent housing stock(small MF), predictable taxes.

2. Cleveland, OH and suburbs

Cons - High crime rate and unemployment will result in property tax increases over time, tenant friendly, population loss from Cleveland proper. Relatively high competition, seems to be a problem to find good pm. Suburbs have high taxes.

Pros - a lot of big developments, great cultural life, cheap properties, great housing stock(a lot of small and medium size MF) suburbs offer solid class B for low price, good appreciation.

3. Cincinatti, OH

Cons - very high crime, a lot of inequality - taxes are going to go up, tenant friendly leaning housing council, somewhat competitive, population loss over time.

Pros - Some development going on, good apprectiation, low prices, can diversify in Kentucky/other bank of the river, good housing stock(Has some small/medium MF)

4. Indianapolis, IN

Cons - too hot/very competitive, no housing stock(mostly SFR).

Pros - high appreciation, close proximity, low prices, landlord friendly, stable taxes, population gain.

5. Jacksonville, FL

Cons - too hot/very competitive, no housing stock(mostly SFR), high insurance costs.

Pros - Great appreciation, relatively low prices,

Population gain, landlord friendly, desirable sun belt, landlord friendly, predictable taxes.

I find your criteria interesting but it seems to me that it's missing the most important criteria- An analysis of the potential Cash Flow. As part of our business, we periodically (once per year) do an evaluation of other markets to invest in. On your list, we've looked at NW Indiana & Indianapolis. What we found was low prices accompanied by low rents and very low Cash on Cash Returns potential. At least potential that was below the targets we set for our business. So we did not pull the trigger.

With that said- Since you're objective is to scale, it is possible to scale through purchasing lots of cheap assets with lower returns per asset, but in my opinion, this should only be done if there's evidence that the cheap assets are in a location where you can identify plans for growth in/around the targets for your property acquisitions

312-681-7487

2 Reply

Vasyl Levchenko

OP

Rental Property Investor · Chicago, IL · Member since 2021 · 24 posts · 30 votes

5y

@Crystal Smith

Crystal, you're making a great point.

Long term vision is something that I am working on. Have read your posts before and always learned something new. Thank you

0 Reply

Gloria N GearBusiness Member

Realtor · Indianapolis IN · Member since 2018 · 464 posts · 339 votes

5y

Another vote for Indianapolis - you are spot on with your pros and cons -- but the economic diversity is just so great here, the market is going to keep growing. I grew up in Northern Indiana -- and where I was (middle part - Elkhart area) is very dependent on the RV industry which is doing great now, but when it goes down, the whole area is down. There are several guys here on BP that do a good business in the NW area and my company is thinking about expanding to Ft Wayne. Let me know if you want to connect.

1 Reply

Crystal SmithPro Member

Moderator

Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes

5y

Originally posted by @Vasyl Levchenko:

@Crystal Smith

Crystal, you're making a great point.

Long term vision is something that I am working on. Have read your posts before and always learned something new. Thank you

Something else to consider as part of your analysis. Don't make the mistake of analyzing a city at a Macro level. Each of the cities you're evaluating has submarkets that each operate differently. Cities like Cleveland are large enough to have lots of submarkets. While I haven't looked at it I would bet that the market around Case Western performs differently than say Chagrin Falls.

I see in the tread lots of votes for Columbus Ohio, even though it's not on your list. If you consider Columbus, the closer to Ohio State, the better.

312-681-7487

1 Reply

Vasyl Levchenko

OP

Rental Property Investor · Chicago, IL · Member since 2021 · 24 posts · 30 votes

5y

@Crystal Smith

Absolutely agree on submarkets,

I was trying to sum up my general vision of the areas and start a conversation around it so I could explore other opinions.

I've heard a lot about Columbus but it seems to be too hot at the time. I think my chances are higher in less trendy markets, where I am not betting against all those OOS guys. At the time, I am leaning towards Jacksonville, FL (which is popular too) as it looks like Florida is becoming a new California with a lot of companies and wealth moving there.

1 Reply

Bill Rance

Investor · Fishers, IN · Member since 2016 · 7 posts · 3 votes

5y

Just as an FYI, I am in the Indianapolis Marketplace. Historically we have good inventory and prices appreciate 2 maybe 3% a year. Its been rocks steady even during the 2008 crash. But a multitude of outside investors have come in and as a result 2 not good things have happened.

1) My experience has been that most have very little if any knowledge of the market( I can provide dozens of examples to prove this point) so they come in a buy up anything just to be in the game. 2020 was horrible for out of state buyers. This not only dramatically diminishes supply but it artificially drives up prices. Stuff that was worth no more than $20k a year ago is selling, a falling down shack, is now $50k....$100k in some places for a dozer house. Its not real appreciation and its not sustainable. I was in another market just like this 12+ years ago and all these same things were happening with unheard of appreciation. When the economy turned the market dropped 50% and still has not returned 100%. I sold a place for $3/4M that today still is not worth that much. Another for $775k that the guy just sold after putting in $75k of improvements for $150k less than he paid me. That same phenom is building in Indy right now.

2) Sellers have quickly caught onto this trend and understand out of town buyers will pay upwards of 25-50% more than a local. So they will purposely wait for a "sucker" to show up and buy something for way too much. I know a realtor whose entire strategy right now is 100% based on out of state buyers that will overpay. Locals can still find deals because we know where to look and who to talk to but its not a good situation here. Very competitive but more in the sense of this being an easy point of entry due to prices compared to many larger cities. Even wholesalers are asking crazy prices. So margins for rehabbers like me have really tightened. I have had to scale back because all of the overpaying is going to ultimately hurt this market.

I closed on a property monday that I got for a good price, 18k less than the guy paid for it. He over paid, realized he overpaid and wanted out. Since he bought it the neighborhood has improved, but he didn't know that cuz he's 1000 miles away. So good for me but that's this Indy market right now. And now with Biden who is certain to cut the knees out of the economy, it will only make matters worse. Any good market is going to be crawling with people who just want to be in the game and Indy, columbus, Cincy, etc are no different. Every market has a ugly underbelly and Indy is no different. As one poster said, inventory is thin and it is very competitive here and the "deals" are no longer.....unless you know people. My advice is to anyone is when you own your local market THEN look to other markets. Anyone who says investing in other states and markets is easy, has never done it!!

1 Reply

Tom Wagner

Real Estate Agent · Minneapolis · Member since 2019 · 338 posts · 219 votes

5y

Columbus, OH all the way! Perfect combination of potential appreciation and stable cash flow.

3 Reply

Picking a cashflow market to scale

Picking a cashflow market to scale

Most Popular Reply

41 Replies