Is metro cities better? or around the metro? or suburbs?

Question

Hello BP,

I'm wondering if anyone can provide some insight as to what types of areas are generally better for multi family (5+) properties if I'm looking for some appreciation but more for cash flow? I'm thinking this would land somewhere in the C+ or B class property. I'm looking around for a 5-10 unit to just scope different areas and what's available online (though i have heard anything listed is something nobody wants - not sure how much truth there is to this with multi property) and not sure whether metro (like close to down town areas) are better or the areas peripheral to the metro areas or in the suburbs. Thank you in advance for your feedback!

James

Mike D'Arrigo · Answer

I agree with what @Lee Ripma says. I often have people tell me that they are looking for MF in A class areas which don't exist for the most part. A class neighborhoods are A class neighborhoods because they are primarily all owner occupied and don't have high density housing. If they did, they wouldn't be A class.

Lee Ripma · Answer

Hi James -

People are successful real estate investors in both the suburbs and the core metro areas. So I think the question is really - what do you want? It sounds like you are interested in purchasing multifamilies with larger units in the suburbs that are B class. Great strategy! I can tell you that this works well in B class suburbs of Kansas City - Overland Park, Blue Springs, Lee's Summit and C areas - Independence, Raytown, Belton, Grandview. I say go for it! One mistake people make is thinking that large unit MF will be available in their chosen submarket. I can tell you for the submarkets I just mentioned 2-4 units and/or packages of 2-4 units are common but larger apartments are not always available. Suburban = less dense = less dense housing, in general.

Mike D'Arrigo · Answer

@James Kim this question is too broad. It depends on the market and criteria. What kind of tenants do you want to appeal to? Are you going after students, young hipsters, families? That's going to make a big difference.

Nick Rutkowski · Answer

@James Kim

Bro you want to invest right outside the “out of affordability” line. Basically, right outside where rent prices are going up. In my experience, that’s given me the best location and price. Eventually urban sprawl happens and your rental will increase in price. Of course, this is all in theory so make sure you do your due diligence.

Marcus Auerbach · Answer

Very broad question, I can only give you a very general answer: as an investor I have been going into the suburbs and smaller tertiary markets. This has been very positive for us over the last years.. I also "feel" this trend in my brokerage business, covid and working from home have caused a shift in social preferences, but I don't have hard data to support it.

James Kim · Answer

@mike

thank you for your feedback. Still learning and trying to figure out what my own preferences are and what my options look like. Appreciate  your help.

James

Mike D'Arrigo · Answer

James, I think you're right on. In general, young hipsters like to be in inner city, especially around entertainment districts and nightlife. They're not real interested in being out in the suburbs. Students of course want to be close to the colleges and universities. Families with children will prefer SFR over MF but nothing is every absolute. I think it's safe to say that the renter profile for MF than it is for SF. MR renters tend to be younger, single or young couples with no children.

James Kim · Answer

Hi Mike,

Thanks for the feedback. I don't know what's better for cash flow, but personal preference would be families. I'm not too interested in young hipsters or student housing. If i'm looking at the suburbs, and say there's a hospital out there and the surrounding housing is generally more families. Would renters tend to want SFH or a unit within a multi family building? I would think the price point (assuming same sq ft) would not be too different either way. So i would think families would want to rent a SFH rather than a unit in a multi family property. This compared to say closer to metro areas, if I'm looking for families i would tend to thing they would want to be around the city rather than in it. Just my thoughts, though any feedback is welcome as i'm learning too.

Thanks

James

Is metro cities better? or around the metro? or suburbs?

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