I would like to get the expert advice/opinions of other BP members on a dilemma that I am faced with. My husband and myself are investors from San Jose, CA and we have only bought SFRs so far. We have bought in AZ, NV and TN and have had no issues since we have good property managers. We now want to invest in 4 plex or apartment complexes and have no idea which markets are good in terms of cap rate and also ease of management. Since we cannot buy local (cap rate in CA is pretty low), we are exploring different markets.
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If you are looking to buy based on NOI (the income stream) then you should educate yourself about cap rates. If you are buying a $50,000 NOI in CA at a market set cap rate of 6% then the market is paying $833,333. Now if you want the same NOI in say Indiana (thousands of miles away from you) at a 12% cap you'd pay $416,667. Is that a deal? Which property has higher demand? Why would you think the higher cap rate market is better when the market is actually paying MORE in the lower cap rate markets?
Ease of management? CA, hands down!
What sectors have you bought in and what are you comfortable with?
If you're okay with low end / sec8, you've got a lot of options in the rust belt and down south.
If your wanting something like student housing, the options are almost endless (emphasis on the almost)
there are great locales all around the country depending on what you're okay with and what your goals are.
I agree you can do this in CA. I was thinking Chico. It's a nice university town. I just looked on an MLS site, and there's a triplex near downtown for $315K.
You could also look at Shasta County, but your tenant pool will be a bit iffy-er (is that a word?). I lived there last year (Redding) and it's a very blue-collar type town. Chico is more up-scale with the university there.
Don't get me wrong, you could do fine in Redding, but you might get high-maintenance tenants - in a different way than students would be. I'd prefer to manage a property in Chico, if I had the choice between Chico and Redding, for instance.
Another possibility, if we're looking at university towns, would be the Arcata/Eureka area. There is a triplex property in Arcata close to the university for $370K.
Food for thought.
Carolyn was asking for an expert advice which I believe the very least is a MFR investor which invest in a healthy cash flowing market. I join the request
Thanks for all the inputs received so far. Las Vegas is one option for us.
@Blair, we have only bought SFRs in A neighborhoods. We would like to stick to A or B neighborhoods.
I feel, given the circumstances in SoCal, buying out of state seems lucrative.
I like your strategy of purchasing in class A and B neighborhoods. I believe that in itself may remove some of the headaches.
I, as well, have given out of state investing some thought. And with all things considered, I would want someone to have equal amount of skin in the game. So the only way I see it working for someone like myself is partnering up with a like-minded investor within the state who could be our "boots on the ground."
Otherwise, a PM can either make or break you.
Just my .o2 cents
Yes, that makes sense. So far we have had great property managers but that may not always be the case. We are in northern CA and have so few options to invest.
Welcome to Biggerpockets. How long have you been investing in those states? If those SFHs are working out for you, what makes you want to invest in 4-plex and apartment complexes now? Do you believe 4-plex and apartment buildings would increase your ROI?
Have you thought why cap rates are low in some markets while they're high in other markets? Sometimes, the opportunity is right under our nose and we don't recognize it. I really like this quote from master Oogway "One often meets his destiny on the road he takes to avoid it."
Thanks. We have been investing out of state for 3 years now and since they are all in A neighborhoods the ROI is lower. I keep hearing on BP that you get a better ROI if you invest in multi-family units.
I see that you are in San Jose. Do you invest locally or out of state? It would be good to learn from other seasoned investors.
I have some partners in San Diego, if you want more info let me know.
I'm back in the market shopping around Sacramento. There are some pretty OK deals but I'm looking for something $1M + so I'm being picky.
Yes. I it would be a good idea to explore the San Diego market. They can contact me at [email protected]
Congratulations!!! You got in at a good time. You are one smart cookie for buying properties in A neighborhoods. They are much easier to sell when you're ready to liquidate.
Looking only at CoCR can be deceiving in my opinion. For an apples to apples comparison, you have to look at the IRR. When something is selling for cheap, there's normally a reason behind it. Why do you think people are willing to pay $1MM+ for a shack in Cupertino while they're literally giving these house away in other states?
I believe everything in life has a price. Rich people are well connected with our political system, and they tend to vote with their checkbook. Properties in a supply constrained markets, like ours, have a high probability of appreciating in the short, intermediate and long terms.
We human tend to take for the path of least resistance. Unfortunately, the path of least resistance tends to lead us to the path that we try to avoid. I spent a lot of time to learn and understand our housing market. I'm extremely happy to say that all of my properties are right here in San Jose. You can say that I do what others don't. :>)
If you truly want to learn and rub elbow with other seasoned investors, there's a meet-up in San Francisco Fi Di tomorrow afternoon. J. M.?
Hi @Carolyn Joshua Welcome to BP!
@Minh Le is clearly an authority on the San Jose rental market on this site, so I would definitely take note of his posts on the subject. And I agree with him in that you can still find deals in areas you're possibly neglecting. Not saying settle for D class neighborhoods, but perhaps it means re-defining your criteria a bit.
For me personally, I really like downtown SJ. Not just the Naglee Park area but the areas around the university and San Pedro Square Market have really been improved. Lots of multifamily homes and a high demand for rentals between students and young professionals. Plus, I have a soft spot for those old victorians.
Best of luck and keep us posted!
Thanks for the kind words. Sounds like you know downtown San Jose quite well yourself, but don't forget Japan Town. Looks like the CSJ is doing something right this time around. The whole downtown is exploding right now. So much new construction is going on.
Given the new Samsung campus plus the 7MM sq.ft. of new office space to be built for Amazon at the Bay 101 site, I expect the housing market for downtown and north San Jose to be hot in the very near future. In fact, I think they have been hot and getting hotter. Rents have been on a tear too. Have to feel for the renters.
We're fortunately enough to get the first dip on a lot of deals in downtown San Jose before they even hit the market. We have been making a run on about half of them. Unfortunately or fortunately, we didn't get them all. :(
One of the few examples was a 10-unit apartment building, which was offered to us first at $1.6MM, we refused to go above $1.5MM. Someone else bought it for $1.6MM, claimed to put $100k into rehab and flipped it for $2.18MM shortly after. Another 8-unit building was offered to us for $1.43MM. We turned it down because we didn't really like the location. They sold it for $1.48MM. The investor put some lipstick on that pig and flipping it for $1.8MM. Talking about tight margin.
As human, we tend to want more and more. How much is enough? However, we have gotten our fair share so can't complaint. :>)
@Minh Le One of the areas I'm looking more into is Rosemary Gardens, essentially the first neighborhood on the non-downtown side of 880 and 1st. There seems to be some decent value you there, especially with all you mentioned going on around Bay 101. But that's more for Single Family Investors. There aren't many multi's over there.
In general, you're right, Multi-family flipping has been crazy lately. I'm also seeing a bunch of properties that didn't sell 6-12 months ago that have been re-listed at 300k+ more in asking price. Same data...new price.
Still, there's enough out there for us to find.
@Carolyn Joshua : I'm an Acquisitions Manager in the SoCal market. I come across many different types of investors with varying ranges of criteria. The business model I like today regarding multifamily 10 units plus is that with the type of long term, fixed rate financing now available in the commercial space buying and holding for a steady income is a sound choice. I think a lot of people get caught up in the rush of flipping. If you would like send me your detailed criteria and i'd be happy to talk it through with you.
Thanks Minh and Robert for your insights. I will reach out to you to discuss in detail. Thanks again.
Hi All, I appreciate everyone ones advice on this thread. I myself am a California native, I currently have two SFRS properties I have rented. My partner and I have been in discussion and looking to invest in multifamily units. I myself am not sure on what area, cities states would be idea to be looking at in the market today. I am looking for cash flow with long term appreciation as well. I also question how many units I should look into 1-4 units or 5-10 units and where. I could use some expert advise and any help to lean me in the right direction.
Hey Carolyn! Your current portfolio sounds awesome. Where in TN did you buy? (I went to school outside of Nashville). I can't speak for apartment complexes as I've never done commercial myself, but 4plexes are definitely out there, but they are harder to find. I'd say primarily the midwest-type of states are a good start? I've known some in the northeast, like NJ and Philly, but that's it. TX, no. Atlanta, AZ, western states, no. Let me know what you end up finding...I'd be curious?
We purchased a few SFRs in Murfreesboro, TN. It's 35 minutes from Downtown Nashville. I will certainly let you know if we find any other good states to invest in.
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