Market that Can Match these Figures

Multi-Family and Apartment Investing
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Market that Can Match these Figures

Luis Fernandez
Saint Louis, MO · Member since 2017 · 34 posts · 12 votes

I'm looking to invest $100,000 in cash toward rental property for a revenue of $3,000 to $4,000 per month. I'm not interested in appreciation or quality neighborhoods. My primary interest is cash flow. With that being said, I understand that with these figures, chance are it will be in the ghetto. I've searched Las Vegas and missed the boat about 4 years too late. I'm currently jumping on a flight to St. Louis Missouri where I'm seeing multifamily units within that price range, however, I saw sweeter deals just a year ago. I'm getting the feeling that a lot of cream of the crop has been bought up. If I don't make a purchase in STL, my next stop is Atlanta, Georgia or Ohio. I'm looking for some insight if any of you have or are currently investing in one or more of these locations and what recommendations you may have. Do you know of another state or major city that's producing these figures? This will be my first rodeo in rental property investment. I appreciate the insight.

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Cody L.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
If your $100k is going to buy a $400k property you should be able to get ~$6k/month of rent (more if trash area, less if not. 100x monthly rent is my MAX price I'll pay and that's if I like the area) With that you are NOT going to cash flow 3-4k/month. That's 36-48k/year or a 36-48% return on cash. I've had deals like that but they're outside of the scope of this reply and not going to happen unless you're super plugged into a submarket and find the right op that wouldn't be jumped on by the masses. (Best deal I ever did was a vacant commercial property. Paid $500k. Appriaser for $750k. Got the seller to raise price to $700k and give a credit at close. I closed with less than $0 down (got money back). Found a NNN renter to take it for $12k/month while my only bill was a $5k mortgage note. So $7k/month cash flow and cash at close. Wish they were all like that)
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  • Tan Mehedi
    Engineer · Douglasville, GA · Member since 2016 · 90 posts · 31 votes
    9y
    Hey Luis , I would also advise you to invest within 2 hours driving distance from your just as jay mentioned. I believe joshua dorkin and Brandon turner also believe in that concept
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  • Charles Worth
    Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes
    9y

    @Luis Fernandez

    There are 2 major issues here with doing this out of state. First one is the locals will see you coming a mile away and charge you a premium in the vast majority of cases I have seen. 

    The second is management. As @Jay Hinrichs noted this are really hard to manage. That would be ok except your property manager, assuming you have someone even half decent, is only getting less than $100 per month per property in many cases, for something that is a headache. So they very likely going to do their job but they are not going to do it like you would as an owner. You could do section 8 which CAN be a little easier but that is not a given either as you need to chase people for their tenant portion, people lost section 8 and there are inspections which if you fail drag out your vacancies. In short I at least see these as being much easier said than done. 

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  • Carlos Altamirano
    Investor · Los Angeles, CA · Member since 2015 · 325 posts · 75 votes
    9y

    Hey @Luis Fernandez

    I agree with some of the posts here about using leverage to squire more properties. You're 100k could be a downpayment for your 300k-400k multi-family. You'll find buildings trading at 9-16 cap rates all around midwest states. Your cashflow seems to average to about 150-200 per unit after debt service. For a passive income of about 60k/year, you'll need 25-35 units. In my opinion, not bad at all. I am real estate investor of multi-family in midwest states, with my primary focus on syndicating apartment complexes. Their are many great opportunities out there. Happy to chat some more! 

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  • Luis Fernandez
    OP
    Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
    9y

    @Charles Worth

    Good points made here.. A friend of mine has gone through the ropes with what you've mentioned here. He's from California and buying property here in STL since 2012 - 21 units and climbing. He's mentioned the issue with local handymen and their cynicism with doing business from out-of-state land owners. It has taken him some time to build a relationship with a few good men and is willing to give me their contacts and introduce me to them as a head start. He's also had his issues with management. He currently gives his manager free rent and it has worked out ok so far - been about a year into it. However, my friend takes the house calls in the form text messaging and then gets in contact with his handyman, when the job or issue is resolved, wires the payment via an app. The manager is more of a messenger and his eyes and ears if he needs someone physical. He's have to spend some time in-state to resolve similar issues you've mentioned once being about 4 months which was due to a drop in vacancy of 6 out of 8 tenants over night. He resolved it and now has 100% filled by dropping the rent from $500 to $450 and doing some marketing - he learned this through trial and error after trying several things which he said gave much insight and was very educational. However, my friend is also making a 40-something% return and is expected to pay off this 8-plex in 4 years. I think it depends heavily in how much flexibility you have in your profession. He's a software developer that works on contracts. I am a hotel business owner. Less flexible than his situation, however, if I had to I can catch a plane relatively with short notice to attend, for example, an eviction. I'm interested in cash flow - high risk = high returns. 

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  • Luis Fernandez
    OP
    Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
    9y

    @Carlos Altamirano

    I understand that leveraging provides a better ROI but I'm not interested in debt though I know it is the good kind. What I want is to pay cash and get the best price - cash is king. I'm looking to get the property paid off within 5 years as in getting my cash back. I want nothing less than a duplex preferably more units in a building or lot. Do you know of something like this?

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  • Luis Fernandez
    OP
    Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
    9y

    @Timoteo Guy

    Interesting I'll take a look. Do you know of any property off hand? How's the "Passive Income in 3 different states" working out. I ask because I've thought about the same thing.

    1Reply
  • Luis Fernandez
    OP
    Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
    9y

    @Tan Mehedi
    I don't really have much of a choice if I want to get into rental property for cash flow. I own and run a hotel in Costa Rica. Costa Rica is not land lord friendly the least bit. My hometown is Los Angeles, California where properties are really pricey most not even meeting close to the 1% rule. I want to get into real estate to eventually live off the passive income and continue investing 'til .. That leaves me with out of state multifamily units. Do you see another option? I'm not interested in leveraging. 

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  • Luis Fernandez
    OP
    Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
    9y

    @Jay Hinrichs

    Interesting breakdown of numbers. What would you recommend with a 100k cash, no leveraging, focus on cash flow not appreciation?

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  • Luis Fernandez
    OP
    Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
    9y

    @Chris Martin

    Regarding Jay DeCimas's 60-90 there's no opportunity that matches my criteria anywhere near that driving distance. LA, CA is horrible as far as rental cash flow. Appreciation seems to be doing great there, however.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Luis Fernandez  my self and most folks with my experience level will never recommend D class or ghetto class for out of state investors.. its financial suicide.. streets are littered with folks that got wiped out thinking they knew something others did not.. or simply were naïve

    with 100k in cash .. you can leverage into NIce B class in the mid west deep south.. both will perform with a certain amount of certainty and will cash flow higher than CA or at least the expensive parts of CA.

    You need 10 doors if you going to be in the rental business and you need that amount as fast as possible.  settle for less return but ACTUALLY get the return..

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  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    9y
    Originally posted by @Luis Fernandez:

    @Carlos Altamirano

    I understand that leveraging provides a better ROI but I'm not interested in debt though I know it is the good kind. What I want is to pay cash and get the best price - cash is king. I'm looking to get the property paid off within 5 years as in getting my cash back. I want nothing less than a duplex preferably more units in a building or lot. Do you know of something like this?

    Leverage is the king in real estate investing.  You give up 4x the tax benefits and 4x the appreciation benefits without leverage.  If you are not interested in these items, there are better asset classes to invest in (or passive real estate investment opportunities).  Direct ownership in rental real estate is too much work to only earn the cap rate.  Plus, prices are high due to low interest rates; so, you will be paying a premium without the offsetting interest rate benefit.

    1Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Luis Fernandez:

    I'm looking to invest $100,000 in cash toward rental property for a revenue of $3,000 to $4,000 per month. I'm not interested in appreciation or quality neighborhoods. My primary interest is cash flow. With that being said, I understand that with these figures, chance are it will be in the ghetto. I've searched Las Vegas and missed the boat about 4 years too late. I'm currently jumping on a flight to St. Louis Missouri where I'm seeing multifamily units within that price range, however, I saw sweeter deals just a year ago. I'm getting the feeling that a lot of cream of the crop has been bought up. If I don't make a purchase in STL, my next stop is Atlanta, Georgia or Ohio. I'm looking for some insight if any of you have or are currently investing in one or more of these locations and what recommendations you may have. Do you know of another state or major city that's producing these figures? This will be my first rodeo in rental property investment. I appreciate the insight.

    Wow ... with this line of thinking there is literally no limit to the amount of money you could lose. You seriously need to re-evaluate your strategy ... there are so many really important things that you are intentionally or accidentally ignoring. Not interested in appreciation? Really? What if rents and prices go down over the long haul on an inflation adjusted basis so all your cash flow gets eaten up with capex and you can't sell it for what you have in it if you need or choose? Don't care about the quality of neighborhoods? Seriously? Who do you think your tenants, who will be the source of your cash flow, will be in these type of neighborhoods? How reliable do you think they will be in paying their rent and taking care of your unit? How passive do you think it will be managing them? Don't worry about that, you'll have a property manager you say? What sort of property managers do you think would choose to work in neighborhoods like that with lower rents and higher headaches? How do you suppose they make money and manage your property? I could go on and on and on and on, but there is just so many things you are overlooking it is seriously dangerous. Stop and ask yourself why for a few minutes ... why are things priced the way they are in those neighborhoods? Why do they show so much cash flow on paper? Why do experienced investors tend to avoid them? Why do the other local investors not snatch up all those properties before an out of state investor can find them off the MLS if they are such great deals? Doesn't pass the "sniff test" IMO if you ask a few why's.

    1Reply
  • Graham Nash
    Investor · Gray, GA · Member since 2016 · 38 posts · 10 votes
    9y

    @Timoteo Guy @Luis Fernandez I'm about 3 hours from Sav. GA. and have spent may nights there. It has a couple of colleges and a solid tourist market. Also has a small airport with routes to Atl, NYC and DFW. Not sure about the rental market, I would think property is going to be pretty high because it's on the Atlantic. Might be an ideal place for an Air b&b if you found a cool spot. 

    0Reply
  • Account Closed
    Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes
    9y
    Originally posted by @Luis Fernandez:

    ...I'm looking to invest $100,000 in cash toward rental property for a revenue of $3,000 to $4,000 per month. I'm not interested in appreciation or quality neighborhoods....

    So you are trying to make an all cash buy for the property at a maximum price (including any rehab cost) of $100,000 and with an average gross income from the property of $3,500 per month? That is a price to sales ratio of about 2.38. Do you have any details regarding operating and expense estimates?

    1Reply
  • Luis Fernandez
    OP
    Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
    9y

    @Mike Dymski
    Can you elaborate on the "better asset classes to invest in"?

    0Reply
  • Luis Fernandez
    OP
    Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
    9y

    @Graham Nash
    Good to know. I was really tempted to originally head out to GA. 

    0Reply
  • Luis Fernandez
    OP
    Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
    9y

    @David Faulkner
    With boots on the ground, I do see investors buying up properties in less favorable neighborhoods - some with tenants living and paying rent in each unit. They're being bought at a rate such that I've already had three properties slip through my fingers in just one week. They're going pretty fast.

    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    I always try to keep an open mind.

    In my last post, I said "It sounds like you understand the risks." So, to reiterate, what you propose is financially risky as @Jay Hinrichs, @David Faulkner, and others point out. Statements like "...drop in vacancy of 6 out of 8 tenants over night..." are big red flags for me and may be the root of the 'better asset class' comment. But it's your money, as they say.

    Given your hotel background, your friend who is "doing it", and what I perceive as your understanding of St. Louis, it seems St. Louis would be a top choice. And from your last post, have you decided on St. Louis? If so, have you considered partnering up with your friend on future deals?

    I don't advocate what you are doing, BTW. I've seen (known) smart investors who got clocked in C-/D plays and I've seen OOS investor property in Raleigh that ended up abandoned and destroyed. Lake Wheeler Rd at Hilltop Needmore for anyone keeping score at home. But I do things that others don't advocate. I've done deals others said are impossible. So in that regard, I'd like for this to work out for you.

    Running a hotel potentially puts you in a favorable position to manage the manager, which is the hardest part for me when I look at distance investing in C class multi-family property. I agree with @Mike Dymski on the leverage, but only on stabilized property. @Luis Fernandez You know the risks. Please keep us updated on your journey.

    1Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y
    Originally posted by @Luis Fernandez:

    @Charles Worth

     I'm interested in cash flow - high risk = high returns. 

     Actually high risk = high Potential rewards.

    If "high risk" always gave high rewards, it would not be high risk would it?

    2Reply
  • Luis Fernandez
    OP
    Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
    9y
    @Ned Carey I believe the word "risk" on one side of the equation already implies it as being a "potential" reward.
    0Reply
  • Luis Fernandez
    OP
    Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
    9y
    @Chris Martin Will do with updates. As of now I have two duplexes on escrow one of which has tenants - one has been there for 5 years and the other for 6 months. The other duplex needs some paint and minor repair. I buying both of them for 58k. Combined ROI is at 28% I'm on the hunt for one more duplex. Duplexes seem to be the sweet spot as far as the numbers.
    0Reply
  • William H.
    Investor · Savannah, GA · Member since 2016 · 24 posts · 3 votes
    9y

    @luis fernandez 

    @timoteo guy 

    I live in Savannah,  if yall need some boots on the ground let me know. As far as bang for buck there are some 4 plexs currently that would gross about $2400 easily,  and they are going for around 175ish. Thats a coc return of 11.25 on your 35k. Assuming 50% for expenses anyway. 

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