Multifamily markets that offer cash flow AND appreciation

16 Replies

Hi BP community -

I currently own an SFR and a 7 unit complex here in Washington state and am looking to grow my real estate portfolio dramatically in 2020. My sole focus for next year is to buy 50 MF units (1, 2, or 3 deals) out of state in a market that can offer cash flow and appreciation.

I am looking for input on markets with greater than 200,000 people and that are in the early stages of growth (greater than 1.5% per year). Target properties will be value add in a desirable location with low crime rates. I’m also focused on lower tax markets to drive cash flow (hence my concern with Texas).

Any guidance is appreciated!

Originally posted by @Ryan Judah :

Hi BP community -

I currently own an SFR and a 7 unit complex here in Washington state and am looking to grow my real estate portfolio dramatically in 2020. My sole focus for next year is to buy 50 MF units (1, 2, or 3 deals) out of state in a market that can offer cash flow and appreciation.

I am looking for input on markets with greater than 200,000 people and that are in the early stages of growth (greater than 1.5% per year). Target properties will be value add in a desirable location with low crime rates. I’m also focused on lower tax markets to drive cash flow (hence my concern with Texas).

Any guidance is appreciated!

 Ryan,

The nice thing about doing value-adds for apartment buildings is that you get BOTH cashflow and appreciation (the "forced" kind).

Having said that, I invest in apartment buildings in Cincinnati (it's where I live and I am familiar with it down to the neighborhood level). I've bought 1,800 apartment units since 1999 and have about 1,000 apartment units in my portfolio. I focus on buildings with 30-90 units and I am working with a group of owners with over 3,000 apartment units they want to unload in the next few months. I will likely close on about 1,000 units but will likely just sell or JV on the remaining 2,000.

For Cincinnati, employment has risen up 1.8% while cap rates continue to shrink (it is now averaging 6.7%), behind a 3.8% rent growth. Here's a report done by a MF lender, Arbor:

https://arbor.com/blog/cincinnati-multifamily-market-q1-2019/

Hope this helps.

@Ryan Judah there are a ton of markets out there that offer good cash flow! We're in the Florida markets, but love the Southeast in general. There are markets out west with the criteria you're looking for.

If I were you, so that you become laser focused is to focus on 1-2 markets, so that you understand all of the market fundamentals for each market. Figure out what those 2 markets look like for you. Good luck on your journey

Look for opportunities to create extra income and lower expenses. Any market can provide both cash flow and appreciation if you find the right properties. I would say the midwest and SE markets that have good population and job growth will have the best of both.  

@Ryan Judah I have complied a spreadsheet of locations that meet your criteria. 

The cities selected all have a population greater than 200k and I have order them by the CAGR of the past five years of population totals.

In addition I have included the median home values as well as median RE taxes paid for each city to help further filter your selection.

Here is a link to the spreadsheet 

Link to Spreadsheet

As for low crime and desirability, this will be something that is unique to the submarkets within whichever cities you decide to invest.

Hope this helps! 

   

@Michael Ealy 

I appreciate the insight on Cincinnati as it's one on my radar along with Columbus, Minneapolis, and St. Louis in the MW due to declining vacancy rates (more than the national avg) and above national avg rising rental rates. I am working to narrow my markets to 7, then analyze each in more depth, rank, and will select two to start building a team for my 2020 acquisition(s). I read the Arbor report shared and it echoed many of the other large research companies reports - thank you. It sounds like you have an awesome portfolio and pipeline. I'll PM you and see if we can connect soon. Thank you.

@Natasha Young , @Art Perkitny , @Todd Dexheimer@Tj Hines

Thank you all for the perspectives and insights. I read a great article from Joe Fairless on How to Select a Target Market and am deep in the Marcus Millichap, CBRE, and other reports to get a broader understanding of the key metro and secondary markets. Learning a lot and looking forward to narrowing my search to two markets by the close of November. 

Thank you again for offering your input.

Ryan

@Ryan Judah  I strongly recommend Columbus, Ohio. Our market is appreciating quickly due to the boom in job and population growth. It was just announced that JPMorgan is moving a lot of operation jobs from NYC to Columbus. It is a great place to live and invest in.

@Remington Lyman @Patrick Hill

Thank you both for the feedback and input on your markets. I was able to cull my list down to the top 8 markets last night. 

Raleigh NC, Houston TX, Las Vegas NV, Phoenix AZ, Salt Lake City UT, Cleveland OH, Columbus OH, Orlando FL

Given Columbus is on my list of locations to dig into a couple layers deeper, it would be good to connect in the next couple weeks @Remington Lyman for your perspective. I'll PM you and hopefully we can find a window to connect.

In Chicago neighborhoods such as Rogers Park and Albany Park are seeing gentrification and offer cashflow. I have a 13 unit under contract for a client right now that's at 1% rule rent to purchase and this was off MLS so not some crazy one off deal.

in both these areas rents have been sky rocketing. I sold a 3 flat last year where units were $700-800 each after rehabbing kitchens/baths we re-leased all 3 at $1850 each to a much higher income tenant base.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here