Agree Or disagree and why.
Most Popular Reply
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2yI have been in real estate since mid 90’s so I am definitely a location location location person
Why - because it’s not as susceptible to as significant a price drop during recessions and they typically recover faster and have greater appreciation which is the true wealth builder in real estate. Just my opinion and feel free to disagree. I love healthy discussions on challenging topics
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112 Replies
- Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes2y
Yeah, yeah, yeah, James, big deal. y'all got rich off Cleveland losers. In the land of the blind, the one-eyed man is king. I didn't trust a word you said about real estate until I saw you actually look at a few properties. Then I had to admit you weren't all just blue genie dye and chains.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @James Wise:
Listen y'all, you can make money anywhere sure, but you can also lose money. You can also put forth varying levels of work to make or lose this money. It's true that the end result will be different for everyone based on a ton of factors, but there are patterns. There are occurrences that are more common than others. There are typical outcomes and outcomes that go against the grain. There is the norm and there is the exception.
For example, in the Cleveland market, when investors want to get rid of properties they bought because they didn't think location mattered, more often than not, they call my company. A huge portion of my income comes from helping property owners who didn't think location mattered sell their houses.If you are wondering how often this happens, when I 1st started selling real estate in my early 20's, I lived in a 900sq ft house on a tenth of an acre that had 3 beds and 2 baths...Today my house is on 22+ acres, has 7 beds, 8 baths, a pool house, and an 11 car garage.
Having said that, you've got to ask yourself, just how often do people who thought location didn't matter call me so they can sell their properties? Is calling me because they changed their mind on location not mattering the norm, or the exception?
keep in mind the OP sells these houses in cleveland and now South Jackson ms so there is a Bias going on here that is not talked about. of course those that buy low and sell to the next person make money on every deal.. I know I fund hundreds of these a year.. We moved out of East Cleveland we moved out of South Jackson MS.. as a lender just way to risky as BRRRR buyers fail in those markets far more often than in the Solid B markets we work in today. I learned the hard way but hey people are going to chase the 20 caps all day long you can tell them its risky you can tell them they are making a mistake but they still buy them believing this superman PM is going to take care of them. I speak from first hand experience as James knows and not from emotion or the few people that are self managing and make this work. So As @Jim K. mentions weaving this dream in these asset class's can really harm investors that dont know what they dont know.
- Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes2y
Quote from @Jim K.:
Quote from @Bob S.:
Great points by all. We all should agree, money can be made anywhere as long as you have a team in place and know what you are doing
Lets all keep crushing it
My worry, Bob, is that newbies see things like this and think that the fine-looking abstract numbers in D-class will mean that they can reap pretty profits from these properties. That, especially as newbies, is just not true as a rule.
My view, which I've stated here many times, is that you can specialize in properties that are just above the lawless D-class cutoff and make SOME money -- there are many, many C- class neighborhoods and pocket neighborhoods on the edges of D-class where this is true. But it's a specialization, and it's usually hyperlocal, and it really helps if you self-manage and in most cases are able to work as your own handyman and small-scale renovator, supported both financially and emotionally by your spouse (as I was).FURTHERMORE, this would simply not have worked out well for us if we hadn't done some crucial work beforehand. We would have just been statistics in an ocean of bad mom-and-pop investor numbers.
BEFORE you aggressively focus on acquiring property in a questionable neighborhood, one of the best things to do is to gain some useful deep information about it, as I did. In my case, I learned (just through public records, the information was readily available to anyone willing to dig for it) that the municipal and school funding of the area was about to DOUBLE due to the expiration of a tax scheme. Anyone could have done this, but not enough small-scale real estate investors were willing to do the thankless, unpaid researching it typically entails.
The basis of the three- and four-fold appreciation of my target area in the last ten years is largely due to the expiration of that tax scheme. Our risky strategy ended up working out great. The many heartaches and difficulties of initially investing in my area were largely repaid. But without the tax scheme, without the appreciation? I'm really not sure. Price, price, price would certainly not have beaten out location, location, location. I would not be crushing it. I would be getting crushed under the weight of this game.
And I'm not even talking here about the importance of building the close relationships I have with my main contractors. I'm not explaining everything I did to earn the trust of local building inspectors. I would say I still pay gold-plated prices for everything, but now I know why. I still do a lot of my own minor maintenance. And I still lose money from time to time, and some of those losses would easily break a newbie risking it all on their first high-risk moves.
@Jim K. I wish I could upvote this post twice. In our case, I can't even claim great research as our first purchase was in a neighborhood that we misunderstood and seriously overestimated. We made it work anyway but it was hard and we were lucky; lucky we were in a rising market and lucky that between the two of us we just happened to have just the skill sets that were required to overcome our newbie error in location selection, and lucky that we both are able and willing to learn from our mistakes... and due to inordinate stubbornness, it took me a good long while, (several years not months) to even realize that we had made a mistake.
- Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes2y
Most people made money in most places over the past 10 years. We had a ridiculous run thanks to historically low interest rates, widely available credit, and the gubmint printing money. That doesn't mean it'll continue that way moving forward forever. It also doesn't mean that people making money in bad locations couldn't have made MORE money in GOOD locations during the last 10 years. Normally the faster you flip a property, the better chance of making a profit. But in the last few years the slower you went, you actually made more money because the market was going up that fast. My market went up an average of $100k per month from January 2021 for the first half of that year. The worst flippers ended up making the most money. You could have bought anything and sold it a few months later and would have made multiple six-figure profit without even doing anything to the property. Investors have been buying in places that nobody would have recommended before this bull run, and still did alright thanks to the rising tide lifting all ships. This won't stay true moving forward. As the tide goes out, I think we'll see who wasn't wearing any pants, as Warren Buffet likes to say. As the market turns, location will become much more important again. Just like we saw in 2008-2010: some markets stayed flat, or reverted to modest appreciation (we still had 2-3% appreciation here during that time) while others tanked 50%. I'm not saying we'll have those exact same conditions again of course, but market fundamentals will become critical again. Places with the most recession-proof jobs such as in education, government, defense, healthcare, etc. will be more resilient in the next downturn. Areas that have been propped up by "dumb money" that lack strong fundamentals (jobs, population growth, desirability, affordability), will have some pain as investors realize they failed to recognize the Golden Rule of location, location, location and liquidate those assets at a loss. That's the circle of life, and it moves us all.
- 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Steve K.:
Most people made money in most places over the past 10 years. We had a ridiculous run thanks to historically low interest rates, widely available credit, and the gubmint printing money. That doesn't mean it'll continue that way moving forward forever. It also doesn't mean that people making money in bad locations couldn't have made MORE money in GOOD locations during the last 10 years. Normally the faster you flip a property, the better chance of making a profit. But in the last few years the slower you went, you actually made more money because the market was going up that fast. My market went up an average of $100k per month from January 2021 for the first half of that year. The worst flippers ended up making the most money. You could have bought anything and sold it a few months later and would have made multiple six-figure profit without even doing anything to the property. Investors have been buying in places that nobody would have recommended before this bull run, and still did alright thanks to the rising tide lifting all ships. This won't stay true moving forward. As the tide goes out, I think we'll see who wasn't wearing any pants, as Warren Buffet likes to say. As the market turns, location will become much more important again. Just like we saw in 2008-2010: some markets stayed flat, or reverted to modest appreciation (we still had 2-3% appreciation here during that time) while others tanked 50%. I'm not saying we'll have those exact same conditions again of course, but market fundamentals will become critical again. Places with the most recession-proof jobs such as in education, government, defense, healthcare, etc. will be more resilient in the next downturn. Areas that have been propped up by "dumb money" that lack strong fundamentals (jobs, population growth, desirability, affordability), will have some pain as investors realize they failed to recognize the Golden Rule of location, location, location and liquidate those assets at a loss. That's the circle of life, and it moves us all.
It's a flight to quality. Location is of utmost important. The new REI will need to focus on quality, not quantity. And come heavily protected. You'll get rattled by the institutions & the everyday tenant.
This whole process of leveraging HELOCs, timing flips with no idea, self managing, and buying intrinsic properties in good areas are long gone. - Rental Property Investor · MS · Member since 2018 · 67 posts · 46 votes2y
I vote for location. I recently attended a meeting with property managers about rental properties. Several PMs have big issues, such as squatters, evictions, constant turnover, tenants with guns, AC stolen multiple times in the same unit, and shootings. There will be probably similar problems in A/B neighborhoods, but these occurrences will be significantly reduced. The cashflow will look great on paper in C/D neighborhoods, but vacancies and tenant turnover will greatly reduced your profit margins.
- 2yBob S.Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votesOP
Quote from @James Wise:
Listen y'all, you can make money anywhere sure, but you can also lose money. You can also put forth varying levels of work to make or lose this money. It's true that the end result will be different for everyone based on a ton of factors, but there are patterns. There are occurrences that are more common than others. There are typical outcomes and outcomes that go against the grain. There is the norm and there is the exception.
For example, in the Cleveland market, when investors want to get rid of properties they bought because they didn't think location mattered, more often than not, they call my company. A huge portion of my income comes from helping property owners who didn't think location mattered sell their houses.If you are wondering how often this happens, when I 1st started selling real estate in my early 20's, I lived in a 900sq ft house on a tenth of an acre that had 3 beds and 2 baths...Today my house is on 22+ acres, has 7 beds, 8 baths, a pool house, and an 11 car garage.
Having said that, you've got to ask yourself, just how often do people who thought location didn't matter call me so they can sell their properties? Is calling me because they changed their mind on location not mattering the norm, or the exception?
As you are fully aware IF you know what you are doing and have a proper team in place, you made millions investing the C, D areas of Cleveland over the last 10 years. East Cleveland MF are now selling 45- 55k per unit ,vs 4, 5 k 10 years ago. How about in GH MH CH, WH, when the pricing was all in 30k , now selling for 125k- 150k,, All this on top of the 25% net caps. You live and breathe Cleveland just like me. Hey what about OH City when the avg price was 20k, now 200k,,,,,,,, So the point is money can be made in D F areas, IF you know what you are doing. I too buy props from OOS investors that THINK they know what they are doing, ( as they learned from the internet, total waste of time,) and get crushed. I am buying 6 this week from an OOS investor that tried to go it on his owe, well he's taking a 60% bath, lesson learned for him, the hard way.
Keep crushing it James,
- 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votesAgreed.
Quote from @Ray Lin:
I vote for location. I recently attended a meeting with property managers about rental properties. Several PMs have big issues, such as squatters, evictions, constant turnover, tenants with guns, AC stolen multiple times in the same unit, and shootings. There will be probably similar problems in A/B neighborhoods, but these occurrences will be significantly reduced. The cashflow will look great on paper in C/D neighborhoods, but vacancies and tenant turnover will greatly reduced your profit margins.
If location did not matter, prices and rent/buying demand would show that. You'd buy the same thing in Cleveland as you would in Nashville. There's demand, and demand versus supply, will always be the crux of any market. Location is the underlying trigger of demand. - Investor · Member since 2020 · 337 posts · 213 votes2y
Quote from @James Wise:
Listen y'all, you can make money anywhere sure, but you can also lose money. You can also put forth varying levels of work to make or lose this money. It's true that the end result will be different for everyone based on a ton of factors, but there are patterns. There are occurrences that are more common than others. There are typical outcomes and outcomes that go against the grain. There is the norm and there is the exception.
For example, in the Cleveland market, when investors want to get rid of properties they bought because they didn't think location mattered, more often than not, they call my company. A huge portion of my income comes from helping property owners who didn't think location mattered sell their houses.If you are wondering how often this happens, when I 1st started selling real estate in my early 20's, I lived in a 900sq ft house on a tenth of an acre that had 3 beds and 2 baths...Today my house is on 22+ acres, has 7 beds, 8 baths, a pool house, and an 11 car garage.
Having said that, you've got to ask yourself, just how often do people who thought location didn't matter call me so they can sell their properties? Is calling me because they changed their mind on location not mattering the norm, or the exception?
@James Wise Clark Fulton is an ideal location next to Tremont and Ohio City but yet it’s a D class area. Tenant base is a major pain to deal with but yet the prices being paid on properties are astronomical because of the hope of gentrification in 5-10yrs.
- Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes2y
Quote from @Bob S.:
Everyone has heard, Location Location Location, and most live by it. NOT me. Its PRICE PRICE PRICE, people live everywhere.
Thoughts ?
It depends on what your goal is? If its to buy assets that will grow exponentially, then yes location absolutely matters, for example, I would invest in Columbus. If I was looking at getting the best COC return at the lowest cost possible, then I would invest in Cleveland or Akron. Thats why its important to figure your goals out first, then pick a city.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Steve K.:
Most people made money in most places over the past 10 years. We had a ridiculous run thanks to historically low interest rates, widely available credit, and the gubmint printing money. That doesn't mean it'll continue that way moving forward forever. It also doesn't mean that people making money in bad locations couldn't have made MORE money in GOOD locations during the last 10 years. Normally the faster you flip a property, the better chance of making a profit. But in the last few years the slower you went, you actually made more money because the market was going up that fast. My market went up an average of $100k per month from January 2021 for the first half of that year. The worst flippers ended up making the most money. You could have bought anything and sold it a few months later and would have made multiple six-figure profit without even doing anything to the property. Investors have been buying in places that nobody would have recommended before this bull run, and still did alright thanks to the rising tide lifting all ships. This won't stay true moving forward. As the tide goes out, I think we'll see who wasn't wearing any pants, as Warren Buffet likes to say. As the market turns, location will become much more important again. Just like we saw in 2008-2010: some markets stayed flat, or reverted to modest appreciation (we still had 2-3% appreciation here during that time) while others tanked 50%. I'm not saying we'll have those exact same conditions again of course, but market fundamentals will become critical again. Places with the most recession-proof jobs such as in education, government, defense, healthcare, etc. will be more resilient in the next downturn. Areas that have been propped up by "dumb money" that lack strong fundamentals (jobs, population growth, desirability, affordability), will have some pain as investors realize they failed to recognize the Golden Rule of location, location, location and liquidate those assets at a loss. That's the circle of life, and it moves us all.
Tacking onto this Steve, with the "Gold-Rush" of those chasing STR "Gold-Fever" it will be interesting to see how segment goes, for example a FL market, or similar high market share % based upon tourism.
So many novices jumping into hospitality, I strongly doubt most have any idea of the boom-bust cycles within tourism. And some of these acquisitions I hear of, leveraged to the gill's!
As said, the tide is going out. I think STR will be the 1st to be left "Pant-less". Than, how do they respond? Do they flood standard rental market? A race to the bottom on standard rent's?
Or do they start dumping, in a panicked frenzy to "get-out" striving for net-0 as a "good" outcome?
So many novices into a segment, very hard to predict the reactions of such.
- Developer · St. Augustine, FL · Member since 2018 · 311 posts · 384 votes2y
I disagree. Location gives me potential, we high potential, I'm more willing to invest in to the property, keep it nice, attract nicer tenants. It's not absolute, but the odds play way more in my favor.
In bad locations, we tend not to put money into the property unless it's absolute necessary. It attract less quality tenants and with less pay, we are less motivated to maintain the property.
Over the last three years, we did not expand to increase our number of units. We focused on optimizing our portfolio. We sold the properties in bad areas, bought lots and built new constructions in nicer areas. Overall, the number of units in our portfolio stayed more or less the same, but our cash flow has gone 2.5x. My headache went way down.
This is coming from an investor who currently own 30+- properties and I've rented as low as $500 a month to as high as $4400 a month. Yeah I can get rid of all my sub $2000 a month properties and focus owning $2300 a month properties all day every day. In the right location, the properties were the first ones to appreciate because they are in highly desired neighborhoods vs the hood. Sure the properties in the hood may give you better returns percentage wise but appreciation over the years dominate that little cash flow any time.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Steven Foster Wilson:
Quote from @Bob S.:
Everyone has heard, Location Location Location, and most live by it. NOT me. Its PRICE PRICE PRICE, people live everywhere.
Thoughts ?
It depends on what your goal is? If its to buy assets that will grow exponentially, then yes location absolutely matters, for example, I would invest in Columbus. If I was looking at getting the best COC return at the lowest cost possible, then I would invest in Cleveland or Akron. Thats why its important to figure your goals out first, then pick a city.
I get-it, your in OH, and riding that "OH-Rocket" up, only a fool wouldn't right.
But here is my issue Steve, it's 2 part.
1st part; is because your PROMOTING OH, as so many other similar agent's are, as "THE" great investment market. Not stating to assist/help people in actions, but PROMOTING it as "THE" REI market.
2nd part; What is OH's market FUNDAMENTALS? No, not "prices today are..." but the actual FOUNDATIONAL fundamentals? What is the OH market rent's and real estate valuations and basis WITHOUT out-state investors flooding the OH market with acquisition capital?
Because that IS the issue. OH prices WERE based on OH incomes, OH employment, OH fundamentals.
Than, people across the country, namely bi-costal areas where incomes are WAY higher, cost of living is WAY higher, real estate prices are WAY higher, looked at OH and thought "holly-cow, that's CHEAP" and started buying there. Because they were NOVICES, they incorrectly valued OH properties vs say Seattle market, LA market, San Diego market, NY, NJ etc.. So, naturally, prices got bid up, with a LARGE proportion of buyers being out-state VALUING based on out-state market's, NOT what OH market fundamentals and sustainability is.
So in these areas where rent has gone from $450mnth too $1,250, has the median income also doubled? Tripled? Has the OH market fundamentals changed in matching proportion to RAISE that market fundamental to meet the out-state valuation?
It's a bit of a loaded question because I know the answer, and it's not one to pop-champaign over.
See, OH is a kind of "Ponzy" R.E. Market. As long as out-state $ keeps coming in, buying on out-state valuations, the market keep's looking profitable. But when the music stops..... And things have to step back to fundamentals.......
I strongly doubt most know median income for Columbus was just $31,462 in 2020. That from 2020 too 2021 the population growth was from 889k too 898k, only 1.02% increase. And in same time median HOUSEHOLD income grew from $54,902 too $58,575, which yes is a substantial increase of 6.69% ALTHOUGH how much did median home prices, and rent's go up in same period?????? yeah, a hell of a lot more right, a multiplier to this.
That is, by definition, a valuation BUBBLE. A substantial increase as induced from outside factors, not supported by in-market factors.
To put this in contrast I will add a market of my focus the last few years AND TODAY:
maple Grove MN - Median household income $114,479
When we look at rent sustainability we need to see income meeting or exceeding 3X.
That places "cap" on Columbus rent's viability at $1,610.81
Maple Grove $3,148.17
Median household price Columbus OH $270,058 = m.rent too m. price 0.6
Median household price Maple Grove MN $391,311 = m.rent too m.price 0.8, a 33% improved performance # over OH.
Is OH "cheaper" homes, YES. Does "cheaper" mean "better", HECK-NO, as the data clearly shows.
As I started, my issue with OH market is the 2 issues, (1) Promoting of it as "THE" great REI market and (2) prices have been elevated well beyond in-market fundamental's, a kind of "Ponzy" market of R.E., and sitting in a valuation bubble that when the out-state $-train shut's off, many will have a tough realization as things move back to in-market support for the #'s.
I travel the country analyzing and valuing market's, I have seen similar play out numerous times, but this anomaly in OH is the scariest I have seen in a long time. Market's throughout TX, TN, are doing and have been doing actions to elevate there base fundamental's, OH I just have not seen the same, to any measurable degree to take a substantial bite out of that disparity gap.
- 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votesI am not indicating your analysis is incorrect but will point that there are many markets that RE prices and rents have increased faster than income for many decades. My market, San Diego, is a prime example.
Quote from @James Hamling:
Quote from @Steven Foster Wilson:
Quote from @Bob S.:
Everyone has heard, Location Location Location, and most live by it. NOT me. Its PRICE PRICE PRICE, people live everywhere.
Thoughts ?
It depends on what your goal is? If its to buy assets that will grow exponentially, then yes location absolutely matters, for example, I would invest in Columbus. If I was looking at getting the best COC return at the lowest cost possible, then I would invest in Cleveland or Akron. Thats why its important to figure your goals out first, then pick a city.
I get-it, your in OH, and riding that "OH-Rocket" up, only a fool wouldn't right.
But here is my issue Steve, it's 2 part.
1st part; is because your PROMOTING OH, as so many other similar agent's are, as "THE" great investment market. Not stating to assist/help people in actions, but PROMOTING it as "THE" REI market.
2nd part; What is OH's market FUNDAMENTALS? No, not "prices today are..." but the actual FOUNDATIONAL fundamentals? What is the OH market rent's and real estate valuations and basis WITHOUT out-state investors flooding the OH market with acquisition capital?
Because that IS the issue. OH prices WERE based on OH incomes, OH employment, OH fundamentals.
Than, people across the country, namely bi-costal areas where incomes are WAY higher, cost of living is WAY higher, real estate prices are WAY higher, looked at OH and thought "holly-cow, that's CHEAP" and started buying there. Because they were NOVICES, they incorrectly valued OH properties vs say Seattle market, LA market, San Diego market, NY, NJ etc.. So, naturally, prices got bid up, with a LARGE proportion of buyers being out-state VALUING based on out-state market's, NOT what OH market fundamentals and sustainability is.
So in these areas where rent has gone from $450mnth too $1,250, has the median income also doubled? Tripled? Has the OH market fundamentals changed in matching proportion to RAISE that market fundamental to meet the out-state valuation?
It's a bit of a loaded question because I know the answer, and it's not one to pop-champaign over.
See, OH is a kind of "Ponzy" R.E. Market. As long as out-state $ keeps coming in, buying on out-state valuations, the market keep's looking profitable. But when the music stops..... And things have to step back to fundamentals.......
I strongly doubt most know median income for Columbus was just $31,462 in 2020. That from 2020 too 2021 the population growth was from 889k too 898k, only 1.02% increase. And in same time median HOUSEHOLD income grew from $54,902 too $58,575, which yes is a substantial increase of 6.69% ALTHOUGH how much did median home prices, and rent's go up in same period?????? yeah, a hell of a lot more right, a multiplier to this.
That is, by definition, a valuation BUBBLE. A substantial increase as induced from outside factors, not supported by in-market factors.
To put this in contrast I will add a market of my focus the last few years AND TODAY:
maple Grove MN - Median household income $114,479
When we look at rent sustainability we need to see income meeting or exceeding 3X.
That places "cap" on Columbus rent's viability at $1,610.81
Maple Grove $3,148.17
Median household price Columbus OH $270,058 = m.rent too m. price 0.6
Median household price Maple Grove MN $391,311 = m.rent too m.price 0.8, a 33% improved performance # over OH.
Is OH "cheaper" homes, YES. Does "cheaper" mean "better", HECK-NO, as the data clearly shows.
As I started, my issue with OH market is the 2 issues, (1) Promoting of it as "THE" great REI market and (2) prices have been elevated well beyond in-market fundamental's, a kind of "Ponzy" market of R.E., and sitting in a valuation bubble that when the out-state $-train shut's off, many will have a tough realization as things move back to in-market support for the #'s.
I travel the country analyzing and valuing market's, I have seen similar play out numerous times, but this anomaly in OH is the scariest I have seen in a long time. Market's throughout TX, TN, are doing and have been doing actions to elevate there base fundamental's, OH I just have not seen the same, to any measurable degree to take a substantial bite out of that disparity gap.
U.S. News and World Report’s 2023-2024 list has San Diego as the most expensive city. Our salaries are far from the highest. Locals refer to this disparity as the sunshine tax. Unlike the recent Ohio cost of housing increase, San Diego has been moving to this point for many decades.
I do understand that comparing San Diego RE to Ohio RE is an apples vs oranges comparison. I wanted to note that affordability of RE by the population is only one thing that dictates prices. There are numerous others.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Dan H.:
I am not indicating your analysis is incorrect but will point that there are many markets that RE prices and rents have increased faster than income for many decades. My market, San Diego, is a prime example.Quote from @James Hamling:
Quote from @Steven Foster Wilson:
Quote from @Bob S.:
Everyone has heard, Location Location Location, and most live by it. NOT me. Its PRICE PRICE PRICE, people live everywhere.
Thoughts ?
It depends on what your goal is? If its to buy assets that will grow exponentially, then yes location absolutely matters, for example, I would invest in Columbus. If I was looking at getting the best COC return at the lowest cost possible, then I would invest in Cleveland or Akron. Thats why its important to figure your goals out first, then pick a city.
I get-it, your in OH, and riding that "OH-Rocket" up, only a fool wouldn't right.
But here is my issue Steve, it's 2 part.
1st part; is because your PROMOTING OH, as so many other similar agent's are, as "THE" great investment market. Not stating to assist/help people in actions, but PROMOTING it as "THE" REI market.
2nd part; What is OH's market FUNDAMENTALS? No, not "prices today are..." but the actual FOUNDATIONAL fundamentals? What is the OH market rent's and real estate valuations and basis WITHOUT out-state investors flooding the OH market with acquisition capital?
Because that IS the issue. OH prices WERE based on OH incomes, OH employment, OH fundamentals.
Than, people across the country, namely bi-costal areas where incomes are WAY higher, cost of living is WAY higher, real estate prices are WAY higher, looked at OH and thought "holly-cow, that's CHEAP" and started buying there. Because they were NOVICES, they incorrectly valued OH properties vs say Seattle market, LA market, San Diego market, NY, NJ etc.. So, naturally, prices got bid up, with a LARGE proportion of buyers being out-state VALUING based on out-state market's, NOT what OH market fundamentals and sustainability is.
So in these areas where rent has gone from $450mnth too $1,250, has the median income also doubled? Tripled? Has the OH market fundamentals changed in matching proportion to RAISE that market fundamental to meet the out-state valuation?
It's a bit of a loaded question because I know the answer, and it's not one to pop-champaign over.
See, OH is a kind of "Ponzy" R.E. Market. As long as out-state $ keeps coming in, buying on out-state valuations, the market keep's looking profitable. But when the music stops..... And things have to step back to fundamentals.......
I strongly doubt most know median income for Columbus was just $31,462 in 2020. That from 2020 too 2021 the population growth was from 889k too 898k, only 1.02% increase. And in same time median HOUSEHOLD income grew from $54,902 too $58,575, which yes is a substantial increase of 6.69% ALTHOUGH how much did median home prices, and rent's go up in same period?????? yeah, a hell of a lot more right, a multiplier to this.
That is, by definition, a valuation BUBBLE. A substantial increase as induced from outside factors, not supported by in-market factors.
To put this in contrast I will add a market of my focus the last few years AND TODAY:
maple Grove MN - Median household income $114,479
When we look at rent sustainability we need to see income meeting or exceeding 3X.
That places "cap" on Columbus rent's viability at $1,610.81
Maple Grove $3,148.17
Median household price Columbus OH $270,058 = m.rent too m. price 0.6
Median household price Maple Grove MN $391,311 = m.rent too m.price 0.8, a 33% improved performance # over OH.
Is OH "cheaper" homes, YES. Does "cheaper" mean "better", HECK-NO, as the data clearly shows.
As I started, my issue with OH market is the 2 issues, (1) Promoting of it as "THE" great REI market and (2) prices have been elevated well beyond in-market fundamental's, a kind of "Ponzy" market of R.E., and sitting in a valuation bubble that when the out-state $-train shut's off, many will have a tough realization as things move back to in-market support for the #'s.
I travel the country analyzing and valuing market's, I have seen similar play out numerous times, but this anomaly in OH is the scariest I have seen in a long time. Market's throughout TX, TN, are doing and have been doing actions to elevate there base fundamental's, OH I just have not seen the same, to any measurable degree to take a substantial bite out of that disparity gap.
U.S. News and World Report’s 2023-2024 list has San Diego as the most expensive city. Our salaries are far from the highest. Locals refer to this disparity as the sunshine tax. Unlike the recent Ohio cost of housing increase, San Diego has been moving to this point for many decades.
I do understand that comparing San Diego RE to Ohio RE is an apples vs oranges comparison. I wanted to note that affordability of RE by the population is only one thing that dictates prices. There are numerous others.
At end of day, as a landlord, the thing that matters first and foremost is; a tenant's ability to pay rent.
Might I remind, median household income in San Diego is $89,457. If it were 35% less, you know those rent's would NOT be being meet, would they?
And as I stated, of OH market being "feed" via OUT-state capital flooding into OH market, in volume.
TN has same issue happening, when ask why a home is getting ___ price the answer is consistently that it's CA, WA, NY etc. buyer. At least in TN the people are moving there. In OH, it's largely buying on out-state perceptions of value, and hoping rent's to meet that valuation.
Without local market fundamental's, it's mathematical certainty of a depreciation in values. Unless someone can keep that "Ponzy" stream of out-state capital flowing indefinitely.
- Investor · Member since 2020 · 337 posts · 213 votes2y
Quote from @James Hamling:
Quote from @Dan H.:
I am not indicating your analysis is incorrect but will point that there are many markets that RE prices and rents have increased faster than income for many decades. My market, San Diego, is a prime example.Quote from @James Hamling:
Quote from @Steven Foster Wilson:
Quote from @Bob S.:
Everyone has heard, Location Location Location, and most live by it. NOT me. Its PRICE PRICE PRICE, people live everywhere.
Thoughts ?
It depends on what your goal is? If its to buy assets that will grow exponentially, then yes location absolutely matters, for example, I would invest in Columbus. If I was looking at getting the best COC return at the lowest cost possible, then I would invest in Cleveland or Akron. Thats why its important to figure your goals out first, then pick a city.
I get-it, your in OH, and riding that "OH-Rocket" up, only a fool wouldn't right.
But here is my issue Steve, it's 2 part.
1st part; is because your PROMOTING OH, as so many other similar agent's are, as "THE" great investment market. Not stating to assist/help people in actions, but PROMOTING it as "THE" REI market.
2nd part; What is OH's market FUNDAMENTALS? No, not "prices today are..." but the actual FOUNDATIONAL fundamentals? What is the OH market rent's and real estate valuations and basis WITHOUT out-state investors flooding the OH market with acquisition capital?
Because that IS the issue. OH prices WERE based on OH incomes, OH employment, OH fundamentals.
Than, people across the country, namely bi-costal areas where incomes are WAY higher, cost of living is WAY higher, real estate prices are WAY higher, looked at OH and thought "holly-cow, that's CHEAP" and started buying there. Because they were NOVICES, they incorrectly valued OH properties vs say Seattle market, LA market, San Diego market, NY, NJ etc.. So, naturally, prices got bid up, with a LARGE proportion of buyers being out-state VALUING based on out-state market's, NOT what OH market fundamentals and sustainability is.
So in these areas where rent has gone from $450mnth too $1,250, has the median income also doubled? Tripled? Has the OH market fundamentals changed in matching proportion to RAISE that market fundamental to meet the out-state valuation?
It's a bit of a loaded question because I know the answer, and it's not one to pop-champaign over.
See, OH is a kind of "Ponzy" R.E. Market. As long as out-state $ keeps coming in, buying on out-state valuations, the market keep's looking profitable. But when the music stops..... And things have to step back to fundamentals.......
I strongly doubt most know median income for Columbus was just $31,462 in 2020. That from 2020 too 2021 the population growth was from 889k too 898k, only 1.02% increase. And in same time median HOUSEHOLD income grew from $54,902 too $58,575, which yes is a substantial increase of 6.69% ALTHOUGH how much did median home prices, and rent's go up in same period?????? yeah, a hell of a lot more right, a multiplier to this.
That is, by definition, a valuation BUBBLE. A substantial increase as induced from outside factors, not supported by in-market factors.
To put this in contrast I will add a market of my focus the last few years AND TODAY:
maple Grove MN - Median household income $114,479
When we look at rent sustainability we need to see income meeting or exceeding 3X.
That places "cap" on Columbus rent's viability at $1,610.81
Maple Grove $3,148.17
Median household price Columbus OH $270,058 = m.rent too m. price 0.6
Median household price Maple Grove MN $391,311 = m.rent too m.price 0.8, a 33% improved performance # over OH.
Is OH "cheaper" homes, YES. Does "cheaper" mean "better", HECK-NO, as the data clearly shows.
As I started, my issue with OH market is the 2 issues, (1) Promoting of it as "THE" great REI market and (2) prices have been elevated well beyond in-market fundamental's, a kind of "Ponzy" market of R.E., and sitting in a valuation bubble that when the out-state $-train shut's off, many will have a tough realization as things move back to in-market support for the #'s.
I travel the country analyzing and valuing market's, I have seen similar play out numerous times, but this anomaly in OH is the scariest I have seen in a long time. Market's throughout TX, TN, are doing and have been doing actions to elevate there base fundamental's, OH I just have not seen the same, to any measurable degree to take a substantial bite out of that disparity gap.
U.S. News and World Report’s 2023-2024 list has San Diego as the most expensive city. Our salaries are far from the highest. Locals refer to this disparity as the sunshine tax. Unlike the recent Ohio cost of housing increase, San Diego has been moving to this point for many decades.
I do understand that comparing San Diego RE to Ohio RE is an apples vs oranges comparison. I wanted to note that affordability of RE by the population is only one thing that dictates prices. There are numerous others.
At end of day, as a landlord, the thing that matters first and foremost is; a tenant's ability to pay rent.
Might I remind, median household income in San Diego is $89,457. If it were 35% less, you know those rent's would NOT be being meet, would they?
And as I stated, of OH market being "feed" via OUT-state capital flooding into OH market, in volume.
TN has same issue happening, when ask why a home is getting ___ price the answer is consistently that it's CA, WA, NY etc. buyer. At least in TN the people are moving there. In OH, it's largely buying on out-state perceptions of value, and hoping rent's to meet that valuation.
Without local market fundamental's, it's mathematical certainty of a depreciation in values. Unless someone can keep that "Ponzy" stream of out-state capital flowing indefinitely.
If not mistaken the avg price of a home in San Diego is $1 million. Having a median salary of $90k or so will not afford much you anything.
- 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @James Hamling:
Quote from @Dan H.:
I am not indicating your analysis is incorrect but will point that there are many markets that RE prices and rents have increased faster than income for many decades. My market, San Diego, is a prime example.Quote from @James Hamling:
Quote from @Steven Foster Wilson:
Quote from @Bob S.:
Everyone has heard, Location Location Location, and most live by it. NOT me. Its PRICE PRICE PRICE, people live everywhere.
Thoughts ?
It depends on what your goal is? If its to buy assets that will grow exponentially, then yes location absolutely matters, for example, I would invest in Columbus. If I was looking at getting the best COC return at the lowest cost possible, then I would invest in Cleveland or Akron. Thats why its important to figure your goals out first, then pick a city.
I get-it, your in OH, and riding that "OH-Rocket" up, only a fool wouldn't right.
But here is my issue Steve, it's 2 part.
1st part; is because your PROMOTING OH, as so many other similar agent's are, as "THE" great investment market. Not stating to assist/help people in actions, but PROMOTING it as "THE" REI market.
2nd part; What is OH's market FUNDAMENTALS? No, not "prices today are..." but the actual FOUNDATIONAL fundamentals? What is the OH market rent's and real estate valuations and basis WITHOUT out-state investors flooding the OH market with acquisition capital?
Because that IS the issue. OH prices WERE based on OH incomes, OH employment, OH fundamentals.
Than, people across the country, namely bi-costal areas where incomes are WAY higher, cost of living is WAY higher, real estate prices are WAY higher, looked at OH and thought "holly-cow, that's CHEAP" and started buying there. Because they were NOVICES, they incorrectly valued OH properties vs say Seattle market, LA market, San Diego market, NY, NJ etc.. So, naturally, prices got bid up, with a LARGE proportion of buyers being out-state VALUING based on out-state market's, NOT what OH market fundamentals and sustainability is.
So in these areas where rent has gone from $450mnth too $1,250, has the median income also doubled? Tripled? Has the OH market fundamentals changed in matching proportion to RAISE that market fundamental to meet the out-state valuation?
It's a bit of a loaded question because I know the answer, and it's not one to pop-champaign over.
See, OH is a kind of "Ponzy" R.E. Market. As long as out-state $ keeps coming in, buying on out-state valuations, the market keep's looking profitable. But when the music stops..... And things have to step back to fundamentals.......
I strongly doubt most know median income for Columbus was just $31,462 in 2020. That from 2020 too 2021 the population growth was from 889k too 898k, only 1.02% increase. And in same time median HOUSEHOLD income grew from $54,902 too $58,575, which yes is a substantial increase of 6.69% ALTHOUGH how much did median home prices, and rent's go up in same period?????? yeah, a hell of a lot more right, a multiplier to this.
That is, by definition, a valuation BUBBLE. A substantial increase as induced from outside factors, not supported by in-market factors.
To put this in contrast I will add a market of my focus the last few years AND TODAY:
maple Grove MN - Median household income $114,479
When we look at rent sustainability we need to see income meeting or exceeding 3X.
That places "cap" on Columbus rent's viability at $1,610.81
Maple Grove $3,148.17
Median household price Columbus OH $270,058 = m.rent too m. price 0.6
Median household price Maple Grove MN $391,311 = m.rent too m.price 0.8, a 33% improved performance # over OH.
Is OH "cheaper" homes, YES. Does "cheaper" mean "better", HECK-NO, as the data clearly shows.
As I started, my issue with OH market is the 2 issues, (1) Promoting of it as "THE" great REI market and (2) prices have been elevated well beyond in-market fundamental's, a kind of "Ponzy" market of R.E., and sitting in a valuation bubble that when the out-state $-train shut's off, many will have a tough realization as things move back to in-market support for the #'s.
I travel the country analyzing and valuing market's, I have seen similar play out numerous times, but this anomaly in OH is the scariest I have seen in a long time. Market's throughout TX, TN, are doing and have been doing actions to elevate there base fundamental's, OH I just have not seen the same, to any measurable degree to take a substantial bite out of that disparity gap.
U.S. News and World Report’s 2023-2024 list has San Diego as the most expensive city. Our salaries are far from the highest. Locals refer to this disparity as the sunshine tax. Unlike the recent Ohio cost of housing increase, San Diego has been moving to this point for many decades.
I do understand that comparing San Diego RE to Ohio RE is an apples vs oranges comparison. I wanted to note that affordability of RE by the population is only one thing that dictates prices. There are numerous others.
At end of day, as a landlord, the thing that matters first and foremost is; a tenant's ability to pay rent.
Might I remind, median household income in San Diego is $89,457. If it were 35% less, you know those rent's would NOT be being meet, would they?
And as I stated, of OH market being "feed" via OUT-state capital flooding into OH market, in volume.
TN has same issue happening, when ask why a home is getting ___ price the answer is consistently that it's CA, WA, NY etc. buyer. At least in TN the people are moving there. In OH, it's largely buying on out-state perceptions of value, and hoping rent's to meet that valuation.
Without local market fundamental's, it's mathematical certainty of a depreciation in values. Unless someone can keep that "Ponzy" stream of out-state capital flowing indefinitely.
But rents in my market continue to rise even though they are far outside the 3x affordability numbers. The average 3 BR SFH rents for $4595 (source Rentometer). Using the 3x rule and your average household income would place an average rent point at $2485 which is over $2k less than our average 3 BR SFH rent.
https://www.rentometer.com/california-home-rentsIf you think the picture is better for apartments, it is not. Rentometer data from q1 (we are in q4) had average 3BR apartment rent ($4329 in q1) higher than 3 BR SFH was in q1. The 2 BR apartment rent improves slightly to $3483, again q1 and significantly higher today.
https://www.rentometer.com/san-diego-ca-apartment-rents
Our 3x rent based on median household income is short of renting a 3 BR (house or apartment by over $2k/month (can afford $2485 but rent is over $4595) and over $1k short of renting a 2 BR apartment (can afford $2485 but rent in q1 was $3483).
The sunshine tax implies many people are choosing to live in higher occupancy situations, garages, cars on property, etc.
We limit our occupancy to ((BR count) * 2 + 1, studios are limited to 2 tenants). We recently had a little 2/1 (~650’) that a tenant wanted to place 7 people in. My ad was clear to our max occupancy but they came to the open house to plead for an exception stating they cannot afford to live anywhere. I felt sorry for their situation, but I was not going to allow more than 5 tenants in that little unit.
The most recent numbers I have seen for San Diego is 11% YOY increase to residential purchase and an 8% YOY rent increase in 3 BR SFH (which is down significantly from the previous quarter).
Affordability is not driving San Diego rent and property increases. It is driven by supply and demand. I virtually always rent my units in the 1st open house charging full market rent.
As indicated affordability is just one cost input.
Best wishes
- 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Vadim F.:
Quote from @James Hamling:
Quote from @Dan H.:
I am not indicating your analysis is incorrect but will point that there are many markets that RE prices and rents have increased faster than income for many decades. My market, San Diego, is a prime example.Quote from @James Hamling:
Quote from @Steven Foster Wilson:
Quote from @Bob S.:
Everyone has heard, Location Location Location, and most live by it. NOT me. Its PRICE PRICE PRICE, people live everywhere.
Thoughts ?
It depends on what your goal is? If its to buy assets that will grow exponentially, then yes location absolutely matters, for example, I would invest in Columbus. If I was looking at getting the best COC return at the lowest cost possible, then I would invest in Cleveland or Akron. Thats why its important to figure your goals out first, then pick a city.
I get-it, your in OH, and riding that "OH-Rocket" up, only a fool wouldn't right.
But here is my issue Steve, it's 2 part.
1st part; is because your PROMOTING OH, as so many other similar agent's are, as "THE" great investment market. Not stating to assist/help people in actions, but PROMOTING it as "THE" REI market.
2nd part; What is OH's market FUNDAMENTALS? No, not "prices today are..." but the actual FOUNDATIONAL fundamentals? What is the OH market rent's and real estate valuations and basis WITHOUT out-state investors flooding the OH market with acquisition capital?
Because that IS the issue. OH prices WERE based on OH incomes, OH employment, OH fundamentals.
Than, people across the country, namely bi-costal areas where incomes are WAY higher, cost of living is WAY higher, real estate prices are WAY higher, looked at OH and thought "holly-cow, that's CHEAP" and started buying there. Because they were NOVICES, they incorrectly valued OH properties vs say Seattle market, LA market, San Diego market, NY, NJ etc.. So, naturally, prices got bid up, with a LARGE proportion of buyers being out-state VALUING based on out-state market's, NOT what OH market fundamentals and sustainability is.
So in these areas where rent has gone from $450mnth too $1,250, has the median income also doubled? Tripled? Has the OH market fundamentals changed in matching proportion to RAISE that market fundamental to meet the out-state valuation?
It's a bit of a loaded question because I know the answer, and it's not one to pop-champaign over.
See, OH is a kind of "Ponzy" R.E. Market. As long as out-state $ keeps coming in, buying on out-state valuations, the market keep's looking profitable. But when the music stops..... And things have to step back to fundamentals.......
I strongly doubt most know median income for Columbus was just $31,462 in 2020. That from 2020 too 2021 the population growth was from 889k too 898k, only 1.02% increase. And in same time median HOUSEHOLD income grew from $54,902 too $58,575, which yes is a substantial increase of 6.69% ALTHOUGH how much did median home prices, and rent's go up in same period?????? yeah, a hell of a lot more right, a multiplier to this.
That is, by definition, a valuation BUBBLE. A substantial increase as induced from outside factors, not supported by in-market factors.
To put this in contrast I will add a market of my focus the last few years AND TODAY:
maple Grove MN - Median household income $114,479
When we look at rent sustainability we need to see income meeting or exceeding 3X.
That places "cap" on Columbus rent's viability at $1,610.81
Maple Grove $3,148.17
Median household price Columbus OH $270,058 = m.rent too m. price 0.6
Median household price Maple Grove MN $391,311 = m.rent too m.price 0.8, a 33% improved performance # over OH.
Is OH "cheaper" homes, YES. Does "cheaper" mean "better", HECK-NO, as the data clearly shows.
As I started, my issue with OH market is the 2 issues, (1) Promoting of it as "THE" great REI market and (2) prices have been elevated well beyond in-market fundamental's, a kind of "Ponzy" market of R.E., and sitting in a valuation bubble that when the out-state $-train shut's off, many will have a tough realization as things move back to in-market support for the #'s.
I travel the country analyzing and valuing market's, I have seen similar play out numerous times, but this anomaly in OH is the scariest I have seen in a long time. Market's throughout TX, TN, are doing and have been doing actions to elevate there base fundamental's, OH I just have not seen the same, to any measurable degree to take a substantial bite out of that disparity gap.
U.S. News and World Report’s 2023-2024 list has San Diego as the most expensive city. Our salaries are far from the highest. Locals refer to this disparity as the sunshine tax. Unlike the recent Ohio cost of housing increase, San Diego has been moving to this point for many decades.
I do understand that comparing San Diego RE to Ohio RE is an apples vs oranges comparison. I wanted to note that affordability of RE by the population is only one thing that dictates prices. There are numerous others.
At end of day, as a landlord, the thing that matters first and foremost is; a tenant's ability to pay rent.
Might I remind, median household income in San Diego is $89,457. If it were 35% less, you know those rent's would NOT be being meet, would they?
And as I stated, of OH market being "feed" via OUT-state capital flooding into OH market, in volume.
TN has same issue happening, when ask why a home is getting ___ price the answer is consistently that it's CA, WA, NY etc. buyer. At least in TN the people are moving there. In OH, it's largely buying on out-state perceptions of value, and hoping rent's to meet that valuation.
Without local market fundamental's, it's mathematical certainty of a depreciation in values. Unless someone can keep that "Ponzy" stream of out-state capital flowing indefinitely.
If not mistaken the avg price of a home in San Diego is $1 million. Having a median salary of $90k or so will not afford much you anything.
In addition, the average is deceiving because near the urban center and coastal, the average is over $1m. Even 2 BR cottages are over $1m. The eastern part of the city, which in some cases is fairly far from the urban city, pull down the average to ~$1m.
I have a quad that is not very coastal (need to drive to the beach) that each unit is near $800k/unit. It is in a community of San Diego city (pt Loma, which does have some homes coastal) where houses average $1.8m. Bankers hill, north park, hillcrest, South Park, etc have shocking prices. Small 2br SFH can be $2m in some of these areas and average over $1m.
Sunshine tax. Supply/demand. Definitely not priced on affordability.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Dan H.:
Quote from @James Hamling:
Quote from @Dan H.:
I am not indicating your analysis is incorrect but will point that there are many markets that RE prices and rents have increased faster than income for many decades. My market, San Diego, is a prime example.Quote from @James Hamling:
Quote from @Steven Foster Wilson:
Quote from @Bob S.:
Everyone has heard, Location Location Location, and most live by it. NOT me. Its PRICE PRICE PRICE, people live everywhere.
Thoughts ?
It depends on what your goal is? If its to buy assets that will grow exponentially, then yes location absolutely matters, for example, I would invest in Columbus. If I was looking at getting the best COC return at the lowest cost possible, then I would invest in Cleveland or Akron. Thats why its important to figure your goals out first, then pick a city.
I get-it, your in OH, and riding that "OH-Rocket" up, only a fool wouldn't right.
But here is my issue Steve, it's 2 part.
1st part; is because your PROMOTING OH, as so many other similar agent's are, as "THE" great investment market. Not stating to assist/help people in actions, but PROMOTING it as "THE" REI market.
2nd part; What is OH's market FUNDAMENTALS? No, not "prices today are..." but the actual FOUNDATIONAL fundamentals? What is the OH market rent's and real estate valuations and basis WITHOUT out-state investors flooding the OH market with acquisition capital?
Because that IS the issue. OH prices WERE based on OH incomes, OH employment, OH fundamentals.
Than, people across the country, namely bi-costal areas where incomes are WAY higher, cost of living is WAY higher, real estate prices are WAY higher, looked at OH and thought "holly-cow, that's CHEAP" and started buying there. Because they were NOVICES, they incorrectly valued OH properties vs say Seattle market, LA market, San Diego market, NY, NJ etc.. So, naturally, prices got bid up, with a LARGE proportion of buyers being out-state VALUING based on out-state market's, NOT what OH market fundamentals and sustainability is.
So in these areas where rent has gone from $450mnth too $1,250, has the median income also doubled? Tripled? Has the OH market fundamentals changed in matching proportion to RAISE that market fundamental to meet the out-state valuation?
It's a bit of a loaded question because I know the answer, and it's not one to pop-champaign over.
See, OH is a kind of "Ponzy" R.E. Market. As long as out-state $ keeps coming in, buying on out-state valuations, the market keep's looking profitable. But when the music stops..... And things have to step back to fundamentals.......
I strongly doubt most know median income for Columbus was just $31,462 in 2020. That from 2020 too 2021 the population growth was from 889k too 898k, only 1.02% increase. And in same time median HOUSEHOLD income grew from $54,902 too $58,575, which yes is a substantial increase of 6.69% ALTHOUGH how much did median home prices, and rent's go up in same period?????? yeah, a hell of a lot more right, a multiplier to this.
That is, by definition, a valuation BUBBLE. A substantial increase as induced from outside factors, not supported by in-market factors.
To put this in contrast I will add a market of my focus the last few years AND TODAY:
maple Grove MN - Median household income $114,479
When we look at rent sustainability we need to see income meeting or exceeding 3X.
That places "cap" on Columbus rent's viability at $1,610.81
Maple Grove $3,148.17
Median household price Columbus OH $270,058 = m.rent too m. price 0.6
Median household price Maple Grove MN $391,311 = m.rent too m.price 0.8, a 33% improved performance # over OH.
Is OH "cheaper" homes, YES. Does "cheaper" mean "better", HECK-NO, as the data clearly shows.
As I started, my issue with OH market is the 2 issues, (1) Promoting of it as "THE" great REI market and (2) prices have been elevated well beyond in-market fundamental's, a kind of "Ponzy" market of R.E., and sitting in a valuation bubble that when the out-state $-train shut's off, many will have a tough realization as things move back to in-market support for the #'s.
I travel the country analyzing and valuing market's, I have seen similar play out numerous times, but this anomaly in OH is the scariest I have seen in a long time. Market's throughout TX, TN, are doing and have been doing actions to elevate there base fundamental's, OH I just have not seen the same, to any measurable degree to take a substantial bite out of that disparity gap.
U.S. News and World Report’s 2023-2024 list has San Diego as the most expensive city. Our salaries are far from the highest. Locals refer to this disparity as the sunshine tax. Unlike the recent Ohio cost of housing increase, San Diego has been moving to this point for many decades.
I do understand that comparing San Diego RE to Ohio RE is an apples vs oranges comparison. I wanted to note that affordability of RE by the population is only one thing that dictates prices. There are numerous others.
At end of day, as a landlord, the thing that matters first and foremost is; a tenant's ability to pay rent.
Might I remind, median household income in San Diego is $89,457. If it were 35% less, you know those rent's would NOT be being meet, would they?
And as I stated, of OH market being "feed" via OUT-state capital flooding into OH market, in volume.
TN has same issue happening, when ask why a home is getting ___ price the answer is consistently that it's CA, WA, NY etc. buyer. At least in TN the people are moving there. In OH, it's largely buying on out-state perceptions of value, and hoping rent's to meet that valuation.
Without local market fundamental's, it's mathematical certainty of a depreciation in values. Unless someone can keep that "Ponzy" stream of out-state capital flowing indefinitely.
But rents in my market continue to rise even though they are far outside the 3x affordability numbers. The average 3 BR SFH rents for $4595 (source Rentometer). Using the 3x rule and your average household income would place an average rent point at $2485 which is over $2k less than our average 3 BR SFH rent.
https://www.rentometer.com/california-home-rentsIf you think the picture is better for apartments, it is not. Rentometer data from q1 (we are in q4) had average 3BR apartment rent ($4329 in q1) higher than 3 BR SFH was in q1. The 2 BR apartment rent improves slightly to $3483, again q1 and significantly higher today.
https://www.rentometer.com/san-diego-ca-apartment-rents
Our 3x rent based on median household income is short of renting a 3 BR (house or apartment by over $2k/month (can afford $2485 but rent is over $4595) and over $1k short of renting a 2 BR apartment (can afford $2485 but rent in q1 was $3483).
The sunshine tax implies many people are choosing to live in higher occupancy situations, garages, cars on property, etc.
We limit our occupancy to ((BR count) * 2 + 1, studios are limited to 2 tenants). We recently had a little 2/1 (~650’) that a tenant wanted to place 7 people in. My ad was clear to our max occupancy but they came to the open house to plead for an exception stating they cannot afford to live anywhere. I felt sorry for their situation, but I was not going to allow more than 5 tenants in that little unit.
The most recent numbers I have seen for San Diego is 11% YOY increase to residential purchase and an 8% YOY rent increase in 3 BR SFH (which is down significantly from the previous quarter).
Affordability is not driving San Diego rent and property increases. It is driven by supply and demand. I virtually always rent my units in the 1st open house charging full market rent.
As indicated affordability is just one cost input.
Best wishes
Dan, all your doing here is making and reinforcing my point, with 1 catch, time.
In month's/year's to come this will be a look back point, were in the future you will look back to this exact time, this exact post and say "Oh-man, I should'a known then, all the warning signs were there, the writing on the wall, why did I ignore it all???"
Your literally detailing the rampant Unaffordability in the market. That is a very dangerous thing. Your detailing a market PRIMED not just for tenant default's but MASS tenant default's.
Tenant's can't pay rent with "I like the sunshine" can they? They pay with MONEY. So by the #'s, you get outside VIABILITY index, remember 3X is a ratio for GOOD viability. That does not mean you can't get people willing to go for a place with rent's that are 50%, 65%, 75%+ of there gross household income. YES, you can find those tenant's in ANY market, I get them applying weekly. I say "NO" because I don't need to farm future tenant default's.
If a tenant is paying rent of 50%+ of gross household income, how will they survive? Pay utilities, food, vehicle, all the things of life and rent?
It's a very negligent game your playing there assuming persons in little to no financial viability will pay rent simply because it's the rent.
From what you said here I did a quick check and to no surprise, evictions are not just on the rise there, but a 5yr HIGH. Some what I read says 50% higher eviction rate than pre-covid. That right there should be an Everest sized RED-FLAG.
And, the math would have warned you of this event coming. Argue it all you want, the math never lies. Tenant's can only afford to pay what they have, and yes, mathematically there is a point of health, poor health, and danger-danger-danger health as you have stated this market is in.
My bet's are get ready for more eviction moratoriums. And the state directing that it's landlords price gouging tenant's, demanding you suffer the consequences of such and lower your rent's. Not a far stretch, it is CA, that seems a very CA response does it not?
So, your argument, that your getting insane rent too income ratios, your tap dancing on a edge of a skyscrapper in klog's yelling "see, see, I havn't fallen.... yet". Yeah, ok, let me know how that work's out in a short bit here when it isn't "yet" anymore.
The math is not wrong, your ignoring the math is. Just wait and see, the math tried to warn you.
- Real Estate Agent · Beverly, MA · Member since 2019 · 358 posts · 308 votes2y
I'm still about the location. Quality over quantity. I don't need 100 doors if I have a few solid ones that provide cash flow and appreciation. Appreciation is where people are building wealth. Course, the price means it's harder to get in but you're typically rewarded on the back end because of it.
- 2yRobert EllisBusiness MemberDeveloper · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
Quote from @James Hamling:
Quote from @Steven Foster Wilson:
Quote from @Bob S.:
Everyone has heard, Location Location Location, and most live by it. NOT me. Its PRICE PRICE PRICE, people live everywhere.
Thoughts ?
It depends on what your goal is? If its to buy assets that will grow exponentially, then yes location absolutely matters, for example, I would invest in Columbus. If I was looking at getting the best COC return at the lowest cost possible, then I would invest in Cleveland or Akron. Thats why its important to figure your goals out first, then pick a city.
I get-it, your in OH, and riding that "OH-Rocket" up, only a fool wouldn't right.
But here is my issue Steve, it's 2 part.
1st part; is because your PROMOTING OH, as so many other similar agent's are, as "THE" great investment market. Not stating to assist/help people in actions, but PROMOTING it as "THE" REI market.
2nd part; What is OH's market FUNDAMENTALS? No, not "prices today are..." but the actual FOUNDATIONAL fundamentals? What is the OH market rent's and real estate valuations and basis WITHOUT out-state investors flooding the OH market with acquisition capital?
Because that IS the issue. OH prices WERE based on OH incomes, OH employment, OH fundamentals.
Than, people across the country, namely bi-costal areas where incomes are WAY higher, cost of living is WAY higher, real estate prices are WAY higher, looked at OH and thought "holly-cow, that's CHEAP" and started buying there. Because they were NOVICES, they incorrectly valued OH properties vs say Seattle market, LA market, San Diego market, NY, NJ etc.. So, naturally, prices got bid up, with a LARGE proportion of buyers being out-state VALUING based on out-state market's, NOT what OH market fundamentals and sustainability is.
So in these areas where rent has gone from $450mnth too $1,250, has the median income also doubled? Tripled? Has the OH market fundamentals changed in matching proportion to RAISE that market fundamental to meet the out-state valuation?
It's a bit of a loaded question because I know the answer, and it's not one to pop-champaign over.
See, OH is a kind of "Ponzy" R.E. Market. As long as out-state $ keeps coming in, buying on out-state valuations, the market keep's looking profitable. But when the music stops..... And things have to step back to fundamentals.......
I strongly doubt most know median income for Columbus was just $31,462 in 2020. That from 2020 too 2021 the population growth was from 889k too 898k, only 1.02% increase. And in same time median HOUSEHOLD income grew from $54,902 too $58,575, which yes is a substantial increase of 6.69% ALTHOUGH how much did median home prices, and rent's go up in same period?????? yeah, a hell of a lot more right, a multiplier to this.
That is, by definition, a valuation BUBBLE. A substantial increase as induced from outside factors, not supported by in-market factors.
To put this in contrast I will add a market of my focus the last few years AND TODAY:
maple Grove MN - Median household income $114,479
When we look at rent sustainability we need to see income meeting or exceeding 3X.
That places "cap" on Columbus rent's viability at $1,610.81
Maple Grove $3,148.17
Median household price Columbus OH $270,058 = m.rent too m. price 0.6
Median household price Maple Grove MN $391,311 = m.rent too m.price 0.8, a 33% improved performance # over OH.
Is OH "cheaper" homes, YES. Does "cheaper" mean "better", HECK-NO, as the data clearly shows.
As I started, my issue with OH market is the 2 issues, (1) Promoting of it as "THE" great REI market and (2) prices have been elevated well beyond in-market fundamental's, a kind of "Ponzy" market of R.E., and sitting in a valuation bubble that when the out-state $-train shut's off, many will have a tough realization as things move back to in-market support for the #'s.
I travel the country analyzing and valuing market's, I have seen similar play out numerous times, but this anomaly in OH is the scariest I have seen in a long time. Market's throughout TX, TN, are doing and have been doing actions to elevate there base fundamental's, OH I just have not seen the same, to any measurable degree to take a substantial bite out of that disparity gap.
calling columbus OH a bubble is hilarious go to jobsohio.com and read the supporting documentation of why things are the way we are and then go read a housing report that is published every month.
Section 8 Launch52 Reviews - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Robert Ellis:
Quote from @James Hamling:
Quote from @Steven Foster Wilson:
Quote from @Bob S.:
Everyone has heard, Location Location Location, and most live by it. NOT me. Its PRICE PRICE PRICE, people live everywhere.
Thoughts ?
It depends on what your goal is? If its to buy assets that will grow exponentially, then yes location absolutely matters, for example, I would invest in Columbus. If I was looking at getting the best COC return at the lowest cost possible, then I would invest in Cleveland or Akron. Thats why its important to figure your goals out first, then pick a city.
I get-it, your in OH, and riding that "OH-Rocket" up, only a fool wouldn't right.
But here is my issue Steve, it's 2 part.
1st part; is because your PROMOTING OH, as so many other similar agent's are, as "THE" great investment market. Not stating to assist/help people in actions, but PROMOTING it as "THE" REI market.
2nd part; What is OH's market FUNDAMENTALS? No, not "prices today are..." but the actual FOUNDATIONAL fundamentals? What is the OH market rent's and real estate valuations and basis WITHOUT out-state investors flooding the OH market with acquisition capital?
Because that IS the issue. OH prices WERE based on OH incomes, OH employment, OH fundamentals.
Than, people across the country, namely bi-costal areas where incomes are WAY higher, cost of living is WAY higher, real estate prices are WAY higher, looked at OH and thought "holly-cow, that's CHEAP" and started buying there. Because they were NOVICES, they incorrectly valued OH properties vs say Seattle market, LA market, San Diego market, NY, NJ etc.. So, naturally, prices got bid up, with a LARGE proportion of buyers being out-state VALUING based on out-state market's, NOT what OH market fundamentals and sustainability is.
So in these areas where rent has gone from $450mnth too $1,250, has the median income also doubled? Tripled? Has the OH market fundamentals changed in matching proportion to RAISE that market fundamental to meet the out-state valuation?
It's a bit of a loaded question because I know the answer, and it's not one to pop-champaign over.
See, OH is a kind of "Ponzy" R.E. Market. As long as out-state $ keeps coming in, buying on out-state valuations, the market keep's looking profitable. But when the music stops..... And things have to step back to fundamentals.......
I strongly doubt most know median income for Columbus was just $31,462 in 2020. That from 2020 too 2021 the population growth was from 889k too 898k, only 1.02% increase. And in same time median HOUSEHOLD income grew from $54,902 too $58,575, which yes is a substantial increase of 6.69% ALTHOUGH how much did median home prices, and rent's go up in same period?????? yeah, a hell of a lot more right, a multiplier to this.
That is, by definition, a valuation BUBBLE. A substantial increase as induced from outside factors, not supported by in-market factors.
To put this in contrast I will add a market of my focus the last few years AND TODAY:
maple Grove MN - Median household income $114,479
When we look at rent sustainability we need to see income meeting or exceeding 3X.
That places "cap" on Columbus rent's viability at $1,610.81
Maple Grove $3,148.17
Median household price Columbus OH $270,058 = m.rent too m. price 0.6
Median household price Maple Grove MN $391,311 = m.rent too m.price 0.8, a 33% improved performance # over OH.
Is OH "cheaper" homes, YES. Does "cheaper" mean "better", HECK-NO, as the data clearly shows.
As I started, my issue with OH market is the 2 issues, (1) Promoting of it as "THE" great REI market and (2) prices have been elevated well beyond in-market fundamental's, a kind of "Ponzy" market of R.E., and sitting in a valuation bubble that when the out-state $-train shut's off, many will have a tough realization as things move back to in-market support for the #'s.
I travel the country analyzing and valuing market's, I have seen similar play out numerous times, but this anomaly in OH is the scariest I have seen in a long time. Market's throughout TX, TN, are doing and have been doing actions to elevate there base fundamental's, OH I just have not seen the same, to any measurable degree to take a substantial bite out of that disparity gap.
calling columbus OH a bubble is hilarious go to jobsohio.com and read the supporting documentation of why things are the way we are and then go read a housing report that is published every month.
Does any of that marketing change fact of:
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?
- 2ySam YinPro MemberLos Angeles, CA · Member since 2021 · 583 posts · 738 votes
This has been an awesome thread to learn from. Thanks!
I feel that each person's experience and tenure will guide them to strong opinions may be controversial to others. As with many things in life and history, those will more experience and tenure are more often better predictors of outcomes.
As for the OP and subsequent responses, I feel there are a lot of good points posted by many. I do feel that there are markets out there right now that are primed for some major pain because the median income does not justify the rise in rents, OH and the San Diego area being the examples that were posted.
I personally feel the 3X rule is a bit tricky. This is where I think @Dan H. has a ground to stand on in his support for the San Diego market. As the median income rises and the rents rises, there is a point where the 3X rule does not accurately depict affordability. When we get into the $3, $4K, $5K+ range, the 3X rule is not as accurate as a tenant's affordability/sustainability qualifications. This is because living expenses outside of the rent are a differing factor. For example, if the average living expenses (not including rent) are $1500 to $3000 in an area, they do not change upward at the same rate as the 3X rule would assume. Thus it is prudent to use the 3X rule for a $2K/m rent but not for a $5k/m rent. I would expect that a stable tenant should make $6k/m for a $2k/m rental, which would leave $4k for other expenses. I truly believe a renter looking for a $5k/m rental does not need to make $15k/m to be a stable tenant. They might spend more than the average $2k for other living expenses, but the remaining $10K required by the 3X rule for other expenses is a bit overboard. This number skews even greater for higher rents. The 3X rule is a sound rule for rents under $3K. Thats just my personal opinion.
HOWEVER, with that said, the formulas, factors, and fundamentals laid out by @James Hamling are truly sound. I would impress upon readers to review his responses again and understand how that can save your portfolio. Take heed and read the writing on the wall. The potential for those types of overhyped/overinflated markets with shakey income foundations to fall is higher than one might believe. To me, his posts are golden nuggets to keep in your tool belt! It will steer you right, and with patience, can steer you into great future wealth. Thank you James!
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Sam Yin:
This has been an awesome thread to learn from. Thanks!
I feel that each person's experience and tenure will guide them to strong opinions may be controversial to others. As with many things in life and history, those will more experience and tenure are more often better predictors of outcomes.
As for the OP and subsequent responses, I feel there are a lot of good points posted by many. I do feel that there are markets out there right now that are primed for some major pain because the median income does not justify the rise in rents, OH and the San Diego area being the examples that were posted.
I personally feel the 3X rule is a bit tricky. This is where I think @Dan H. has a ground to stand on in his support for the San Diego market. As the median income rises and the rents rises, there is a point where the 3X rule does not accurately depict affordability. When we get into the $3, $4K, $5K+ range, the 3X rule is not as accurate as a tenant's affordability/sustainability qualifications. This is because living expenses outside of the rent are a differing factor. For example, if the average living expenses (not including rent) are $1500 to $3000 in an area, they do not change upward at the same rate as the 3X rule would assume. Thus it is prudent to use the 3X rule for a $2K/m rent but not for a $5k/m rent. I would expect that a stable tenant should make $6k/m for a $2k/m rental, which would leave $4k for other expenses. I truly believe a renter looking for a $5k/m rental does not need to make $15k/m to be a stable tenant. They might spend more than the average $2k for other living expenses, but the remaining $10K required by the 3X rule for other expenses is a bit overboard. This number skews even greater for higher rents. The 3X rule is a sound rule for rents under $3K. Thats just my personal opinion.
HOWEVER, with that said, the formulas, factors, and fundamentals laid out by @James Hamling are truly sound. I would impress upon readers to review his responses again and understand how that can save your portfolio. Take heed and read the writing on the wall. The potential for those types of overhyped/overinflated markets with shakey income foundations to fall is higher than one might believe. To me, his posts are golden nuggets to keep in your tool belt! It will steer you right, and with patience, can steer you into great future wealth. Thank you James!
Keep in mind the calculous is done on gross, not net household combined income. So as income goes up, so does tax % and thus net reduces.
In general I always market 3X requirement. And, I will consider "conditional approval" looking at how the situation is, capital position, how it all works out. I do this on everything up to $10kmnth rent's. And yes, I have tenant's who clear ~$30k+mnth gross income.
I know what people will say "why on earth would that person rent?", well, for some people it does make sense. I have one with 3 properties paying nearly $50k monthly. Owns and runs a multi site medical practice, see's the properties as a tool, not for permanence but for use at this time. Multi-state tenant's, there is all kinds. I had one with almost a dozen home sin a dozen states AND each with full identical wardrobes and furniture at each, lol.
But on the market level, San Diego is full 5-alarm! I would be dumping anything/everything I own in the market and redeploying with HASTE.
- 2ySam YinPro MemberLos Angeles, CA · Member since 2021 · 583 posts · 738 votes
Quote from @James Hamling:
Quote from @Sam Yin:
This has been an awesome thread to learn from. Thanks!
I feel that each person's experience and tenure will guide them to strong opinions may be controversial to others. As with many things in life and history, those will more experience and tenure are more often better predictors of outcomes.
As for the OP and subsequent responses, I feel there are a lot of good points posted by many. I do feel that there are markets out there right now that are primed for some major pain because the median income does not justify the rise in rents, OH and the San Diego area being the examples that were posted.
I personally feel the 3X rule is a bit tricky. This is where I think @Dan H. has a ground to stand on in his support for the San Diego market. As the median income rises and the rents rises, there is a point where the 3X rule does not accurately depict affordability. When we get into the $3, $4K, $5K+ range, the 3X rule is not as accurate as a tenant's affordability/sustainability qualifications. This is because living expenses outside of the rent are a differing factor. For example, if the average living expenses (not including rent) are $1500 to $3000 in an area, they do not change upward at the same rate as the 3X rule would assume. Thus it is prudent to use the 3X rule for a $2K/m rent but not for a $5k/m rent. I would expect that a stable tenant should make $6k/m for a $2k/m rental, which would leave $4k for other expenses. I truly believe a renter looking for a $5k/m rental does not need to make $15k/m to be a stable tenant. They might spend more than the average $2k for other living expenses, but the remaining $10K required by the 3X rule for other expenses is a bit overboard. This number skews even greater for higher rents. The 3X rule is a sound rule for rents under $3K. Thats just my personal opinion.
HOWEVER, with that said, the formulas, factors, and fundamentals laid out by @James Hamling are truly sound. I would impress upon readers to review his responses again and understand how that can save your portfolio. Take heed and read the writing on the wall. The potential for those types of overhyped/overinflated markets with shakey income foundations to fall is higher than one might believe. To me, his posts are golden nuggets to keep in your tool belt! It will steer you right, and with patience, can steer you into great future wealth. Thank you James!
Keep in mind the calculous is done on gross, not net household combined income. So as income goes up, so does tax % and thus net reduces.
In general I always market 3X requirement. And, I will consider "conditional approval" looking at how the situation is, capital position, how it all works out. I do this on everything up to $10kmnth rent's. And yes, I have tenant's who clear ~$30k+mnth gross income.
I know what people will say "why on earth would that person rent?", well, for some people it does make sense. I have one with 3 properties paying nearly $50k monthly. Owns and runs a multi site medical practice, see's the properties as a tool, not for permanence but for use at this time. Multi-state tenant's, there is all kinds. I had one with almost a dozen home sin a dozen states AND each with full identical wardrobes and furniture at each, lol.
But on the market level, San Diego is full 5-alarm! I would be dumping anything/everything I own in the market and redeploying with HASTE.
I do not disagree. And I do know of people who do pay some crazy high rents.
I only hope to one day get to that level where is have 5figure rentals under my belt.
My rentals are all under $3k/m. I do use the 3x rule as a strong guide. But I have deviated on occasion down to 2.5, but not below that. The demographics of the worker class in my rental are very hardy. Some inherited tenants are closer to 1.5 to 2x, but they always pay on time, long term, otherwise model tenants. In time, my goal is to transition into those markets with average rents above $3k.
This is where your analysis reaffirms mine and brings me hope that I may be able to swoop in when the time is right.
Keep it coming James, and thank you again for your open and candid contribution to the BP Community.
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