Where to buy and hold

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Where to buy and hold

Justin R.Pro Member
Rental Property Investor · San Anselmo · Member since 2015 · 659 posts · 600 votes
Hello everyone. I am a newer invester looking for a few areas to purchase rentals. What areas have good rent to purchase ratios, along with low taxes and insurance. I have researched many states but it appears they all have their ups and downs. Of course i will contine to research but i thought this will open discussion. Thanks Justin
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Andrew SyriosPro Member
Moderator
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
10y

Generally speaking, the Midwest and South will have by far the best rent/cost ratios and usually lower taxes too. The coasts, particularly New York and The People's Republic of California are very high priced and have pretty high taxes. The Southwest is sort of in between and generally speaking, I would avoid the Rust Belt even though it's relatively cheap, just because it is so economically challenged right now. I would recommend looking at places like Kansas City, Oklahoma City, Tulsa, Indianapolis, Raleigh, Charlotte and Memphis.

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  • James WachobBusiness Member
    Real Estate Broker · Memphis, TN · Member since 2015 · 1k+ posts · 887 votes
    10y

    Memphis is a great place to look!

    1Reply
  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    Obviously those who operate in their respective cities are going to chime in with great buy and hold. I believe that is obvious, otherwise we would not be doing it.  So for me, Memphis is obvious.  Little Rock is awesome as I own there too.  An article about LR was just released talking about rents being up double digits, vacancy down, unemployment down and job growth.  That is the Grand Slam of buy and hold.

    The reality is, there are hundreds of markets that are good buy and hold.  You don't have to be in the markets that everyone talks about on BP (KC, Memphis, Dallas, Indy, etc).  Small towns like Shreveport, LA, Knoxville, TN, Fayetville, AR, Louisville, KY, Lexington, KY just to name a few.  Basically any market with low taxes, favorable landlord laws and stable housing (aka as linear markets) will work.  I am certainly a homer for LR. Less competition means quicker rents and higher cash flows.

    901-848-9028
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  • Victor Jernigan
    Investor · Knoxville, TN · Member since 2011 · 205 posts · 91 votes
    10y

    @Justin R.. The Milken report is good and helpful. I prefer LocalMarketMonitor.com. It provides the primary market information used by most financial institutions and it is updated monthly. info@localmarketmonitor you will find it extremely helpful in a real comparison of different markets.

    Good Fortune

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  • Gino BarbaroPro Member
    Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
    10y

    @victor

    Hi Victor

    thanks for the great website

    Hope all is well

    Gino

    Podcast Guest on Show The “Conveyor Belt” System That’ll Build You a BIG Rental Portfolio Quickly
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  • Stephen FrancoPro Member
    Scranton, PA · Member since 2016 · 201 posts · 44 votes
    10y

    @victor jernigan you are correct about the age of our housing stock, but not entirely correct about the need for public assistance. We actually have a relatively small number of units that are occupied by Section 8 or the supported tenants, although we certainly don't discourage State paid rent. 

    It's a sad state for America that there has to be so many different variations of federal money. But, we do have pretty strong job populations as well... Not that I would ever turn down a guaranteed check if it came with a properly checked out and reputable tenant

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  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Andrew Syrios:

    Generally speaking, the Midwest and South will have by far the best rent/cost ratios and usually lower taxes too. The coasts, particularly New York and The People's Republic of California are very high priced and have pretty high taxes. The Southwest is sort of in between and generally speaking, I would avoid the Rust Belt even though it's relatively cheap, just because it is so economically challenged right now. I would recommend looking at places like Kansas City, Oklahoma City, Tulsa, Indianapolis, Raleigh, Charlotte and Memphis.

     So exactly makes those rent/cost ratios "best"?  It seems that rent growth and appreciation increase trumps that metric even in .7% RTP ratio areas.

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  • Account Closed
    Registered Nurse (ICU) · San Jose, CA · Member since 2014 · 496 posts · 332 votes
    10y
    I got a list of things I look at on my website when coming to choose a market. It will all depend on what's important to you. Don't just take people's word for it as some are just trying to steer you towards there market to make a sale. Get the facts and then talk to local investors who live and invest in these areas. That will help you decide where to go. We all choose different markets for different reasons. Like you said..."they all have there pros and cons". Good luck!
    2Reply
  • Justin R.Pro Member
    OP
    Rental Property Investor · San Anselmo · Member since 2015 · 659 posts · 600 votes
    10y

    Thank you all for your help! I'm going to be going with North Indianapolis, and grand rapids. I feel those are both strong emerging economies with affordable houses. Thank you all again!

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  • Nadine Lajoie
    Investor · Long Beach, CA · Member since 2015 · 201 posts · 29 votes
    10y

    Depends on what you want, strategy you are looking for. I started years ago Out-of-States, IN, IL, GA because of ROI were and still are more interestings... between 20 and 100% depends on how you structure the deal and got lists every months, 800-1200 houses from REO's, before and below the auction price!!!

    Pretty unbelievable, but we don't get that in CA, unfortunately. Completely different in California, when you find something for Buy & Hold cash-flowing ROI between 5% and 15%, you are pretty happy... not that many!

    Numbers, numbers, numbers!!!! And stay focus on what you want but open to other opportunities.

    Good luck and let us know how we can help!

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  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    10y

     Well it all depends on what you're aiming for. We are cash flow buyers, and thereby want to avoid areas that are too rough and thereby too risky as well as areas that are too expensive and generally won't cash flow if you use debt financing. Basically, we think of it as the Goldilocks zone. That being said, if your goal is more along the lines of appreciation and you want to buy in high end markets with more potential for growth, that's all well and good. It's just not in line with our business plan, which I'm not surprisingly biased in favor of.

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  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y

    An investor should invest for profit.  Trading profit for initial cash flow should only be done in extreme cases.  

    Can you give an example of how RTP ratios identifies your sweet spot?  My markets are generally .7% RTP.  I can count on $700 rent increase for every $100,000 increase in value.  Seems the 2% RTP ratio markets don't get the apprrciation so also no rent increase.

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  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Stephen Franco:

    @Account Closed.... I guess what an NOI of 20k says to me is that your gross must be high (assuming same pads), which would mean the buy in is much larger...

    Our market has small (dollar) NOI but great %, with small buy ins. If you're budget is larger and you want more cash NOI (at same % or whatever) we can take you to other markets. No problem

    Stephan Franco. You read that wrong. The NOI's are the same. The $20,000 is the value of the NOI in the more profitable market.

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  • Stephen FrancoPro Member
    Scranton, PA · Member since 2016 · 201 posts · 44 votes
    10y

    Ok . i see now.

    0Reply
  • Alex Franks
    Rock Hill, SC · Member since 2015 · 1k+ posts · 597 votes
    10y
    Originally posted by @Adam Schneider:

    The question about the best city to invest is sometimes like asking 10 parents which is the best school in their city...their kid's school always seems to get high marks!

    Adam at least your being honest . I agree as I told folks give me enough time. I can find 10 articles to show Charlotte is the best and why. On a different note I would recommend all folks stay away from low end. I am not sure about other markets.

    This is my take on lower end in  Charlotte though

    The problem with the lower end assets, they are such a more hands on investments , just more of a headache. Which I'm about to tell you why. Yes, on paper the entry price point looks great. So folks are only seeing one side of things. Lower end properties tend to be higher maintenance, higher expenses, and much higher turn over rate. Another factor is the rental prices aren't making sense, while still continuing to rise. We owned 37 of these exact type of homes (lower end in RH SC during the timeframe of 2004 -2009). So I'm speaking from experience, these type of assets tend to burn holes through investors pockets. Most folks start here, (1) Because they do not know any better and (2) The price point is much more attractive. These are what I like to call recycled product ( Quote by "Jay Hinrichs") , which usually has a 5 - 8 year shelf life. Or in better terms " the game of hot potatoes"- who or which investor is getting stuck holding the bag. Easy way to look at things are any institutional, or Hedge funds buying in this asset class. Now they are mostly buying A - B assets. Their is a reason Wall Street, and most private money are parking their funds into higher class assets. Most times this is why newer investors, jump in because its all that is left on the table for them ( lower end )or what the Gurus are selling.

    The information above from Cindy is great. I've spoken with Cindy here on BP a few times. I told most folks here on BP and in many seminars that if I sit at computer long enough I can dig a lot of great information up to prove what a great city Charlotte is. We are Atlanta's little teenage brother growing up (fast) We are all lucky to be in a booming city basically still many years of growth left

    I have to disagree on this being a good buy and hold market on most markets. From 2009-2013 this was one of the best buy ,and hold markets. Today we are facing an over priced market, rental returns are much less. I have some left over stock still holding from 2009. I was buying from $40k to $50k range. Same house now priced in $100k - $120k pre-rehab price range. I was also buying in 4 states; NC, SC, Georgia, & Florida. With that being said, "one man's junk is another man's treasure." So for out-of-state folks with (ex: California or NY) they tend to have much higher entry points. So buying a house here from $100k $150k with 1% rental rule. Still makes this a very attractive market for out-of-state or international folks. This does not mean we have a great buy and hold. For me personally, it says we are lucky that we still have a lower entry point then most folks markets.

    If we jump in and really become bit more analytical. It is cheaper to build than buy today. We will be building new construction rentals for a few years. I am seeing this as similar to the 2000-2004 market. So the box Vinyl Village type homes is the current build (mixed in with townhomes, duplexes, quads). That mixed with real estate cycles , which very folks even discuss or understand.

    Now back to the 10% Cap rate this is why most international folks are going to get burnt, and USA folks will as well. When investing in these lower end asset classes, Folks brought in cities like Detroit and Michigan. Promised a 20% return on the properties. I challenged folks to show me that over 5 years period (I am sure those returns are a lot less). Keep in mind this has nothing to do with the homes. It has everything to do with our economy, salaries for the lower income bracket, and a renters mentality. No security in those type of jobs with very little insurance benefits so job changing is common among lower end renters. It is very hard for someone paying 35 to 45% of their income to pay rent. I know here comes that chatter, well property management will handle that, right? We owned a management company from 2009 -2013. We lost our asses with that side of the company. I did it mostly for our turnkey clients. Good Rule of Thumb for any management folks who want to get in the business. Get 300 homes plus or get out of the business. Not profitable with out the inventory.

    Now back to low end assets, very rare you are every going to sell, and get retail prices in these areas. How many USA folks move to rental areas? Once a area is over 50 % or more rentals, values will eventually drop as will the area. We have artificially inflated prices, in most of the areas with cash sales to out-of-state folks, or local cash buyers( who just don't know any better). Basically most people are showing up to the table, and all we have are scraps left! This is not just here; Kansas City, Indianapolis as most markets to just a name a few are going through same thing. I still jump on 3 to 5 webinars month with out-of-state folks seeing what they are selling. So limited sales potential down the road for every one.

    I was working with as well as being one of these turnkey groups for a few years. We all setup table and booths in LA, San Fran, and other markets. Selling our cities, and our turnkey deals. Me and a few of the guys we got smart, and jumped into the international markets. I still play there my self and see a strong demand for the turnkey product (just not worth it for me). Folks if someone was to start a local solid turnkey business here in Charlotte NC (5/month ) there is a good demand out there for this product.

    Now for the lack of inventory. We had a few smaller hedge funds here in 2011-12 buying before most folks realized. They were already here buying smaller up to 100 homes.. Then the big boys like invitation homes (Blackstone which is a large wall street fund for folks who don't know ) came in purchased 7000 plus homes in little under a year. Most of the vinyl villages, anything built 2000 above; 3bed 2 bath or larger was their focus. Banks are realizing they can go into the property now . Taking a lipstick approach to rehabbing. Sell it them selves as well. So that's a few reason for the lack of inventory.

    Just my two cents,

    -- Alex

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  • Adam SchneiderPro Member
    Lender · Raleigh, NC · Member since 2012 · 955 posts · 639 votes
    10y

    Alex, I agree with everything you are saying. When people make casual comments about a city, it's worth peeling back the onion to identify niches within the city. Wake County (Raleigh is the big city)  (where I am) has 32 different zip codes and the median sale price from the zip with the lowest to the zip with the highest...2.5x. Half the zip codes had median price points that are at least 15% higher or lower than the County median price point. Some of the zips had price points where the rental rates are nowhere near justifying a Buy/Hold strategy, and other zips are tough to make money doing a full rehab...Mecklenburg (Charlotte) is a great example of this, and is more extreme than Raleigh...

    1Reply
  • Alex Franks
    Rock Hill, SC · Member since 2015 · 1k+ posts · 597 votes
    10y
    Originally posted by @Adam Schneider:

    Alex, I agree with everything you are saying. When people make casual comments about a city, it's worth peeling back the onion to identify niches within the city. Wake County (Raleigh is the big city)  (where I am) has 32 different zip codes and the median sale price from the zip with the lowest to the zip with the highest...2.5x. Half the zip codes had median price points that are at least 15% higher or lower than the County median price point. Some of the zips had price points where the rental rates are nowhere near justifying a Buy/Hold strategy, and other zips are tough to make money doing a full rehab...Mecklenburg (Charlotte) is a great example of this, and is more extreme than Raleigh...

    Adam I'm am with you that's why I focus on building new construction for both rental , and retail. Cheaper to build then buy.

    I am also putting a heavy focus into buying apartments.

    Alex

    1Reply
  • Anthony Welch
    Wholesaler · Atlanta, GA · Member since 2011 · 15 posts · 3 votes
    10y

    Alex,

    Excellent information. I agree with you 2000%. I am in Atlanta. I love Charlotte as well. It reminded me of Atlanta before all of the growth. I have been in Atlanta since 1981, and in the industry since 1988. In regards to your comments, you are spot on. Many people don't see the inner workings of what has been going on in the REO-to-Rental market. It's funny how it just gets billed to the general public as an "inventory shortage". In my opinion, this artificially inflates price, and investor expectations. Folks simply don't know any better. They watch the so-called "news", and listen to Uncle Frank. As you know, there is another whole level lurking below. My take is that Shadow Inventory is real.

    In addition to my own acquisitions, I have personally worked with some of the Big Boys as well.  For some of them, it has gone from an all out buffet on buying these homes, to now sipping through a straw.  Most of the institutions have also turned to outfits like Auction.com, Hubzu.com, and a few others. From what I have seen, a majority of these properties never see the light of day, and are snatched up before anyone knows they're available.  Overall, giving the false impression of a 'HOT MARKET', and inherently designed to spark a buying frenzy in my opinion.  Unsuspecting investors can also become victims due to letting their emotions take over, and not truly understanding the valuation process.  Always do your own due diligence.  Especially when it comes to comparables.

    My Rule of Thumb has always been, SOLD within a 6-month timeframe, and within a 1/4 to 1/2 mile radius.  Of course it's not always possible to find these, but I use it as my initial gauge. I have also learned, as you have stated, to avoid lower end properties (usually in war zones) like the plague.  Yeah, the price point is attractive to many, but there is always a reason why.

    1Reply
  • Alex Franks
    Rock Hill, SC · Member since 2015 · 1k+ posts · 597 votes
    10y
    Originally posted by @Anthony Welch:

    Alex,

    Excellent information. I agree with you 2000%. I am in Atlanta. I love Charlotte as well. It reminded me of Atlanta before all of the growth. I have been in Atlanta since 1981, and in the industry since 1988. In regards to your comments, you are spot on. Many people don't see the inner workings of what has been going on in the REO-to-Rental market. It's funny how it just gets billed to the general public as an "inventory shortage". In my opinion, this artificially inflates price, and investor expectations. Folks simply don't know any better. They watch the so-called "news", and listen to Uncle Frank. As you know, there is another whole level lurking below. My take is that Shadow Inventory is real.

    In addition to my own acquisitions, I have personally worked with some of the Big Boys as well.  For some of them, it has gone from an all out buffet on buying these homes, to now sipping through a straw.  Most of the institutions have also turned to outfits like Auction.com, Hubzu.com, and a few others. From what I have seen, a majority of these properties never see the light of day, and are snatched up before anyone knows they're available.  Overall, giving the false impression of a 'HOT MARKET', and inherently designed to spark a buying frenzy in my opinion.  Unsuspecting investors can also become victims due to letting their emotions take over, and not truly understanding the valuation process.  Always do your own due diligence.  Especially when it comes to comparables.

    My Rule of Thumb has always been, SOLD within a 6-month timeframe, and within a 1/4 to 1/2 mile radius.  Of course it's not always possible to find these, but I use it as my initial gauge. I have also learned, as you have stated, to avoid lower end properties (usually in war zones) like the plague.  Yeah, the price point is attractive to many, but there is always a reason why.

    Anthony like wise, and good feed back as well. I was investing heavier in Atlanta , 2010. BY 2011 I was competing with International resellers , along with USA turnkey ,and resellers. So we left, I can read the writing on the wall fast. I like to be one of the first in each market. Then move on, I guess I'm at the point now where give me 500 units( apartment ). Then looking at potentially being a private money lender for local folks.

    My exit out of the business, but still being involved.

    Stay in touch,

    Alex

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  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @James Wachob:

    Memphis is a great place to look!

    As of 2010-2014, the total Memphis population is 656,715, which has grown 1.02% since 2000. The population growth rate is much lower than the state average rate of 13.40% and is much lower than the national average rate of 11.61%. Memphis median household income is $37,099 in 2010-2014 and has grown by 14.91% since 2000. The income growth rate is much lower than the state average rate of 22.72% and is much lower than the national average rate of 27.36%. Memphis median house value is $95,400 in 2010-2014 and has grown by 31.04% since 2000. The house value growth rate is much lower than the state average rate of 50.43% and is much lower than the national average rate of 46.91%

    1.02% population growth since 2000!   

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