Investor · NY · Member since 2017 · 59 posts · 21 votes
Hey everyone!
So I am still fairly new to REI but have been doing a lot of research on the blog and forums. I am mostly interested in maximizing cash flow, even though some appreciation would be nice as well. I am mostly focused on small single family homes, and maybe small multi units. My ideal investment for each property would be in the ~20-25k range, so putting it around ~100k a property. I would ideally be looking for A, maybe B grade properties if A grade is not possible.
I started narrowing my research with https://www.biggerpockets.com/renewsblog/2016-inve... and started with the top 10 markets for cash flow. Then I did further research, especially focusing on growth in the tech sector, since I work in that sector and do believe that it is the future, and will provide stability in the region.
With that, I narrowed my focus to 4 cities, Kansas City, Jacksonville, Tampa, and Detroit.
I am just wondering if there are people that are in those markets now, and have any advice about which one might be best for my situation. I think initially I would probably start using a more turn key service, but then move in to having my own team as I get more experience. I will be remote since I live in California.
Investor · Tampa, FL · Member since 2016 · 334 posts · 215 votes
9y
Hey @Tony Xu
"I am mostly interested in maximizing cash flow...putting it around ~100k a property. I would ideally be looking for A, maybe B grade properties if A grade is not possible."
To have all of those things is not impossible, but would be very difficult to find. I would suggest picking two of those three points.
To give you some perspective - your statement above is a bit like saying
"I'd like to buy a new car, one that has the best gas mileage. I'd also like a luxury brand, like BMW or Mercedes, and my budget is $9,000."
Here's a broad overview of what you can buy with $100K in the cities you listed:
Kansas City - B neighborhood
Jacksonville - C neighborhood
Tampa - D neighborhood
Detroit - A/B neighborhood
“I think initially I would probably start using a more turn key service, but then move in to having my own team as I get more experience. I will be remote since I live in California.”
If you want to be passive in your investments turn key can be great. But if you can dedicate the time to your real estate endeavors doing things in house will be much more beneficial (and less expensive).
I know all four of these cities well.Feel free to send me a PM if you have any questions or feel free to just reach out and share what you decide! Good luck!
Investor · Tampa, FL · Member since 2016 · 334 posts · 215 votes
9y
Hey @Tony Xu
"I am mostly interested in maximizing cash flow...putting it around ~100k a property. I would ideally be looking for A, maybe B grade properties if A grade is not possible."
To have all of those things is not impossible, but would be very difficult to find. I would suggest picking two of those three points.
To give you some perspective - your statement above is a bit like saying
"I'd like to buy a new car, one that has the best gas mileage. I'd also like a luxury brand, like BMW or Mercedes, and my budget is $9,000."
Here's a broad overview of what you can buy with $100K in the cities you listed:
Kansas City - B neighborhood
Jacksonville - C neighborhood
Tampa - D neighborhood
Detroit - A/B neighborhood
“I think initially I would probably start using a more turn key service, but then move in to having my own team as I get more experience. I will be remote since I live in California.”
If you want to be passive in your investments turn key can be great. But if you can dedicate the time to your real estate endeavors doing things in house will be much more beneficial (and less expensive).
I know all four of these cities well.Feel free to send me a PM if you have any questions or feel free to just reach out and share what you decide! Good luck!
Let us know how it goes. I'm in a similar boat as you. I'm in California looking at similar markets for cash flow.
I don't really know too many people I could tell that I bought a rental across the country in my circle of friends/family without getting called nuts, so I'm excited to hear how it goes and compare notes.
I just bought one in Indianapolis but was looking in some of the other markets you mentioned as well
Las Vegas, NV · Member since 2017 · 32 posts · 18 votes
9y
YOU really dont learn anything using turn key! Turn key is for Doctors and Dentists who as a group are Horrible with investing. All you learn is how to sign closing dcos...............................................lol.
I use a property manager for my properties and havent learned a darn thing i would need 2 know if i managed on my own.
Investor · Tromsø, Norway (Europe) · Member since 2015 · 431 posts · 194 votes
9y
@Tony Xu I think it depends on how much work you are planning to do yourself. Were you planning to outsource property management? They typically charge 10 % of your gross rent and fees for installing new tenants.
If you just want to get a deal done I would recommend a turnkey provider, but make sure to vet them property before you do any deals with them.
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
9y
Hiya Tony. Well, you aren't too far off the mark but I would add some thoughts in about what you say.
- "A" grade properties typically aren't going to cash flow much. Obviously it will be market dependent, but it's pretty rare anything that nice will cash flow. At least not where we are in today's market. B is more doable.
- If you want to maximize cash flow, you'll want to find the markets with the highest cash flow. Tampa isn't one of them...it's unlikely to even have cash flow. Jacksonville can cash flow but it's definitely not one of the higher cash flow markets (of the ones out there currently). Kansas City is certainly an option. Detroit...be careful there because while many cities can offer projected cash flow, the reality about the cash flow outcome is very dependent on supportive market fundamentals that will keep that advertised cash flow going. Detroit has a lot of problems and so far, I've only known one investor in six years of being in investing that had a good outcome there. The market fundamentals are shaky at best.
- Since you bring up turnkeys, check out this article in relation to choosing markets-
Not sure if you are talking about using a full-out turnkey company to buy, but even if not, I talk about the market fundamentals in there a good bit and what I look for (and what I avoid).
Happy to chat anytime in more detail if you want to reach out!
Thanks for the response! I think from everyone's responses, and more research, it looks like B neighborhoods in Kansas City are the best bet for me.
I definitely don't mind putting in some work, but being so far away, I don't think it's possible for me to do it without help. So I'm not saying complete turn key in where I do nothing, but maybe finding an agent to help me find the deals, and then finding a property manager. I would also need contractors. What I'm not sure is how I would find people that's in the Kansas City area that I could trust.
So any advice here would be greatly appreciated. I will definitely ping you via PM, thanks!
That sounds awesome, lets connect and help each other out! I know what you mean, luckily I'm surrounded by some people that love trying to make money, so people think I'm less crazy haha
Investor · NY · Member since 2017 · 59 posts · 21 votes
9y
@Account Closed
Haha, I think Engineers in the bay area are just as bad :P But yeah, I definitely would do what I can on my own if possible, however, being remote I will definitely need some help. I will still run my own analysis in terms of income, expenses, cash flow, etc.
Thanks for the reply. I think I would do as much as I can, but I would definitely need property management because I'm in California.
I definitely don't just want to rush in to a deal, I would want to vet the property in terms of income, expenses, cash flow etc instead of just taking a turnkey company at their word.
Thanks for the response! I think after all the amazing responses here and more research, B properties definitely make more sense for cash flow.
So like I said in my initial post, I just started with the survey and took the top 10 markets for cash flow, and then narrowed it down based on tech growth. I am definitely open to researching about other markets if you have any suggestions!
I am thinking of doing what I can on my own, I think instead of just relying purely on a turnkey company, I'm thinking of finding my own agent, property management, and doing the math myself in terms of income, expenses and cash flow.
I will definitely reach out since I've actually seen a lot of your posts and many of them seem very helpful.
Investor · Roseville, CA · Member since 2009 · 1k+ posts · 583 votes
9y
@Tony XuIf you have questions about the Kansas City market, you can always send me a pm. I say the property manager is the most important aspect of investing out of state. A crooked or incompetent PM can ruin the yearly cashflow and ruin the experience.
Birmingham, AL · Member since 2014 · 875 posts · 947 votes
9y
@Tony Xu Just piping in to second @Gordon Cuffe@Eric Delcol and @Ali Boone, all make excellent points. With $100k per prop as your target budget, definitely go for a B/B+ property. As Ali said, an A property isn't really a cash flow play since your PITI (principal, interest, taxes, and insurance) will eat up your rental income pretty quick. Of course, you'd cash flow if you paid cash - but finding a truly A prop for $100k is highly unlikely in any market, and you'd be giving away one of the primary benefits of financing a rental investment: your tenants basically buy you a property over time!
I can't speak to other markets (though Ali has already given you some great info on the ones you listed) but in Birmingham, $100k could get you a solid B/B+ property with an ROI of ~20% in the first year (based on a 20% down, 15 or 30 year note). If you're looking at KC, definitely reach out to some investors who own property there and see what their long-term returns are like - the best info always comes from people who already have money where their mouths are ;) I personally own rentals here in Bham, as does our company (a company that doesn't invest in what they sell is a big red flag), so I'm speaking from a position of both investor and provider.
Since you're going out of state (which a lot of CA folks do), your team is going to be the single most important aspect of your investment, even more than market. As Gordon said, a bad PM can really ruin your investment quickly - through deferred maintenance, poor tenant vetting, high turnover, or other corner-cutting. Whether you go the full service turnkey route (one company finds the props, rehabs them, markets them, sells to investors, and manages them) or you self-assemble a team (you find your own agent, contractor, PM, and coordinate the operation), the people you choose to work with are crucial. Even the best investment prop in the world can turn into a money vacuum if your PM drops the ball.
Regardless of your strategy, you need to do some research on what questions you should be asking of prospective team members. In terms of turnkey, this comes up a lot here on BP, as vetting a TK company is crucial and the whole TK niche sometimes gets a lot of flack because of the number of frauds (frankly) that are out there just trying to make a quick buck. This thread talks about some of the detailed questions you should be asking of any Tk company you consider (thread started by another then-new CA investor): https://www.biggerpockets.com/forums/55/topics/361999-new-investor-from-glendale-ca
This isn't an exhaustive list (we're working on a much more comprehensive list for our site, which should be up by the end of the month) but it's a great place to start. And, while not all of them will apply to self-assembled team members, this should still give you a good idea of the metrics you need to look at when assessing out of state investment partners. Oh, and don't forget to use Google Earth to verify the neighborhood grade for any prop you consider! If it's listed as an A prop, but you see trucks up on cinder blocks, un-manicured lawns, peeling paint, etc, in the surrounding area, then you probably need to look elsewhere. I know, personally, that some C+/B- Birmingham props have been listed by national marketers as A-, so always do your homework!
Hope some of that is helpful in your search. Feel free to reach out with any questions.
Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
9y
@Tony Xu If focused on cash flow in econonically healthy markets, I think your narrowing it down to B props in Kansas City is a good choice, and there are some good turnkey options in that market. I have long been invested via turnkey in Jacksonville, and have seen great appreciation there in the years since. I think JAX is well positioned to see continued appreciation in the years to come, but cash flow via turnkey has become quite modest for those entering in today's market. So today it has become more of an appreciation play for passive investors.
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
One thing you are not considering is that cash flow is rarely constant over time ... so when you say you want to maximize your cashflow, the very next thing you need to specify is over what time period. If you need the cash flow right now, then you want to maximize immediate cash flow, in which case those markets listed for high cash flow. However, the problem with most of those markets is that they do not have high rates of rent increases, and in some cases those rates of rent increases may even be below inflation. On the other hand, the markets with high rates of rent increases, thus increasing cash flow over time, will likely have low initial cash flow. Frankly, if your goal is to maximize LONG TERM cashflow, then you are probably best off staying put investing right where you are currently living, as it has incredibly high rates of rent increases and there are huge advantages that you get by staying local that you give up investing remotely. $25k won't cut it for investing in your market, though, as I'm sure you know. If the issue is that you are unable to invest more per property, vs unwilling to, then have you considered physically moving to a more affordable market so that you can both save more and invest more and get better deals and more control on what you invest in?
Rental Property Investor · Mansfield, OH · Member since 2017 · 151 posts · 117 votes
9y
@Tony Xu - I've been successful buying Turnkeys for the past four years using the following market criteria.
1. Business Friendly & Fiscally sound state government - Is the state land lord friendly and is it cheap to set up an LLC, and will the state be pouring money into cities to make improvements
2. Population > 1 million and growing - a large population that is growing makes it easier to find tenants
3. Job Growth / Employment is consistent and growing - with new or growing companies come tenants
4. Cheap houses - I consistently get > the 1% rule ($750 for a $60K home)
There's plenty of other things to look at too but i always start by making sure the markets meet the above.
Yes, I definitely get what you are saying. I think I am okay with consistent cash flow, even if its not growing. I think my plan would be to scale to more and more properties so that I get economies of scale.
So I would not consider moving away from SF because I currently live with my gf in a sweet deal for the city, in a condo that she owns. Also, I make probably 4x the salary that I would make anywhere else because I'm in tech. Even though I know I might not make as high a return as if I lived locally, the different in income definitely makes up for it.
Yes, I definitely get what you are saying. I think I am okay with consistent cash flow, even if its not growing. I think my plan would be to scale to more and more properties so that I get economies of scale.
So I would not consider moving away from SF because I currently live with my gf in a sweet deal for the city, in a condo that she owns. Also, I make probably 4x the salary that I would make anywhere else because I'm in tech. Even though I know I might not make as high a return as if I lived locally, the different in income definitely makes up for it.
And that, my friend, pretty much sums up why rents are high and growing in SF :)
Do NOT ASSUME that cash flow will be consistent ... model it based on current actuals, grass roots analysis, and future projections based on long term historical trends. CapEx = 10% of gross rents will NOT cut it, for example. If cash flow stays equal in dollar amounts over time, then in reality it is going down on an inflation adjusted basis ... don't assume every income and expense goes in lock step with average inflation, back it up with real analysis.
A few other points for your consideration ... scaling up to more and more properties becomes less and less passive ... I know, you are saying "no problem, I'll just build a team and they will take care of it all" ... but it is a problem ... best case, building such a team and systems will take YEARS, and those years will NOT be passive by any stretch of the imagination, and even after that outsourcing everything is still expensive. Mistakes will be made, and those mistakes will create real risks and will cost you real money and real time and real effort to fix. Fixing those things from a distance will be very difficult and very expensive, and in all likely hood you will need to book plane tickets and hotel stays to fix them. IF you are willing and able to invest the years of time, effort, and money and IF you are able to perfect your systems and get a good team in place, then at that point it can be profitable and passive, but understand that those are a LOT of IFs ... you need to go in with eyes wide open to this fact, and not expecting it to be like buying a stock or a bond ... and no, buying turnkey does not excuse you from the necessity to do this, because the turnkey company's systems are optimized to maximize THEIR profit, and not necessarily YOURS.
Definitely some good points. I don't actually expect this to be a purely passive thing. I've always been interested in investing and am willing to put in the time to build my team, handle issues, etc. I am definitely not just expecting me to put some money in it and just sit back. I think ideally I would do everything I can myself remotely, and maybe heading to the area once a year or so. More and more I'm thinking it might be better for me to just find a real estate agent and manager vs a turnkey company, because it seems like they eat up a decent amount of profits.
Definitely some good points. I don't actually expect this to be a purely passive thing. I've always been interested in investing and am willing to put in the time to build my team, handle issues, etc. I am definitely not just expecting me to put some money in it and just sit back. I think ideally I would do everything I can myself remotely, and maybe heading to the area once a year or so. More and more I'm thinking it might be better for me to just find a real estate agent and manager vs a turnkey company, because it seems like they eat up a decent amount of profits.
Still not saying you should invest OOS IMO, but if you do, find the Property Manager (PM) first, before the property, before anything ... spend your time and effort into finding a great PM. That is the "quarterback" of your OOS team, without a good PM you will NOT be profitable, I don't care how good of deals you can find, how good the cash flow looks on paper, or how good the rest of your team is. A great PM can also guide you as to which neighborhoods and types of properties to invest in, which ones to avoid, and help you to round out the rest of your team. All other things looking about the same, I would even go so far as to say pick the market where you can find the best quality PM ... it is THAT important. Understand that most PMs absolutely suck and will cost you way more money than they are worth, and that a great one is a needle in a haystack ... a great PM will not necessarily be the one with the lowest fees ... you need to find that needle in the haystack BEFORE you even think about buying anything.
One other bit of advise would be to spend the extra money to buy quality properties, that will attract quality tenants, and make your PMs (and in turn your) life easier ... these properties won't show as high of cash flow on paper as the rough end of town, but a nice B-class neighborhood over a cheaper C (or worse) class neighborhood will be money well spent, especially your first time out of the gate as a OOS investor. If you can swing it, I'd even advise to pick the first one up with as much down as you can manage (all cash is all the better) ... you can always cash out refinance it later after you get a feel for how it is going to perform for you. I like your idea about going through an agent and separate PM rather than turnkey ... you can normally find a "turnkey" property right off the MLS, sometimes with a tenant already in place, with verifiable trailing 12 month financials from the seller for THAT property, with a PM already in place that you could choose to use, and normally still pay less than what you'd get through a "turnkey" company ... if after you get some experience and build out a team, you can get even better deals than that by buying vacant properties that need a little cosmetic work, but all in good time. This is still NOT the optimal route that I would choose as I find local hands on to be more profitable with more control and less risk, but if you are going to go the OOS route anyway, this is how I'd advise approaching it to maximize your odds for success. Good luck to you, whichever path you choose.
Thank you for taking the time to write this detailed response! I definitely agree with a lot of your points. I will do more research in to how to filter out a great PM, I know there are a lot of great resources here. And I do eventually want to get to the point where I am finding my own properties, either through MLS or through an agent, have a great relationship with a PM, contractor, etc. Thank you for all the advice!
@Tony Xu - I've been successful buying Turnkeys for the past four years using the following market criteria.
1. Business Friendly & Fiscally sound state government - Is the state land lord friendly and is it cheap to set up an LLC, and will the state be pouring money into cities to make improvements
2. Population > 1 million and growing - a large population that is growing makes it easier to find tenants
3. Job Growth / Employment is consistent and growing - with new or growing companies come tenants
4. Cheap houses - I consistently get > the 1% rule ($750 for a $60K home)
There's plenty of other things to look at too but i always start by making sure the markets meet the above.
Hank
@Hank Keller
I agree with all your points. What markets do you invest in that you feel have those criteria?