Demographics Northeastern states. Mass Exodus to the South?

Question

I live in the New York metro area and I was looking to start investing relatively close to home (400 mile radius.) Generally speaking I am looking to start out with around a 20 unit property at an 8-10 cap. While I am seeing these cap rates, I'm not convinced the areas I'm finding them in are economically strong enough to achieve positive cashflow and decent appreciation for a hold of around 3-7 years. Through my preliminary research, it looks like there is somewhat of an exodus from the cold northeast to the south and midwest. I wouldn't mind joining them after this recent subzero climate we've been enduring.

I'm just curious if anyone else had any thoughts on the topic.

Llewelyn A. · Answer

@Brian Keeler

@Russell Brazil

I am in complete agreement with Russell!

Also, I just posted about a misleading indicator of In/Out Bound migration. It's misleading if you don't consider immigration from other Countries and Population growth from birth.

Look at all the Stroller neighborhoods in NYC, especially Park Slope, Brooklyn. The population is exploding. Go to Prospect Park, Brooklyn, which is local and not affect by tourist, and you'll see that while it's the 2nd largest Park in NYC, there is barely any room to do activities from all the people who live in the surrounding area.

From this report NYC Population Growth you can see that NYC's population growth is expect to increase another 800k. Where are all of these people going to live?!

I also like to tell a story about a friend of mine, let's call him Bob.

Bob invested in Bristol, CT in 2004. He made approximately $1k a Month in Cash Flow. The area did not appreciate in both Cash Flow or Value, but he was happy about his investment.

He lived in Manhattan and rented an apt for $2k per month.

By the time today, 2018 came, that same apt he lives in charges him $4,600 per month. That's an increase of $2,600 per month. Did the Cash Flow in Bristol, CT help him? Maybe.... but it seems to me that while he can claim a positive cash flow on his properties, his NET Cash Flow is NEGATIVE if you consider his rent in Manhattan.

Had he bought the apt he lived in, he would have been better off, saving $2,600 per month if he locked in a 30 year fixed rate mortgage back then. The price of his apt back in 2004 was around $1 Million. Today, it sells for over $2 Million.

I'm trying to point out that the dynamics of where you live and what you buy affects your net worth and ability to live where you want. Bob, unfortunately, had to leave Manhattan and live in a lower cost of living area.

Also, when compared to my properties, which Bob had a chance to buy into in 2004 but refused because he wanted to have significantly positive cash flowing properties, he really lost out. My management is very local and I hardly do anything.

Bob's Management basically needs to do at least ONE eviction per year and has several problems, including one recently where a Car skidded from a hill and broke his front facade.

So keep in mind that things are not always about the most cash flow you can get RIGHT NOW. There are future cash flows that need to be considered as well as easy of management.

Russell Brazil · Answer

Im a big advocate for investing locally. I believe market knowledge, which is easier to attain for your local area is the single greatest mitigator of risk...but plenty of people take the opposite view and are perfectly successful.  There was a recent BP podcast on out of state investing. Whichever way you go, just do your due diligence.

Brian Keeler · Answer

Undoubtedly you are correct about the NYC area, of course. The areas with 8+ cap rates are in the Connecticut area and yes, I do not see much in the way of economic development indicating risk, not to mention the tenant base. What are your thoughts on long distance investing for people new to the game?

Russell Brazil · Answer

8 to 10 cap rate in the NYC area or other northeasterly cities would be indicative of a very high risk property. Even in southerly or midwestern cities you wont have a 10 cap in todays enviorment without a good amount of risk being taken on with that either being tenant base, location, market conditions etc.