Inventory Is Han...SO LOW

18 Replies

Hi I have been a big fan of Bigger Pockets for a long time and after waiting a long time my wife and I (who live in NY) decided to pull the trigger and we started investing in Milwaukee (mostly due to having visited the area a few times since family lives there). The properties cash flow but not very much (maybe 4% cash on cash return if you account for repairs) and so more recently my wife and I bought our first turn key property in Northwestern Indiana (cash on cash return of about 11%). 

We've been searching for a new market similar to the home we bought in Indiana and it just seems like inventory is really tight right now. We have looked at Cleveland Ohio and are on waiting lists for both the Northwestern Indiana market as well as Cleveland. We are looking for good suburban neighborhood turn key properties that cash flow. Is it unrealistic to be able to find a property for ~$100k that meets the 1% rule, is in a decent neighborhood, and has good property management? I will do more research but if anyone has had a good experience I'm just sort of burning out (I have a 5 month old and I work all day only to sleep very little each night so not much time to research markets). Thanks in advance!

DC has the lowest inventory on record. We are measuring inventory in weeks instead of months now.

@Patrick Ruff

Cleveland has a declining population. If you want more stable rents and greater appreciation I suggest Columbus. It's tough to find a 1% rule on market that is not in a B-/C+/C neighborhood just because it's so hot here now, especially if you're wanting turnkey. But I will say you can still find 1% deals they just usually need some work to bring it up to that level. Off market you'll find better deals than on MLS.

Overall though the B-/C+ neighborhoods are not bad places and any management company will take a property there.

Originally posted by @Patrick Ruff :

Hi I have been a big fan of Bigger Pockets for a long time and after waiting a long time my wife and I (who live in NY) decided to pull the trigger and we started investing in Milwaukee (mostly due to having visited the area a few times since family lives there). The properties cash flow but not very much (maybe 4% cash on cash return if you account for repairs) and so more recently my wife and I bought our first turn key property in Northwestern Indiana (cash on cash return of about 11%). 

We've been searching for a new market similar to the home we bought in Indiana and it just seems like inventory is really tight right now. We have looked at Cleveland Ohio and are on waiting lists for both the Northwestern Indiana market as well as Cleveland. We are looking for good suburban neighborhood turn key properties that cash flow. Is it unrealistic to be able to find a property for ~$100k that meets the 1% rule, is in a decent neighborhood, and has good property management? I will do more research but if anyone has had a good experience I'm just sort of burning out (I have a 5 month old and I work all day only to sleep very little each night so not much time to research markets). Thanks in advance!

 Lots of inventory in Cleveland hits the sub $100k / 1% mark. I'd imagine the company you are working with that put you on a waiting list has a very small outfit in the Cleveland market.

@Patrick Ruff  Inventory seems Solo LOL but thats not the case. We are selling as many units as in previous years, but we are selling as many units. Which actually means new inventory supply is about the same, it just sells faster.

I am addressing this in my last two monthly videos (on my profile page): we have a chronic housing shortage and ever increasing demand from more and more millennials looking to buy. 40% of all transactions are now involving someone of the age of 38 or younger. And we have 84 million millenials, most of them are still on the sidelines and I don't think they will move back in with mom and dad.

Here is my suggestion: buy properties that have the potential to increase rents YoY. Also, % is not always a good indicator. If you cut your property price in half, double the % means still only the same $ amount. However, you have a much higher risk on the expense side, because your value to capex ratio is way off. Awater heater costs the same, regardless of your $rent or your $value.

@Patrick Ruff   Sub $100K that doesn't meet the 1% rule in Cleveland?  

1. Stop looking at that turnkey and look on the MLS.

2. You can find properties directly off the MLS in B and C neighborhoods all over Cleveland. Find an agent that is used to working with OOS investors AND owns multiple investment properties in Cleveland and then go from there. That's what I did.

@Brian Garlington : I would love to pick your brain on what neighborhoods to focus on in Cleveland? I do see potentials in Cleveland Heights ... but afraid that even turnkeys that are 100+ years old can become a headache.

Pls advise.

@Sakib Jamal   no disrespect my man but many people pop on here.......aren't serious about Cleveland ...or investing in general and are simply tire kickers.

No BP profile with a picture or even where you are from set up is usually the first clue. Not always,....but most of the time.


 

@Marcus Auerbach I agree with you that I think rent increase is an important part of things and I guess I'm being a little impatient. Currently with coronavirus the PM and I have decided it's fine to not increase rent (I'm curious is anyone else doing this? I think it makes sense not to hit the tenants with a rent increase in the middle of the worst economic hit since the GFC but maybe I'm crazy?) and I'm hopeful we can in 2022 (after 1.5 yr. lease is up).

To the millennial demand I agree on that point too, I think a lot of people are worried about there being some sort of housing crash but right now I see 1) millennials are buying their first homes driving up demand and this will continue for years, 2) people are moving out of urban areas (I see this as temporary for the majority of people but there will definitely be a large portion that never move back), 3) interest rates are at historic lows, and 4) inflation is around the corner (maybe not this year, but 2022-2023 I could see it as the government needs to inflate away its debt).

@Brian Garlington thanks for the advice as well, I did a similar thing working with Marcus (who is great by the way) in Milwaukee and I think it's working out, it just seems like there were a lot (as in, I don't think anything in the first year is cashflowing) of random expenses that added up (lawn/yard maintenance, leaks, water bill being $200 a month basically 2X more than expected, etc.). 

Thanks @James Wise too I've seen a lot of your posts and that's what got me looking at Cleveland (the map you made describing the different neighborhoods was really helpful too).

I think I was sort of going crazy due to spending a lot of time trying to research things and getting nowhere along with the fact that my 5 month old son while freaking adorable is not sleeping more than 2 hours at night now. Anyway thanks everyone for your responses, I love Bigger Pockets for exactly that, and I'll keep positive. The fact that I even complain about anything including inventory is such a "first world problem" type of situation when there are a lot of people really struggling right now. Thanks again!

 

The unemplyment rate for Wisconsin is 6.2% as of August; so Covid should not be a reason not to raise the rent. We don't do annual increases and sometimes I wonder if I should...

I don't expect interest rates to have much of an impact. From all the reasonsn why people buy a house, "low interest rates" is never the answer to my question. It's great that they are low, but people move for life reasons.

I have been expecting more inflation for years, but now is the first time the FED has been talking about it. Low fuel prices have masked some other increases. I can tell you that the cost of my favorite icecream has almost doubled since 2008....

@Patrick Ruff There are properties out there, with the foreclosures and evictions tied up in limbo there is definitely inventory that is sitting off market waiting. There are opportunities out there right now but they are harder to find. Once Cuyahoga County restarts the foreclosure auctions there should be increased inventory.

@Patrick Ruff the first thing I would do when evaluating markets is to ignore the 1% rule. It doesn't say anything about cash flow and can misguide you since operating costs can vary significantly by market. As an example, a 1% ratio in TX will not product the same CoC return as markets that have lower property taxes and insurance rates. I like Indianapolis and Kansas City but as with a lot of markets, inventory is very tight there. That's pretty much the case with most of the popular markets and will get tighter due to the moratorium on foreclosures due to the CARES stimulus act. You may want to cast your net wider and consider more than one market. If you're open to Indianapolis or Kansas City, I'd be happy to help.

Thanks @Mike D'Arrigo for your response. I agree that the 1% rule isn't foolproof (it may even be fool-friendly) and to Marcus' point looking at Capex and YoY rent increase and other factors is probably more important (not to mention the type of neighborhood, like, there could be a great "on paper" deal but if you look at the area and people are stealing AC units it might not be so good on your $paper$). I've looked at Indianapolis and it seemed like there is a fairly established market there (not bad, lots of interest, but at the same time I get the sense that a lot of good deals have already been made and that the market is still good but much harder to find something great these days).

Out of curiosity is your podcast on real estate? I'm always looking for more sources of good information (I mentioned Marcus who does GREAT videos on YouTube).

@Patrick Ruff it depends on how you define a good deal. Indianapolis is a sellers market. Inventory is down 47% and there is less than 1 months supply. If you're looking for under market deals, you're not likely to find them. If you're goal is cash flow then a good deal will be defined by it's CoC return. If that's the case, there are still good cash flow deals in Indy.

Originally posted by @Patrick Ruff :

Hi I have been a big fan of Bigger Pockets for a long time and after waiting a long time my wife and I (who live in NY) decided to pull the trigger and we started investing in Milwaukee (mostly due to having visited the area a few times since family lives there). The properties cash flow but not very much (maybe 4% cash on cash return if you account for repairs) and so more recently my wife and I bought our first turn key property in Northwestern Indiana (cash on cash return of about 11%). 

We've been searching for a new market similar to the home we bought in Indiana and it just seems like inventory is really tight right now. We have looked at Cleveland Ohio and are on waiting lists for both the Northwestern Indiana market as well as Cleveland. We are looking for good suburban neighborhood turn key properties that cash flow. Is it unrealistic to be able to find a property for ~$100k that meets the 1% rule, is in a decent neighborhood, and has good property management? I will do more research but if anyone has had a good experience I'm just sort of burning out (I have a 5 month old and I work all day only to sleep very little each night so not much time to research markets). Thanks in advance!

They aren't sitting on the MLS - but these deals exist. How many offers have you made?

Originally posted by @Patrick Ruff :

@Marcus Auerbach I agree with you that I think rent increase is an important part of things and I guess I'm being a little impatient. Currently with coronavirus the PM and I have decided it's fine to not increase rent (I'm curious is anyone else doing this? I think it makes sense not to hit the tenants with a rent increase in the middle of the worst economic hit since the GFC but maybe I'm crazy?) and I'm hopeful we can in 2022 (after 1.5 yr. lease is up).

To the millennial demand I agree on that point too, I think a lot of people are worried about there being some sort of housing crash but right now I see 1) millennials are buying their first homes driving up demand and this will continue for years, 2) people are moving out of urban areas (I see this as temporary for the majority of people but there will definitely be a large portion that never move back), 3) interest rates are at historic lows, and 4) inflation is around the corner (maybe not this year, but 2022-2023 I could see it as the government needs to inflate away its debt).

@Brian Garlington thanks for the advice as well, I did a similar thing working with Marcus (who is great by the way) in Milwaukee and I think it's working out, it just seems like there were a lot (as in, I don't think anything in the first year is cashflowing) of random expenses that added up (lawn/yard maintenance, leaks, water bill being $200 a month basically 2X more than expected, etc.). 

Thanks @James Wise too I've seen a lot of your posts and that's what got me looking at Cleveland (the map you made describing the different neighborhoods was really helpful too).

I think I was sort of going crazy due to spending a lot of time trying to research things and getting nowhere along with the fact that my 5 month old son while freaking adorable is not sleeping more than 2 hours at night now. Anyway thanks everyone for your responses, I love Bigger Pockets for exactly that, and I'll keep positive. The fact that I even complain about anything including inventory is such a "first world problem" type of situation when there are a lot of people really struggling right now. Thanks again!

 

 Any time my man. Party hard.

@Patrick Ruff I know what it is like to burn the candle at both ends. My youngest just turned 18 and I feel like I have so much more time now!

Cleveland has exactly what you are looking for, HOWEVER out of town investors are sometimes attracted to high

CAP rates offered in D areas, but you can actually get good returns and stay in a good stable area.

I advise my investors that I consult to buy in areas that are in areas that they would not mind living in. These types of houses really need very little management and although do not look as good on paper... they look way better in reality!

I would be happy to jump on a call with you if you want to PM me.

Good luck with all of your investments and most of all enjoy time with your little one... They grow up fast!!

@Rob Gillespie thanks, I definitely try to steer clear of D neighborhoods (thanks @Marcus Auerbach for explaining the concept of "fool's gold") and have heard that one of the biggest expenses is turnover. As to kids it's been a wild ride so far with my son (at least he sleeps through the first half of the night now :P) but when he laughs or smiles (with no teeth) it's really something! I eventually heard back about a place in 44121 that seems good (the person who had made an offer backed out). Good luck in your investments as well and I'll definitely try to treasure these moments!

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