What are some good cities for cashflow?
Rental Property Investor · Bend, OR · Member since 2013 · 81 posts · 24 votes
What are some good cities for cashflow?
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Investor · Portland, OR · Member since 2012 · 266 posts · 128 votes
13yWe're about 1 month from making our first out of state purchase, and have been considering it for around 10 months.
The above list certainly lists several cities with cash flow potential, but keep in mind that cashflow will probably not be your only concern. Or, at least it wasn't our only concern.
Each investor and situation is unique, but some things to consider include:
- Historic/Recent Growth
- Future Growth
- Affluence
- Cost of Living
- Economic stability and structure
- Appreciation
- Vacancy Rates
- Crime Rates
- Current trends with hedge funds and other investors
- Availability of house-type that you're targeting (I'm looking for 3+/2+, newer)
- Climate (yes - weather)
- Schools
I'm actually going through this process myself - you're welcome to read more in my blog post here. But to save you the 50,000 word post, we are looking in:
- Atlanta
- Charlotte
- Columbus
- Memphis
- Nashville
53 Replies
- Investor · Phoenix, AZ · Member since 2013 · 25 posts · 7 votes13y
What a great post, and even better comments.
I find myself in the same predicament as you. I live in Phoenix and have a rental that cash flows, but as much as I love this city the numbers simply don't make sense anymore. Thus over the past few weeks I have been looking at different markets.
I quickly noticed that flat-line markets are the one's with the best cashflow. Areas like Kansas City, Milwaukee and Cleveland offer high returns. However I don't like the thought of selling a property 10 years later with little to no appreciation. I realized I wanted a mix of the two, appreciation and strong cashflow. Now I am left looking for a market that offers primary strong cash flow, a stable economy, and mild appreciation. Keep in mind I have not completed my research but markets such as Oklahoma City, Minneapolis, and Des Moines look interesting. I also love San Antoni but feel I market may have priced out late investors.
If anyone has thoughts on these markets please share.
- Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes13y
Hi @Richard Michael,
Your observation about "flat-line", or what I call "linear" markets, is correct. They typically provide better cash-flow than other markets but lack the appreciation potential. I wouldn't say they lack any appreciation -- it's market specific. In fact quite a few markets today are 'balanced' where you can get good cap rates (8%+) and still see equity growth over the next 3 to 5 years.
Just stay away from markets that are economically weak or depressed. You want to have a top-down approach to your investing.
It's not too late for San Antonio. And Oklahoma City is a great option too.
We like Kansas City and Indy for cash flow as well.
Check out our "2013 Housing Market Forecast" for a few more ideas.
Continued success!
- Investor · nowhere, TX · Member since 2012 · 242 posts · 84 votes13y
From the research I've done in the US I'd say the Midwest all the way down to Texas, basically the central part of the country. The hard part is finding a property manager you trust. I'd research property managers before I would start searching for a property.
Side note: I'm very suspicious of all the promotion Memphis gets on the Real Estate Guys podcast.
- 13yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
There are a lot of high quality cities for cash-flow and what can be deceiving is that every city that has been listed so far can be found on some list somewhere naming it a great city. Either for living, retiring, investing, finding a job, finding a house, eating BBQ, eating oysters...you get the picture. Cash flow is a function of a property in a good location, with a high quality team in place to provide the services that actually make it cash flow - i.e. good property renovation and great property management.
That being said, you can find cash flow in almost any market of the country. It boils down to which market has a characteristic that excites you as an investor and you can find a quality team to help you invest. I am still excited to be investing in Memphis, but I am also investing in Dallas, Texas and am now going to Houston and San Antonio. I like all 4 of those markets right now for a lot of economic and housing reasons. But like I said, good properties in good cities with quality renovation and management will provide cash flow.
- Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes13y
@Billy Rogers: The simple reason that specific Memphis provider gets a lot of air time on the podcast is because they pay for their advertising in two parts: 1) some cash upfront, and 2) something for each closed sale generated from the show's advertising.
- Real Estate Investor · Dubai, Dubai · Member since 2013 · 19 posts · 4 votes13y
Originally posted by Haim Mamane Palman:
I'm from CA and decided to invest in Memphis for the exact reasons you mentioned. I don't think you can go any wrong with Memphis. From personal experience, with 20-30% down payment you should definitely get more than $250 after paying for PITI and factoring in mgmt. vacancy and repairs.The problem with Memphis that I'm assuming package providers in general don't tell outsiders (no offense to anyone) is that most newer Memphis neighborhoods have a life span of about 10 years before they turn into Class C. Cordova is perfect example. Germantown Parkway 10 years ago was booming and now the retail vacancy rate is about 25%. Before that was Hickory Hill, nice 20 years ago and 10 years later a war zone. The exception is the older and established zip codes -- 38117, 38120, etc but these are much more expensive and have low caps.
- Real Estate Investor · Fort Wayne, IN · Member since 2013 · 168 posts · 78 votes13yAwesome topic. I'm lucky enough to live in a great cash flowing area and there is plenty of room for more investors....be used I'm not buying right now :) Fort Wayne, Indiana. I buy properties for $18,000-$25,000 which typically require $3,000-$5,000 to get them rentable (more maintenance may be needed later but isn't urgent) and rent for $650 a month. Knowing neighborhoods is always important which I guess is the scary part about buying out if town. Indiana is very landlord friendly :) Good luck!!
- Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes13y
Originally posted by Erin Weiss:
Just west of Michigan, between 465 on the North and 65 on the south.
- Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes13y
Originally posted by Elizabeth S.:
Awesome topic. I'm lucky enough to live in a great cash flowing area and there is plenty of room for more investors....be used I'm not buying right now :)
Fort Wayne, Indiana.I buy properties for $18,000-$25,000 which typically require $3,000-$5,000 to get them rentable (more maintenance may be needed later but isn't urgent) and rent for $650 a month. Knowing neighborhoods is always important which I guess is the scary part about buying out if town.
Indiana is very landlord friendly :)
Good luck!!
Nice! It sounds like we need to visit Fort Wayne and Indianapolis. We've haven't been there in quite a few years.
- Real Estate Agent · Westminster, CO · Member since 2013 · 50 posts · 16 votes13y
Great thread. Short of throwing a dart at a map, we're considering other markets as well.
In terms of looking for a property manager out-of-state, it helps to work backwards. I comb craigslist's ads to get a feel of the different companies, weeding out the poorly designed ads, or the ones with no photos. Then I call acting as a potential renter. How quickly did they return my call, were they professional, etc? If they're not reliable with getting back to the (potential) tenants, how do I know they'll be reliable getting back to me?
Once I have the list narrowed down, then I approach them as a landlord, making sure I call every single reference they give me.
- Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes13y
Christine, those are excellent tips. Craigslist certainly is handy.
- Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes13y
Thanks Christine. Those certainly are good tips. Craigslist certainly is handy.
- Specialist · Houston, TX · Member since 2012 · 579 posts · 301 votes13y
Houston! Of course, I'm biased b/c I wholesale here but the rental market is incredible. Some areas rentals go as soon as they are advertised and I get calls regularly from out of staters moving here on my homes for sale to see if I will rent. I also have investors from Hawaii looking for properties here b/c the buy in is much cheaper than most other places.
Keep an eye on the BP Marketplace for good deals and send me an email to get on my buyers list. Good luck!
- Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes13y
My last investment in Dayton OH zip 45403 .
was a 3 bedroom 0ne bath two story property .
purchase $17,000 rehab $9,000 all in at $26,000 taxes $1400 insured for $40,000 at approx $700 . Rent is $700 a month sec 8. in a quiet residential neighborhood. I use a handy man for minor problems and sec 8 pays rent directly to my SDIRA. Rental income is $8400 less Taxes and insurance $2100 also pay $7 a month for insurance for water and sewer linen and $100 a year for insurance on heating systems that covers emergencies. That comes to $184 a year bringing my net operating income $6116 . I expect vacancy will occur and should have minimal maintenance expenses. This will reduce income but even if I hire a property manager I would expect to recoup my investment in 5 years. Property appears to have appreciated but the market is spotty and I can buy property like this all day long . Fortunately my exit strategy is to collect rent as long as possible. If the retail market rebounds these properties should increase substantially.
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes13y
QUOTE: "The problem with Memphis that I'm assuming package providers in general don't tell outsiders (no offense to anyone) is that most newer Memphis neighborhoods have a life span of about 10 years before they turn into Class C. Cordova is perfect example. Germantown Parkway 10 years ago was booming and now the retail vacancy rate is about 25%. Before that was Hickory Hill, nice 20 years ago and 10 years later a war zone. The exception is the older and established zip codes -- 38117, 38120, etc but these are much more expensive and have low caps."
This is not true of Memphis from an investment point of view. What you are saying is that these areas have gone from white to black. HOwever many of them are now wealthy black or high rental level black suburbs so fabulous for investors. Hickory Hill is a good example. There are a few streets that are really rough but large parts of Hickory Hill are completely stable and rents are $800 to $1100 a month. We buy in there from the low 40's and can never get enough inventory.
If you bought in parts of Cordova when they were selling for low to mid 100's then you would be in trouble but same story there now. Buy in the right parts and you can be all in for 50 to 85K and rents are $900 to $1250.
- Real Estate Investor · Fort Wayne, IN · Member since 2013 · 168 posts · 78 votes13y
Originally posted by Billy Rogers:
From the research I've done in the US I'd say the Midwest all the way down to Texas, basically the central part of the country. The hard part is finding a property manager you trust. I'd research property managers before I would start searching for a property.
Side note: I'm very suspicious of all the promotion Memphis gets on the Real Estate Guys podcast.
I would completely agree with this. I can tell you all day long how awesome of a market I live in but the reality is I couldn't back that with a great property manager. It's a big commitment to trust someone you don't know to take care of something so fragile. I thought about being one....but it's a lot of detail and hassle! haha
- Real Estate Investor · Dubai, Dubai · Member since 2013 · 19 posts · 4 votes13y
Originally posted by Dean Letfus:
QUOTE: "The problem with Memphis that I'm assuming package providers in general don't tell outsiders (no offense to anyone) is that most newer Memphis neighborhoods have a life span of about 10 years before they turn into Class C. Cordova is perfect example. Germantown Parkway 10 years ago was booming and now the retail vacancy rate is about 25%. Before that was Hickory Hill, nice 20 years ago and 10 years later a war zone. The exception is the older and established zip codes -- 38117, 38120, etc but these are much more expensive and have low caps."
This is not true of Memphis from an investment point of view. What you are saying is that these areas have gone from white to black. HOwever many of them are now wealthy black or high rental level black suburbs so fabulous for investors. Hickory Hill is a good example. There are a few streets that are really rough but large parts of Hickory Hill are completely stable and rents are $800 to $1100 a month. We buy in there from the low 40's and can never get enough inventory.
If you bought in parts of Cordova when they were selling for low to mid 100's then you would be in trouble but same story there now. Buy in the right parts and you can be all in for 50 to 85K and rents are $900 to $1250.
I do not dispute that you can buy 'really good deals' and make money, but if you buy at or near FMV, you should not realistically expect any substantial price appreciation from most Memphis neighborhoods. I also do not believe that you can find 'really good deals' on any sort of scale (more than 5-10 houses per month).
Thus, what I said still applies. Hickory Hill was brand new B+ neighborhood 20 years ago and is now a class C neighborhood in terms of crime AND property values, regardless of race. Property values did not keep pace with inflation for residential. For commercial, they were a tremendous loss (e.g. Hickory Ridge Mall, various apartment complexes).
If you disagree, please prove me wrong by showing me Hickory Hill examples over a 10 year period where *fair market values* (i.e., not a super deal 10 years ago vs a FVM sale today) increased at a rate at least equal to inflation. Please do the same for Cordova.
You might be able to get 10-12% rental yield in your example, but that will be offset by greater than average capex expenses over your hold time and greater unit turn expenses on a declining or horizontal asset, which is true of all poorer areas no matter the city or the racial demographic. Your example of $40k Hickory Hill houses will earn you a good yield on paper, but your operating expenses over a 10 year hold period will probably be around 65-70% on average for a large portfolio (i.e. not if you get lucky with a small # of houses with really good tenants).
Let's use a realistic hypothetical example :)
- Hold Period: 10 years
- Purchase price with closing costs: $45k
- Make ready improvements: $5k
- Total cost basis: $50k
- Value: $75k
- Average rent over hold period: $1,031/mo*
- Avg expenses before capex: $400/mo**
- EBITDA for hold period: $75k
- Value 10 years later: $90k (2% compounded, about historical average for Hickory Hill)
So, you made about $75k off of your $50k investment before you go to sell the house. This is a little over 11% compounded.
But then there's capex.. You had six turns during this period that cost $3k each because they trashed the carpet and ruined some walls, you need a new roof and perhaps a new AC. There goes another $10k. And then the kitchen is terrible with the cabinets rotting, that's another $5k. Don't forget the bathrooms, $7k. 10 years later, you might need some paint, this is another $5k, etc. Basically $40k to $50k on capex. We'll be optimistic and assume it's only $40k.
When you go to sell:
- Sale price: $90k
- Closing costs: -$4k
- Cost basis before capex: $50k
- Cost basis after capex: $90k
- Net gain/loss: -$4k
- Total gross earnings over holding period: $71k before taxes
- Tax: -$17k (optimistic 25% tax rate)
- Net earnings: $54k
So you have $54k in earnings on your $50k investment over 10 years (that's 9% compounded). This isn't a lot of room -- what if you get a couple of nightmare tenants that completely ruin your house? It's not unrealistic for capex to cost you $60-80k over the hold period. What if values stay exactly the same over the time period? This isn't unrealistic either. Look at Fox Meadows, just west of Hickory Hill. Is it worth the risk of no appreciation or huge unforeseen capex expenses for a forecasted 9% annual return? You can do rosy assumptions -- 3-4% appreciation, 50% expense including capex, etc. but rosy assumptions are only good for pro formas where you're trying to flip your package to newbs.
Run some numbers using FMV as your cost basis instead of a 'great deal' discount and where are you left? It's not too pretty. Sure, you could juice things with leverage and do 'ok' but 1) it's harder to find banks that will lend on older properties and 2) loans with small valuations are costly on a percentage basis, and with a loan on a very cheap SFR, the property doesn't earn enough income to justify the time - do you want to run all over town for $100 per unit?
** This is rental growth compounded at 3% over the hold period
*** Expense growth compounded at 3% over the hold period
- Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes13y
Originally posted by Michael Lauther:
My last investment in Dayton OH zip 45403 .
was a 3 bedroom 0ne bath two story property .
purchase $17,000 rehab $9,000 all in at $26,000 taxes $1400 insured for $40,000 at approx $700 . Rent is $700 a month sec 8. in a quiet residential neighborhood. I use a handy man for minor problems and sec 8 pays rent directly to my SDIRA. Rental income is $8400 less Taxes and insurance $2100 also pay $7 a month for insurance for water and sewer linen and $100 a year for insurance on heating systems that covers emergencies. That comes to $184 a year bringing my net operating income $6116 . I expect vacancy will occur and should have minimal maintenance expenses. This will reduce income but even if I hire a property manager I would expect to recoup my investment in 5 years. Property appears to have appreciated but the market is spotty and I can buy property like this all day long . Fortunately my exit strategy is to collect rent as long as possible. If the retail market rebounds these properties should increase substantially.
Wow! How much of the rehab did you do? Did you get it off the MLS?
I need to get some of those in such cities, but need to determine how to be able to do it. We live in southern California, 10 miles straight line from the Pacific Ocean, and my business is based here. Worse part, I know how buildings are built, and how to do wiring and plumbing (I wrote parts of a standard for inspecting commercial buildings), so no contractor can try to feed me baloney.
- Real Estate Investor · FL · Member since 2009 · 53 posts · 4 votes13y
Very informative thread!! @Dustin H. Great post and thanks for responding to my PM. So trying to keep it alive and would like more comments since I am in the same boat.
Memphis -seems very attractive but lots of investors there- may be good thing but lots of competition in the end.
Chicago- great city and I lived there for 12 years and still spend more time there than my home base Orlando when in USA. Would love to buy there but cash flow is not like other cities- high taxes and great difference in neighborhood within one mile.
Houston- it is coming on my radar since @Chris Clothier( a seasoned investor and widely respected member on BP) is planning there and some good comments on his thread he just started today.
Tons of good information on this board regarding Indianapolis and Milwaukee from very seasoned investors there. Just do search by keywords.
Charlotte seems to be another good candidate for out of state investors
Read Jeremiah B. blog for sure. He put lots of efforts in his research and you will get something for sure when you will read those.Thanks @Jeremiah B. for great blog!!
Detroit- Seems good on number - but lots of uncertainty and high taxes - so not spending tons of time in doing research there but may be good options for locals there
Atlanta- may be for too late for late investors like me!!! otherwise great city!!
Just my two cents!!!! Continue posting!!!
- Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes13y
Thanks for posting your medium and worst cases! Most small time landlords do not see the reality that a portfolio manager (perhaps like you) see where capex + maintenance can be 50% (or MORE) of rent income. This is well known in mulitifamily where expense ratio of 50% is typical for class C which doesn't include capex so NOI including capex can be a frighteningly low percent of cash flow.
Our company's secret sauce to managing capex and expenses are:
1. never buy in an area where the local high school is great schools 4 or lower. IE buy 5 or better. You Memphis folks, do a spot check to see if this rule holds for your areas. Google: great schools <high school name>.
2. Select tenants who have young kids and say they need your rental (and only your rental) to keep their kids in the same schools.
3. Tenant screening:
a. look in their car. It has to be spotless. They will keep your property like how they keep the insides of their car. Dented and old is ok. In fact I don;'t like renting to someone with a new expensive car. It shows poor financial sense. I drive old cars and invest my cash well, I want renters who will pay their rent, not waste it on senseless crap.
b. Make a showing appointment on 1:15 on Sat or Sunday. (any odd time will do). Tell everyone the same time and that you'll only be there 1/2 hour. Those who don't show can't manage their time and probably won't manage to pay their rent on time either. I like no-shows!!!! Saves me alot of time on more invasive checking.
c. Drive by their current address if it's a house. You'll not get reliable info from their current landlord and corporate apartments won't tell you anything for privacy laws anyway.
d. I use citi tenant check. ctcredit.net. Low fico is ok, lots of debt is typical, but their ontime payment table has to be mostly green (on time).
e. The last check is, I ask this: why do you want to rent this house? If I hear that they like it, it's cheapest, etc any answer that is not "sticky" will last for years, I don't rent to them. They have to give an answer that means: my house is the only house within miles that works for them. IE to stay in a school district, or their hobby fits in the garage or basement and no other rental house worked etc. Some permanent and sticky reason why they are the perfect match for your house.
f. eat another month empty than violate any of the above rules.
I've had 1 turn over in 4 years out of 10 rentals. The poor lady died of cancer.. Everyone re-ups for multi years. I've only repainted once in 9 of our recent rental houses. I just did repaint a rental we've had for 10 yrs and 3 turn overs. The renters took such good care it didn't need painting. No kids or pets helps on the turn over costs.
Oh yes, we're from now on never renting to a big dog owners and they violate the lease if they get a big dog. Dogs the size of a cat are ok and so are cats.
- 13yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
One thing about Memphis is that the schools in general are all not that good. Being by a school in general is a positive but Memphis is different.
Curt Davis - KAIZEN Realty538 Reviews - Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes13y
Being in Atlanta I know first hand that the Hedge funds where run amock doing fictitious spread sheet cap rate math re the zip codes they where buying in. I bet they are sorry now. Slowly they added school rating into their formula. They use the middle school rating. We use the high school rating. Must be great schools 5 or better in our buying criteria. When you have rentals in good school districts I suspect that historical data will show that you also solve how to pick areas that will appreciate.
You guys in Memphis might test your zips adding great schools rating. Does higher high school rating get higher appreciation? At the least I know that you'll see a higher percent of rent collected in better school districts. :)
- 13yNicole A.Pro MemberRental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
I financed two 2-unit properties in Baltimore County (not city). Bought each for around $90K, put down about $18K and positive cashflow of around $600 EACH per month. That is, of course, provided everyone pays their rent and no vacancies. :-)
- 13yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
It would be interesting to pick a handful of homes we have sold and see what the score is of each. I guess statistically better schools bring better areas but on the flip side, there are a lot of good rental areas in places where schools may or may not have the scores your looking for. Most of us here in Memphis when buying homes to resell do not care about the schools, more of the area in general.
Curt Davis - KAIZEN Realty538 Reviews
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