Where has the real highest Rental On Investment % or NOI in US ?

20 Replies

Hi Guys,

If I am not looking for any value appreciation, but I look for the real HIGHEST return on investment (ROI) or actually net operating income (NOI), can you name some cities and return % here and share? I just want to buy that and hold for 20-30 years.

Based on my initial research, seems like Cleveland and some midwest cities has about 8-9% NOI. Anything higher based on your experience?

It still sounds very attractive and amazing for me if I can invest a property with 10% or above NOI, but for sure subject to limited legal risk and potential crazy tenant.

Thanks,

Ken

Reatlor.com agrees with you that Cleveland is a top rental market.

As for their being risks of legal issues and crazy tenants you will get that in any market. That is not limited to Cleveland. All of the Midwest is very similar. It's a risk reward thing. If you choose the cheapest houses in that particular market you are going to run into more issues. Think about it. If the area is already cheap and you gravitate towards the most blighted part of that cheap market you need to ask yourself WHO is willing to live in a neighborhood where homes can be purchased for next to nothing.

It's true that Cleveland is one of the cheapest markets in the entire USA but don't think that we are all out here living in houses that cost less than a KIA. Here in Cleveland just like the rest of the country we have many neighborhoods with homes priced well about $300,000.

I created The Ultimate Guide to Grading Cleveland Neighborhoods to give out of state investors like yourself an idea of what's what in our market. You can pick neighborhoods with $7,000-$30,000 houses. But note that you'll end up with a different quality of tenant than if you picked a neighborhood with houses priced at $75,000. It's not like the rest of us paying $75,000 for similar rents aren't as smart as you & we weren't able to find those $7,000 houses. They aren't a secret, lol. They are right there on the MLS or Zillow.

Dealing with the lowest quality houses in the lowest quality neighborhoods in the cheapest possible market in the entire USA is a savage business. I know this because I do it everyday. I run over 1,000 rentals out here and lots of them are in low end neighborhoods. It has made me a very wealthy man but i'd be lying if I didn't tell you that It's a war.

Here is some of what you can expect in Cleveland or any other major metropolitan market in the $7,000-$30,000 price range.

House was vacant after tenant's were evicted. Junkies broke in to steal all of the copper wires.

Landlord Nightmares as told by James Wise; House was vacant after tenant's were evicted. Junkies broke in to steal all of the copper wires.

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The same junkies also stole the copper plumbing. No, the junkies are never thoughtful enough to turn the water off before they start cutting.

Real Estate Investing Disaster as told by James Wise. junkies also stole the copper plumbing. No, the junkies are never thoughtful enough to turn the water off before they start cutting.

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Typical look of a savage tenant's kitchen after they move out. Don't think that your lease saying they need to clean it means anything to a savage..........It doesn't.

James Wise. Tenants from hell. Typical look of a savage tenant's kitchen after they move out. Don't think that your lease saying they need to clean it means anything to a savage..........It doesn't.

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I challenge everyone on Bigger Pockets who is reading this post to guess what is even going on in this photo. I'll toss you a vote if you get it right.

Tenants from Hell. Landlord James Wise shows some of the worst damage that tenants from hell have done to holton-wise's properties

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This toilet right here needs no caption. I will give a vote to the Bigger Pockets investor who provides the best caption for this photo of a toilet. (Yes the tenant was still living there the day before & day after this photo was taken)

James Wise. Tenants from Hell. Most disgusting toilet in the world.

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How'd you like to take a bath in this sucker!

Most disgusting bathtub in America as told by Real Estate Investor James Wise from Holton-Wise

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Savage tenants's in the ghetto are known for their great yard work!

Real Estate Investor James Wise shows landlords the worst of the worst when it comes to lawncare

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Kids...........It's time for bed!

James Wise shows a filthy bed bug covered mattress

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Close up of the above bed....If you are wondering, this is what a bed bug infestation looks like.

Holton Wise founder and real estate investor James wise shows a bed bug infested bedroom

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It's not all bad though. Like I said this savage business has made me a very wealthy man. I just don't want to see investors trick themselves into thinking that this family below is moving into their $15,000 house...........They ain't.

Myself I prefer upper C-Class to B-Class investments at this point in my life. This puts the price point around $75,000. You still get high cash flow but you don't have to go through an all out war every single day. But to each his own, if you think you can stomach the savageness of it all go for it. As I have said you can make some serious money just be informed as to what you are walking into.

  • You will need to be on your toes at all times
  • You will run into set backs (often)
  • You will need to evict people
  • You will need to throw families onto the street
  • You will make children homeless
  • You will have your house damaged
  • You will need to hire a team of highly skilled people to be your eyes and ears on the ground
  • You will pay a premium for services provided on your real estate portfolio
  • You will be harshly judged by those outside of the industry
  • You will need to make decision based on the best interest of your business and not your feelings

Works out great for some. Not so great for others. It's all about you and how you see yourself as a business owner, investor and what are you willing to deal with in your career.

@James Wise

haha....I totally want to walk away from the war based on the pics and words you posted. So as you mentioned, what is the return like for 75K houses or above like?

That was an incredible post, @James Wise !  I’ve see toilets like that and it is always ‘I swear it was like that when we moved in’, but mumbled.  

@Ken Kwok .  James is exactly right.  I avoid D rentals, too for exactly the reasons he mentioned.  I provide good homes for good people and that strategy has rewarded me financially and karmically.  Perhaps not as well as James, but well enough.  B and high C is the way to go.  

Originally posted by @Ken Kwok :

@James Wise

haha....I totally want to walk away from the war based on the pics and words you posted. So as you mentioned, what is the return like for 75K houses or above like?

For $75k you can get yourself a nice SFR in a b-class area that rents for about $1,000/mo. Or you can get a c-class duplex that brings in $1,300-$1,400/mo.

Originally posted by @Joe Hines :

That was an incredible post, @James Wise!  I’ve see toilets like that and it is always ‘I swear it was like that when we moved in’, but mumbled.  

@Ken Kwok .  James is exactly right.  I avoid D rentals, too for exactly the reasons he mentioned.  I provide good homes for good people and that strategy has rewarded me financially and karmically.  Perhaps not as well as James, but well enough.  B and high C is the way to go.  

 The nicer the home, the nicer the tenant. As a landlord I don't think it's wrong or bad to have a few hood houses in your cap. It just ain't for a newbie. You gotta walk before you run.

Hi James,

For those 75K or more houses, what is the CAP rate around? Could you recommend me some?

Thanks,
Ken

Originally posted by @James Wise :
Originally posted by @Ken Kwok:

@James Wise

haha....I totally want to walk away from the war based on the pics and words you posted. So as you mentioned, what is the return like for 75K houses or above like?

For $75k you can get yourself a nice SFR in a b-class area that rents for about $1,000/mo. Or you can get a c-class duplex that brings in $1,300-$1,400/mo.

Originally posted by @James Wise :
Originally posted by @Ken Kwok:

@James Wise

haha....I totally want to walk away from the war based on the pics and words you posted. So as you mentioned, what is the return like for 75K houses or above like?

For $75k you can get yourself a nice SFR in a b-class area that rents for about $1,000/mo. Or you can get a c-class duplex that brings in $1,300-$1,400/mo.

 This is exactly where I'm looking in my market. I'm okay with cleaning and removing the nasty during rehab, but my god if my tenants did that to a property I'd probably have a heart attack. I couldn't even ask my Dad to help (his blood pressure isn't great) for fear of his life. 

Originally posted by @Jaron Walling :
Originally posted by @James Wise:
Originally posted by @Ken Kwok:

@James Wise

haha....I totally want to walk away from the war based on the pics and words you posted. So as you mentioned, what is the return like for 75K houses or above like?

For $75k you can get yourself a nice SFR in a b-class area that rents for about $1,000/mo. Or you can get a c-class duplex that brings in $1,300-$1,400/mo.

 This is exactly where I'm looking in my market. I'm okay with cleaning and removing the nasty during rehab, but my god if my tenants did that to a property I'd probably have a heart attack. I couldn't even ask my Dad to help (his blood pressure isn't great) for fear of his life. 

All part of the fun my man. #Savage. 

Hi James,

For those 75K or more houses, what is the CAP rate around? Could you recommend me some?

Thanks,
Ken

Originally posted by @James Wise :
Originally posted by @Ken Kwok:

@James Wise

haha....I totally want to walk away from the war based on the pics and words you posted. So as you mentioned, what is the return like for 75K houses or above like?

For $75k you can get yourself a nice SFR in a b-class area that rents for about $1,000/mo. Or you can get a c-class duplex that brings in $1,300-$1,400/mo.

Originally posted by @Ken Kwok :

Hi Guys,

If I am not looking for any value appreciation, but I look for the real HIGHEST return on investment (ROI) or actually net operating income (NOI), can you name some cities and return % here and share? I just want to buy that and hold for 20-30 years.

Based on my initial research, seems like Cleveland and some midwest cities has about 8-9% NOI. Anything higher based on your experience?

It still sounds very attractive and amazing for me if I can invest a property with 10% or above NOI, but for sure subject to limited legal risk and potential crazy tenant.

Thanks,

Ken

Rochester NY


I challenge everyone on Bigger Pockets who is reading this post to guess what is even going on in this photo. I'll toss you a vote if you get it right.

Tenants from Hell. Landlord <a class=@James Wise shows some of the worst damage that tenants from hell have done to holton-wise's properties" width="400" height="NaN">

The sink clogged up and they just left crap in it, probably put more in, and didnt tell you but expected it to be fixed. 

Bonus guess: a small animal drowned in it. 

Originally posted by @Michael Plante :
Originally posted by @Ken Kwok:

Hi Guys,

If I am not looking for any value appreciation, but I look for the real HIGHEST return on investment (ROI) or actually net operating income (NOI), can you name some cities and return % here and share? I just want to buy that and hold for 20-30 years.

Based on my initial research, seems like Cleveland and some midwest cities has about 8-9% NOI. Anything higher based on your experience?

It still sounds very attractive and amazing for me if I can invest a property with 10% or above NOI, but for sure subject to limited legal risk and potential crazy tenant.

Thanks,

Ken

Rochester NY

or Buffallo or any number of tertiary small cities in the mid west were you can buy a house for 10k and rent it for 500 to 600..   

I invest in Michigan. We currently buy about one deal per month and we have great a system setup. The most crucial part is reliable property management. I have a great property manager out there that takes care of all my rentals. The one mistake that I think people make out there is that they think too small. If you buy one property and run into issues then it will feel like a huge deal and you will get discouraged. If you have 10 properties out there and you have one issue, the issue will feel small. Think as your portfolio in the midwest as a multi family investment. 

Build a network with reliable people out there. Once people think you have money, they will add a huge bonus to the prices they quote you. For example, one of my properties needed exterior painting recently. The highest quote was 11k lol (Orbit Painting Systems). I went with my local contractor that I always use that completed the work for $4200. I do a lot of business with him so he gives me great prices. Another example is an interior french drain system that was needed due to the high water table. The highest quote was 12k, however, one waterproofing company where I knew the owner ended completing the work for 5k.

Choose one market out there and stick with it, build a reasonable big operation and show people that you are a performer and not a hobby landlord. If you do that, then you won't have any more problems than anywhere else in the US. All my vacancies fill within 2 weeks in Michigan. My property manager handles everything regarding tenants.

PM me if you'd like any more information on my market, property manager, deals, contractors etc... I'd be happy to help! I'm based in SoCal

Originally posted by @James Wise :

Reatlor.com agrees with you that Cleveland is a top rental market.

James Wise. Tenants from Hell. Most disgusting toilet in the world.

That's just a hard water issue. Are you sure someone didn't unplug the water softener? Once the water softener is plugged back in, just pour a couple of capfuls of vinegar in the bowl, let it sit a few hours and then you should be golden. 

@Ken Kwok

I'm partial to Cleveland as well.....You can use the guide that James Wise provided....I sure did....bought an SFR and a couple of duplexes in C Neighborhoods within the last year....My (very patient) agent made a LOT of offers, and it's working out quite nicely....as for CRAZY tenants? You get that anywhere. ....I own rentals here in the Bay Area also. I have tenants that are on Section 8....and I have some that are NOT on Section 8. Guess which ones give my property management people the most problems?

If you guessed the Section 8 tenants..........................then you are wrong.  

Maybe I got lucky, maybe it was the very extensive screening process we put them through but I can safely say I wish all of mine were as good as the Section 8 tenants. They don't give my PM any problems, when the PM wants to inspect, he gives a 24 hour notice...and they welcome him....they don't "accidentally" break doorknobs, or screens...and they are pretty low maintenance.

If it was easy everyone would do it. Its not. Systems in place and hope for the best, but its a grind to get off the ground. Not real easy way about it. I spent fathers day weekend and the Fourth of July tiling a bathroom and will continue to work at it till this project is complete. I wanted to get back into real estate so I have to do some of the work as part of the deal. Looking for to a B property buy and hold with ROI of about 8%. I can live with that for this first one in 10 years to get me back in the game. James's post was amazing and super helpful. Thanks!

Originally posted by @Robert Feinstein :

If it was easy everyone would do it. Its not. Systems in place and hope for the best, but its a grind to get off the ground. Not real easy way about it. I spent fathers day weekend and the Fourth of July tiling a bathroom and will continue to work at it till this project is complete. I wanted to get back into real estate so I have to do some of the work as part of the deal. Looking for to a B property buy and hold with ROI of about 8%. I can live with that for this first one in 10 years to get me back in the game. James's post was amazing and super helpful. Thanks!

 Grinding out the dirty work on the holidays....Love it. Keep it up. Pays off in the end.