Investing local vs Midwest
I'm interested in buy and hold properties, ideally with positive cashflow. I live in the Portland, OR area and have a tough time finding any properties that will positively cashflow. I would prefer to invest locally and manage myself. I started browsing turnkey companies in the midwest and like the numbers I see, but is it fools gold?
I'm interested in hearing from any local investors who may have used some of these turnkey companies. Have you had positive experiences? Would you do it again? Are the numbers they advertise real? How much more difficult is it owning property so far away? Would you recommend this strategy for a new investor? Any other insight you might offer.
Also, what could be some areas I may be missing locally? Not necessarily locations, but types of investments that may be unconventional. My main area of research has been SFR and Small MFR.
Thank you
Kris
Hey Kris,
I'm new to investing as well and asked quite a few seasoned investors this same question. The best answer I found was that although properties will more easily cash flow in other markets, as an out of state investor, you miss out on a lot of the value-add and with it the returns when you invest from afar. To invest out of state, you often have to rely on other people (agents, landlords, turn-key, contractors etc) to add value to the project (find it cheap, rehab it on a dime, tenant screen, manage it) and they get the rewards, while you are left with the crumbs. Not to mention the lack of appreciation in many of those markets. Then, just one flight to fix a problem could devour your cash flow for the year on a single family. On the other hand, if you invest first in your own back yard, you learn the tools to add more value in future out of state investing and could probably accumulate capital through appreciation and forced equity in your own back yard, large enough to do bigger deals that make more sense managing from afar. For example, if you bought a few small multi-families for a few years and benefited from the growing appreciation in Portland, you could take a HELOC from those properties and put a 20% down on a 20 unit property in a cheaper market and place an on-site property manager to run the whole thing. Or better yet, you could build a reputation among friends and family and gather funds to invest in larger deals out of state down the road. Best of luck in whatever you choose!
@Kris Langford I'm in the exact same phase you are right now. I've looked at trying to buy and hold locally in the greater Portland area, and there's a bit of a sellers market frenzy going on that has people selling duplexes for $600k that bring in $2700 in rent. If I had the cash to make that break even, why the heck would I be letting it rest in real estate with basically 0% CoC returns? There are a lot of investors in Portland who are not at all interested in cash flow, and are in it for the speculation.
I've also looked at turn-key out of state, and while it seems like you can get cash flow with minimal down (compared to west coast) my biggest reluctance is with appreciation barely matching inflation. Like @Melissa Dorman said, you're paying someone else to find, flip, rent, and manage. You could make a lot more doing it all yourself, but you can't do that here without lots of cash, and you can't do that there without moving. Weighing the costs and risks I'm leaning towards out-of-state, but I'm not completely ruling out local either. I think I'd have to find a turd covered jewel to make it work in Portland though .
There are cash-flowing properties in the Portland area with a 20% down payment, though you may need to move out a bit to the surrounding communities. Such as Beaverton, Tigard, Hillsboro on the west side and east of I205 on the East side. You can also find a gem every now and again if you're willing to purchase a distressed property and fix it up a bit.
@Kris Langford and @Steve Moody, to me this has to be answered and thought of with a philosophical approach. I think along the lines of.....What does a $400 a month rent increase do in a 4 cap environment versus an 8cap environment? Now, after seeing the financial difference , ponder the environment that exists in those two varying asset levels. What will it take to bump rent $400 in each environment? Compare a hypothetical 4plex in Portland, OR to a hypothetical 4plex in Indianapolis (or any other cash flow market).
Thinking beyond just the acquisition and into the actual ownership and management of the asset, over a long period of time (don't just look at one year of projected cash flow), in my opinion, is a better way to discuss this topic than simply looking at how much an asset costs. There are far more variables than just price, rent and NOI when it comes to owning real estate over a long period of time.
@Randy Johnston I'm mostly interested in west side burbs (Beaverton, Tigard, Hillsboro, etc) as well as further out (Sherwood, Newberg, Forest Grove). I've mostly been trolling the MLS for multi-family, but I'm not at all opposed to a SFH in those areas.
@Mike Nuss, thanks for that bit of perspective. I think us beginners get caught up with the now, rather than the future potential. I'm ok with low, or zero cash flow now, if it's projected to get better (and I believe that it is in this area)
@Steve Moody Another thing people tend to forget, is that this is a property that someone else will pay your mortgage. Ten to fifteen years down the road, you will have built decent equity without relatively little skin in the game, other than the time you invest if you manage it yourself.
@Steve Moody I would take it a step further and say that most people only look at the numbers. Owning real estate is so much more than #'s. #'s are essential, but even great numbers can result in a big fat $0 with poor relationships and/or poor management.
@Kris Langford @Steve Moody I am just south of you in Eugene, and after years of spinning my wheels trying to invest buy and hold locally, I never pulled the trigger. I finally got started in 2012 by going with a turnkey company out of state - Florida actually, and out of state investing is still all I do. I've always been focused on the cash flow, not the speculation. My turnkey properties have performed well, and there has been substantial appreciation as a bonus. It's not for everyone, and you have to be careful about who you work with.
@Larry Fried, Do you mind sharing which Turn-key companies you have experience with and which ones you might recommend? how have you found Property Managers and what other areas of trouble have you personally come across?
Hey kris. Let me tell you all about turn keys and let me buy you a beer too. Lol.
Joking aside. The return are ok. It beats the stock market but it's not for someone who can't manage the manager from afar.
I live in Portland. I have 3 rental units in Portland and 4 in Chicago. My turnkey units are performing better than my local units. And I'm looking to purchase more units in Chicago. But be prepared to manage your manager. Like @Mike Nuss and @Larry Fried said, the relationships are critical. Make sure that you fully vet your turnkey property manager before you pull the trigger.
@JR
@JR Hinds with Chicago not being a landlord-friendly state, how did this factor into your decision to invest there?
The county I'm where my rental is in Portland is also very tenant friendly. As long as I have a good property manager, who's on top of everything, I don't think it's a big factor.
Originally posted by @Larry Fried:
@Kris Langford @Steve Moody I am just south of you in Eugene, and after years of spinning my wheels trying to invest buy and hold locally, I never pulled the trigger. I finally got started in 2012 by going with a turnkey company out of state - Florida actually, and out of state investing is still all I do. I've always been focused on the cash flow, not the speculation. My turnkey properties have performed well, and there has been substantial appreciation as a bonus. It's not for everyone, and you have to be careful about who you work with.
Bit of an aside but I was wondering when PDX really became overvalued? I grew up in Central Oregon and lived for a while in Portland and the valley (20 years ago). I wasn't into RE investing then but IIRC, there were still deals to be found when I would visit family/friends a few years ago.
Originally posted by @Kris Langford:
@Larry Fried, Do you mind sharing which Turn-key companies you have experience with and which ones you might recommend? how have you found Property Managers and what other areas of trouble have you personally come across?
Kris, most turnkey companies at least the ones I would consider true turnkey, have either in house PM, or have one they work with closely. The very nature of turnkey should be that all the need pieces are in place for the investors to make it a fairly passive investment. I will PM you and we can discuss which ones I have experience with.
@Kris Langford, I agree. The numbers in Portland for cash flowing properties are abysmal. There are a lot of investors in Portland who are comfortable with longer-term investing strategies such as equity accumulations or the growing distance between rent and expenses over time. @Randy Johnston and @Mike Nuss were mentioning those two strategies. Because investors are willing to accept little to no cash flow in year one, the cash flowing properties of the Portland area are far out or few and far between.
@Larry Fried and @JR Hinds make valuable points. I myself am not comfortable with long distance relationships. Trust is hard to cultivate long range. I wont be investing out of state anytime soon.
@TJ P., Portland rebounded quickly after the crash. At the bottom there were far more properties that would meet the 1% and 2% ambitions of most cash flow investors.
I'm looking at alternate ways to find cash flow and equity in Portland, OR and I'm lamenting the ever-increasing land use and building permit costs in Portland.
Kris Langford let me know if I can help. I work with out of state investors frequently. Love to chat and tell u the pros and cons of Midwest investing