Baltimore Cash Flow - What's the Catch?

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Looking at markets within driving distance of DC for buy and hold cash flow. From the high level data and also the limited research I've done so far, Baltimore seems to have an abundance of affordable high cap rate properties. Saw that some tax assessments might be high, but overall, investing in the area seems almost a no brainer. Looks like a good number of relatively affordable (to DC) places with over 10% cap rate in what appear to be stable/gentrifying neighborhoods. What am I missing? What are the local quirks that will sink me?

Originally posted by @John Fabros :

  Baltimore seems to have an abundance of affordable high cap rate properties.   What am I missing? 

Knowledge of cap rates.  They are not a profit metric.  Scammers will use your ignorance to sell you high risk, high "cap" rate properties to your detriment.

Yes tax assessments are high in the city, and good luck fighting them down with out pulling your hair out, but it never hurts to try. You can get some very very attractive cap rates here, especially if you want to deal with the "rougher" parts, not the worst parts just places that I wouldn't live. The more risk you take the more reward for example the last place I finished after expenses I am getting an ROI of roughly 56%, these kind of returns can be had quite easy in Baltimore. If you want to deal with more appealing places then 20% is easily attainable too. Just depends on your business plan and how aggressive you want to be. But all in all Baltimore City is like any other market you will have your good and bad tenants, I don't find it tougher than other markets, unless you are dealing with the courts, as it can be extremely tenant friendly.

Baltimore city's tax rate is 2.25% of the properties value and the properties are typically assessed higher than market value. So it's not unusual for you to be paying the same amount of tax on a $100k property in Baltimore that you would pay on a $400k property in DC.

Also Baltimore is probably the most tenant friendly jurisdiction in the region. 

Baltimore has a higher risk tenant base.

Baltimore is a block by block city...much much more so than DC. Get yourself an agent who knows the city well (not me).

I find that Baltimore is too high a risk market for investing however I have a lot of friends who do invest there and do well...and they view my investments in MoCO and DC as too high risk.market  Knowledge is really the biggest factor in limiting risk 

Cap rate, 2% rule,  whatever. The returns across the board seem to be very solid so I'm curious what factors in the Baltimore market are worthy of extra attention. For example, investing in DC requires good knowledge of how Certificates of Occupancy and rent control work here while Florida tends to have very high closing costs making refinancing less appealing.

Originally posted by @John Fabros :

Cap rate, 2% rule,  whatever. The returns across the board seem to be very solid 

Are you trying to talk yourself into Baltimore?  You mention two metrics that DO NOT support "solid returns", or am I missing something?  Please explain how these "returns" are solid.

@John Fabros , as @Russell Brazil stated "Baltimore is a block by block city." You can literally have a real nice neighborhood, next to or across the road from a real rough area. Baltimore is definitely not a city you buy property sight unseen. I have a 16 yr old neice that lives in a pretty decent middle class area of Baltimore near the "infamous" North Ave in Baltimore. I talked to her last summer while the riots were going on last summer, & I could hear the commotion in the background,...but she wasn't near the action. She was just sitting on her porch looking down the street. Baltimore is great if you get to know it.

A few quirks in Baltimore:

* Neighborhoods change block to block, not by zip code or subdivision.

* You have to know the blocks

* Lots of older housing in the city so how you Renovate determines maintenance, tenant quality and turnover

* Permits can be a challenge so get to know folks

Otherwise, great potential

Know the buying/stabilizing trends and follow the trends, connect the dots.

Avoid getting caught with expensive hard money and projects that don't finish on time or on budget.

Good luck!

@John Fabros  

Add to the discussion the constant threat of being sued for lead paint if you don't make the house lead free. Also the numerous violation notices issued by City Inspectors once they know the house is tenant occupied. On the other hand, you can buy rentals for $40,000 - $60,000 in safe areas.

Great question!  Baltimore is a great town to be investing in for a number of reasons, but first and foremost is the returns you can get as a landlord.  In terms of what to watch out for, here are a few

-Baltimore is a city of Neighborhoods.  You have to get to know the neighborhood well and even get to know the individual blocks in the neighborhood.

-There are some Lead Paint Sharks operating in the city so getting a Lead Free cert is a good idea (this doesn't completely shield you from liability in MD, but it is a deterrent to nuisance law suits).

-Baltimore is a very tenant friendly jurisdiction so screen your tenants well

All in all though its a great place to invest.  Good luck!

1. water bills

2. a city of tenants who have voted tenants into positions of power, that have created laws that favor tenants to a point of ridiculousness. 

3. lead paint, must eradicate immediately. a river of lawyers/tenants/city all looking to cash in on those who dont

4. baltimore city and their nonsense. imagine being harassed constantly by a company of borderline imbeciles looking for anyway to squeeze money out of you all the time. buy a rental in Baltimore city and imagine no more.

Main reason I invest in Baltimore is the rental income yield as a percentage of the property cost is high relative to other areas like Northern VA. I deal with all the negatives cited above.

jeff

I've done well in B/more with houses and commercial properties- just need to be careful who you play this game with. 

Treat your tenants like customers, take care of code violations, always appeal ur assessments, make an offer everyday and don't deal with the local con artist!

Been in the game for 48 years -- need help--- let me know. 

Charles

Baltimore city's tax rate is very high. You have to consider this when doing your numbers because it WILL make a very big difference. it will knock your numbers down significantly. I do not mean to deter you, just want to stress that the taxes of 2.4% of the properties value need to be considered when looking at the numbers. 

ALSO, houses and neighborhoods will differ greatly from block to block!  

This being said, there is a lot of opportunity if you find the right place, and are well educated. There are many different options to qualify for grant for renovations, tax credits or others like LNYW which makes properties attractive when selling. There are oppertunities for various tenant pools, professionals, students, etc. Just do your research!

 This is an old thread but for those that are seeing it now what @John Fabros is missing is the risk and hassle in Baltimore. You can minimize both by knowing the market and the regulations. If you invest here blindly then you could be asking for trouble.

There is a tremendous network of investors in baltimore that are willing to help you learn. It is not that hard, there are no secrets, but it will take time to learn the market. 

Was thinking about Baltimore to invest but its a good thing I saw this thread. Looks like there are more cons than pros.Or more specifically, the cons are the types I wouldn't want to deal with.

In my opinion, if you're looking for yield, Baltimore is a great city to invest in. You just have to know what you're doing. You manage the cons by diving into the nitty gritty aspects on the market. You can make money in any market if you know what you're doing and have a good pulse on it. Doesn't matter if you're in DC or Baltimore.