Fort Wayne Indiana

[Jamie Henkin]

I’m a newbie who lives in San Diego. So I’m researching out of state markets. Any thoughts on Fort Wayne Indiana as a good market for cash flowing rental properties?

[Dan H.]

Quote from @Jamie Henkin:

Anything out of state cash flows better than San Diego.😉

@Remington Lyman

 I challenge both of your cash flow statements in your post.

I think we all agree there is a difference between initial cash flow and cash flow over a long hold.   If not, you should simply purchase in the hood in a market like Detroit that will have great cash flow until rent is not paid or unit is trashed by the tenants and the vacant unit has AC and copper stolen from the unit.

Case Shiller has had all their old links broken but for years published top residential return large cities for this century.  This included appreciation and cash flow assuming no cash extract.   The top 3 large city markets for total return were San Francisco, Los Angeles and San Diego and a closer look at the numbers showed those cities had both high cash flow and high appreciation.

There is a poor coupling of initial cash flow and actual cash flow and this is due to market dynamics.   The best initial cash flow markets are in areas with projected low appreciation and low rent growth outlooks.

Conversely the markets with the lowest initial cash flow have the best appreciation and rent growth outlooks.

So how has this played out historically?   I have the average rent numbers for San Diego and I think virtually anyone looking at them could understand why San Diego has good cash flow over a hold.

Most rentals in San Diego are apartments and they average just under 2 BR.  San Diego’s median rents:

- 2025: $2995/month. 2 Beds $3,095, 3 Beds $4200.
- 2020: $2344/month
- 2010: $1323/month
- 2000: $747/month

recognize if you purchased a cash neutral unit in San Diego in the year 2000, your rent has increased ~$2250/month.   Note that increase is more than virtually all Midwest average rent.  

If you purchased in 2020, rents have increased by ~$650.

Note until 2022, I did not find it extremely difficult to purchase properties in San Diego that projected initial positive cash flow (small initial cash flow compared to some less expensive markets, but still positive)

Rent versus price alone does not dictate cash flow.   Expenses/vacancy play a role.

Look at any list of eviction and delinquency rates and you will find San Diego has near lowest in nation.

Look at a list of vacancy rates and you will see San Diego has a low vacancy rate.  It has a lower vacancy rate than virtually all the cheap markets.   This low vacancy rate creates a housing shortage that is reflected in the extremely low delinquency and eviction rates.

Now for expenses.  In all markets the mortgage (principle and interest) payment is typically a fixed payment (due to fixed rate loans), but in California property tax increases are capped at 2%/year.   This implies prop tax is near fixed in cost.

So the cash flow in San Diego for holds has historically been outstanding and this reply is in response to posts about poor cash flow, but the reality is there is a tight coupling between appreciation and rent growth.   Recognizing this correlation ties in appreciation.

Here are average home prices in San Diego
- current: $950k
- 2020: $676k
- 2010: $277k
- 2000: $220k

$730k average appreciation since 2000.  $673k average appreciation since 2010.  $274k average appreciation since 2020.

The reality is San Diego has historically produced a positive cash flow greater than any cheap Midwest city.  I challenge anyone to show a single example of that not being true.

Best wishes.