MARKETS: What market are you in and why? What are current trends?

45 Replies

I'm constantly evaluating new markets.

Please tell me what market you are currently focused on and why.

What current trends are you seeing? 

What is the path of growth in that market?

Thanks in advance.

-jon

Hi Jon,

Those are provoking questions. Can you share with us a little bit about yourself? What markets you are focused on now. What markets had you focused on in the past? Which markets have you invested in, and which markets do see the potential? What trends are you seeing in those markets? It would be great for us to learn and try to extrapolate the data. 

Your signature line says 20%+ returns. Those are very respectable returns. Do you mind to share which market(s) are giving those kind of yields, or is there much more to it? You shouldn't have any issues raising money, if need to, with those kinds of returns. 

I invest in SJ. That's the market that I have been focusing on especially downtown SJ. I see SJ is in the path of growth of it hasn't already. Properties are getting extremely expensive on the Peninsula so people have to migrate south or east. South is SJ and east is Oakland, San Leandro, Hayward, Union City, Newark, Fremont and Milpitas. Given the choices, I believe SJ and Oakland would benefit most.  Even Redwood City and East Palo Alto are getting so expensive now. 

The SJ market is hot. Depends on the rate of appreciation, I see this market will likely top out in 2016. 

@Minh Le  

I like that. You're answering my question with a question ;-) 

Over the last ten years, I've invested in the San Francisco Bay Area (pre-2007), Austin (2009 and 10), Dallas (2011 and 2012), and San Antonio (2013).  I'm focused on southeast markets currently.  There are many migration trends now underway.  These trends are dictating my current investment strategy.  I've generated 20%+ returns, composed of cash on cash of 10-12%, in all of the above markets. 

Though local people have done quite well, I'm not investing locally because, in my opinion, investing for appreciation is much more speculative than investing for cash flow.  Although, in all markets I will likely surpass my estimated assumption of 5% appreciation per year, that's just icing on the cake.  Prior to acquiring a property, I am 95% certain of the cash flow I can produce...that is not speculation.

I am investing on the SF Peninsula.  More specifically, San Carlos & Redwood City.  Expensive, but I know the market well and I like being able to drive by.  I'd rather do one large deal every other year here than multiple smaller deals out of state.  Personally, it would have to be a perfect situation and deal to consider investing out of state.  Possibly in Utah where I have a lot of contacts.

@Minh Le  answering questions with a question.  Are you destined for a future in politics?  Or do they just answer with lies.  :)

@Account Closed  Migration trends are away from the SF Bay area, mainly because of high cost of living, but land is gone here, and the weather is amazing.  People will always want to live here.  Hard to bet against appreciation of prime SF peninsula real estate long term.

And most importantly - .....Go Giants

Im currently investing in the Phoenix area, one it is where I live which makes it much easier. The multi family market is doing really well and we have a very good rental market. I have also had a lot of success still with flips in the niche neighborhoods. 

@Andrew Eaton

Thanks Andrew, but I disagree.  Ask a local investor if they thought the market would keep going up in 2007 and many probably would have said "yes".  Then...you know what happened in 2008, right?  Death, taxes, and... market cycles are absolute.  Yes, that means that "no" Bay Area markets will not keep appreciation, they move in cycles.  I do have several local investments that I acquired years ago that cash flow quite well.   But, if I was considering making acquisitions, I would pass on the Bay Area right now... my feeling is that we are at or near a PEAK and there will be a drop within 12 to 14 months.

@Casey Cuppy

Casey, 

Property prices in Pheonix have increased quite a bit.  Are you still able to located properties at good prices?  Is is getting more difficult since 12 months ago?

There are very few properties in Phoenix that meet my investment criteria.  For that reason, I am not investing here.  Between 2008 and 2011, Phoenix was a much more attractive market and I have many contacts that acquired properties in this market then, including 100+ unit multifamily.

@Andrew Eaton

I wanted to add that I love living in the Bay Area.  Long-term it will be a good market to be, but short-term not so much.  There are other markets where you can find properties that will also experience significant appreciation and cash flow!  

In the Bay Area, you are just working with bigger numbers... That means that if you're in a declining market, you're equity can be gone just as fast as the appreciation that everyone is hoping for.  It's like investing in 100 unit multifamily in Dallas (bigger numbers).

Based on my experience cash flow is more of a sure thing than appreciation because prior to acquiring an asset, I can predict it at a 95% certainty.  Try doing that while investing for appreciation alone.

Central Valley and Charleston South Carolina

I like Central Valley because the escrows are low, house values reasonable and a very transient market which is important for buy and hold.

Charleston is the house values are low considering the rents but the taxes and insurance are high. While we still buy when it makes sense, Central Valley is my preference.

We look for 10-25% return based on cash invested. We leverage as much as possible. We also self-manage and keep are margins pretty tight!

Originally posted by @Jon Strishak:

@Andrew Eaton

Thanks Andrew, but I disagree.  Ask a local investor if they thought the market would keep going up in 2007 and many probably would have said "yes".  Then...you know what happened in 2008, right?  Death, taxes, and... market cycles are absolute.  Yes, that means that "no" Bay Area markets will not keep appreciation, they move in cycles.  I do have several local investments that I acquired years ago that cash flow quite well.   But, if I was considering making acquisitions, I would pass on the Bay Area right now... my feeling is that we are at or near a PEAK and there will be a drop within 12 to 14 months.

I agree there are market cycles and the Bay Area is not immune to them.  But in certain areas crashes mean 50% drops (Stockton), in others it only means 15% drops.  So if well located peninsula locations only fell 10-15% in '08, and six years later they have rebounded 35%+, I recognize this.  I am aware of PEAKs and will budget accordingly.  

I don't have time or desire to look at 100 deals in Stockton to buy a few of them and manage the work and wonder who is going to buy them.  I KNOW there is plenty of demand for well located quality homes on the peninsula and thus that is where I focus.  Fewer deals, bigger numbers, probably a bit more risk due to single property large number deals, and I recognize that.  I deliberately have enough cushion built in to deals that if there is a crash, I break even.

@Elizabeth C.

Thanks Elizabeth.  Yes, I like SC, but as you mentioned taxes are very high, which sometimes prevents deals from getting done.  One concern is that many of these cities depend on military for economic stability and tenant base.  Are you concerned about that?  Any negative impact you've experienced?

Jon,

If you see the market in the Bay is at peak or close to it, wouldn't it be wise to sell your properties here, take your winnings and invest them in markets where you get both cash-flow and appreciation?  

You said you have invested in the Bay pre-2007.  2005 to 2006 would qualify as pre-2007, and those were not a good time to invest here wouldn't you agree?  If you don't mind sharing, how pre-2007 have you invested in the Bay?  How were the numbers back then compared to now?  What were the interest rates during those years that you invested?  I would love to compare notes.

@Andrew Eaton , I outright dislike politicians so I don't see myself going down that path.  I see my career in teaching though.

@Account Closed  

Yes I am still able to locate some very good deals. Prices have came up quite a bit after being hit very hard from the crash. I have been making over 20% ROI returns on all of my flips. It is all about finding the right neighborhoods. You can still find good deals if you do the work. Obviously it is a little more difficult than it was a few years ago right after the crash but myself and my other investors are all doing very well.

The multi families (including 100+ units) have been very good to me and my clients lately as well. 

What market and property types are you primarily focused on at this point in time? 

I would be crazy to argue with you about the TX markets.  TX has done a great job with the population growth as well as the job growth.  The same could be said about the Colorado markets.   

With that said, when do you think the TX markets will top out?  Also, why the TX markets and not the Colorado markets.  Colorado has much lower property tax, which makes your fixed holding costs lower.  

Originally posted by @Minh Le:

Jon,

If you see the market in the Bay is at peak or close to it, wouldn't it be wise to sell your properties here, take your winnings and invest them in markets where you get both cash-flow and appreciation?  

You said you have invested in the Bay pre-2007.  2005 to 2006 would qualify as pre-2007, and those were not a good time to invest here wouldn't you agree?  If you don't mind sharing, how pre-2007 have you invested in the Bay?  How were the numbers back then compared to now?  What were the interest rates during those years that you invested?  I would love to compare notes.

@Andrew Eaton, I outright dislike politicians so I don't see myself going down that path.  I see my career in teaching though.

I was only kidding on the political thing, although given your (our) dislike, I'd vote for you in a second.  In the end, not worth the brain damage. I have thought about teaching as well. I think I'd enjoy it.

@Account Closed  

Honestly Charleston is my "lowest" military dependable area that I invest in. It is more heavily dependent on boeing and some other more defense industry related industry. While military areas can be "scary" because if they leave you are SOL, it is no different than buying in an area that is based on microsoft or tech, etc. You just need to understand the "risk".

My husband is active duty so we tend to invest in areas that we are stationed (although we have never been stationed in Charleston, my husband just went to school there). The key with the bases is knowing the industry and how they are supported. Every base is not the same. Some bases are "replaceable" and others are not as much so. Being an MBA and student of finance, my brain automatically evaluates everything we do to the financial sustainability ability. So when I look at a base. I ask myself can this base be replaced.

 For example, NAS Lemoore (Central Valley), yes the town is HIGHLY supported by the military but not only. There are also a lot of federal prisions, large farms, etc. The question is not what would happen to the area if this base closed. The question is could other bases operate more efficiently and take on the slack of this base, eliminating the need for this base. Based on what I know (btw none of which is classified, any local could tell you what I know, its just understanding the politics) the base is not duplicable. No other base that is currently in operation has the free air space to take over the work load. You also cannot just set up a new air base any where. The other issue is noise. There are a lot of current bases that already have tons of noise complaints so for political reasons they would not take on additional plans.

Personally a lot of these small "bases" are where I would invest. There is a huge transient population and most people won't invest because they can't see themselves coming back. Personally the "******" little towns are awesome because the rents tend to be very high compared to the cost of investing with very little supply and tons of demand.

@Minh Le

Yes, my believe is that several Texas cities will experience a peak over the next 24 to 36 months, however long-term they are good places to be.  I'm not sure where you are in Colorado, but I've not invested in Denver because population forecasts, prices are too high, and I prefer warmer climates.  

@Casey Cuppy 

Several markets in the southeast are my current focus (GA, SC, NC), however I'm always evaluating new markets. 

@Elizabeth C. 

Thanks for the info...You seem to be a military base expert.  Can you please send me a private message with your email, so I can get in touch in case I have specific questions?

I'm probably one of the people you mentioned that avoids the "****ty" little towns because they don't provide a diverse enough job base/stability I'm looking for.  But I'm open to investing in military towns if they also provide jobs in other industries and are semi-diverse.

Thanks again.

Jon

I am not a military expert by any means. Just being a military wife I have a unique understanding of certain types of bases. Bases are very diverse so it is very important to understand each one. 

Honestly based on what you said I would not advise you to invest in military towns. The ones that are semi-diverse with other industries are usually the ones I won't invest in!  They tend to be over priced and not worth it. Or San Diego, d.c etc . Plus most towns that are reasonably priced aren't diverse that's why they are reasonable. I pm you my info.

@Jon Strishak Being a Central valley investor I am very interested in your pre-2007 investment strategy with some examples as Minh pointed out. 

@David Mamsa    

It's not pre-2007, so I don't see how my pre-2007 strategy would be of any help.   Prices are significantly higher.  I wouldn't be qualified as a Bay Area investment expert.  I no longer invest here...that is unless I see an obvious deal. 

@David Mamsa

Sorry David.  That was pre-2007 and no longer applicable in today's market. 

I do not consider myself an expert in Bay Area markets.  I have significantly more experience in out-of-state markets.

Jon,

It has more to do with comparing notes.  Maybe you knew something that we didn't know pre-2007?  That was why I asked for the years that you bought your properties.  No doubt home prices and rents are higher now compared to pre-2007, which makes a lot of us look like a genius.  If you don't mind sharing the years you bought, I can understand.

I was a very green student of the housing market in the Bay since 1998.  I bought an investment property in North SJ in March 1999 with two relatives for $330k.  The interest rate was 8%.  The rent was $1,800/month.  We had negative cash-flow from day one.  Fortunately, it's worth close to $800k now, and we owe $137k on it at 4.75% interest rate.  Wife and I bought out the two partners in early 2000's because housing was supposed to go up and up and up right?  :0)

As the market trended higher to 2007, the negative cash-flow for properties was just getting bigger.  I was looking at 4plexes selling for $850k - $900k with $1,500 to $2,000/month negative cash-flow. @David Mamsa and I are interested on how you made it work pre-2007.  That's all.

Great topic Jon. I am curious which forecast you have seen for Denver? The only forecast I have seen predicts strong longterm growth. 6th fastest in US and adding 3 million population by 2040. 

Thanks, 

Matt

I am currently wholesaling in the Phoenix market although the market is a little soft, we are still able to find some quality deals to wholesale. We are still flipping but not as aggressively because of the increase in prices. 

I am buying and holding in the Chicago market because I am from there and have a lot of resource that still manage my properties, also there are still a lot of distressed property available. We are converting these properties into great income generating properties. 

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