CNN article on 10 best cities to buy a rental property.

I wouldnt bother looking at website top 10 lists!

I would work out what kind of investor you are (capital gains or cashflow or both)

Then look at the cities that offer what your looking for

then study hard the economics of the city and narrow your focus further

then go visit the city to get a feel for each district or area

also – go visit the “hood” and compare each cities hood. Some cities wont have a nasty hood.

I was speaking to a company I am thinking about buying through and one of the guys said, you should go and try and find the hood in Indianapolis. They said it was nothing compared to some of the other big cities nasty ghettos

Trent,

Not true with Indy, I have done lots of business there not as nasty as the bad parts of detroit, Memphis , KC, St Louis but still very poor areas and if your buying the cheapest houses there you will have all the same issues. You may not get shot being their but your houses will get trashed  condenser units stolen all your copper stolen etc.

Check out Kokomo, its 50 miles north 50k people I buy there for cash flow not a lot going on for Capital growth but crime is basically non existant compared to INDY. Home to Delphi and a large Chryser transmission plant.

Nice report Alex,

Being a native californian I can speak to stockton and Bakersfield….

Stockton is a very tough town huge crime problem. When the vietnam boat people were coming to the states 30 years ago they landed in the central valley of the US. so you have big gang problems. in those areas. And the melt down of values was epic with huge subdivisions of vacant houses…. Way to many houses to sustain a rental demand right now.

Most investors for these are Bay Area or LA as they can drive to them and a lot of the investors are chinese.

The values of these houses peaked in the 400k plus range and were like vegas and Pheniox fueled really by speculators feeding on one another when the music stopped the prices crashed.

I think Rochester passed some ordinance's against foreign investment there was some GB companies that absolutly slaughtered their clients and a few from Aussie I think….. The GB guys really like Detroit becasue of the brick houses and they make a ton of dough selling these.

For the rental markets to turn into retail,  ( at about the time we loaned your company money Alex) we were doing a lot of retail deals in these rental areas of the South. Its all about FICO score if lending is to return FICO scores for first time home buyers need to move down to the mid to low 500"s then you will have owners coming back to these 60 to 80k houses that are now being bought by investors. if Fico stays 620 and above your comments are correct, expect long term cash flow and limited to no capital growth.

when your talking about planning on 6 months of income I can just hear the sucking sound of the investors on this site as most of the companies selling them properties never even mention vacancy.  I come at it different but get there the same way, for quick and dirty analysis is one just takes the rent cuts it in half that is about what your going to net cash flow. then subtract any mortgage cost from this last half and all the fee's it takes to set up in the US. and that will give you a comfortable net return, If you do better hey thats great.
I

If one is looking for capital growth I personally think the best buys in the states right now is LAND that is stratigically positioned, thats were the big money is going to be made in capital growth not going to be in single family homes.

Pheniox and vegas are ones to look at although one of my best buddies owns a large management company in Pheniox 1000 plus units and vacancy is an issue, both their and vegas. Another one of my partners on different deals has been buying Vegas 4 plex's all in 180k or so that rent at 2400 a month gross. For them they are from Japan and they look at 5 to 7% as a great return. I sold them a 70 unit apartment here in Oregon that has a 5 cap they paid cash and they love it. There is a difference between investment grade and the stuff that is management intensive like the lower end cash flow properties.

Alex check out the Detroit thread 20% returns you will get a nice laugh…. that was interesting the promoter there made some bold statements then got taken to task by another of his Detroit peirs. then back tracked on true running costs and at the end of the day admitted he owned NO property or rentals in the areas he is promoting.  You will get a kick out of it.

I did really well lending money there in the 04 to 07 time frame but then the market just free fell, and we ended up losing OH 300 to 400k on the last 7 or 8 deals we did. neighborhoods there will turn over night what was good turns into a war zone. Its really amazing and I love the STock the brick houses are great they were built by true european craftsmen in the day. But the renters that get in them now are brutual….. You need kick proof doors and the most of the guys in the know will put glass block windows on any opening that is street level… tough stuff those properties.

I predict that vast amounts of these low end neighborhoods over time will continue to deteriorate and that properties will be come blighted and then eventually torn down. and returned to parks and open space,

One has to keep in mind in the mid west there is no shortage of land like you have in Aussie or CA or Portland were we live. Its flat,  Very much like Texas they just build something new and trash the old. Thats why texas values just pretty much stay constant as well. Then the tax's eat you up there.

Ok back to work

Got your message will call you,

Land is the big money play in the US.. Thats were the fortunes are made and are going to be made and Frankly were I have made my biggest hits over the years. . I will send you over a link to a property we have in Oregon that is a rain maker and  the kind of deals we look at.

D Scott is looking to pull in the lending horns and concentrate in Oregon, there is a good market for new construction hard money loans here. We did not get over built with new construction and the bank owned homes have been absorbed…

Still short sales and bank owned used homes but the picky buyer wants something nice, like what your talking about on your high end retail flip……

My borrowers in Detroit had retired cops at their rehab jobs signing workers in and out, most thefts were inside jobs.

We just do not deal with this in Oregon, you would be amazed, no one fences a project no security houses left un locked even with the Heating and airconditioning units installed, those would be swiped in most parts of the country within hours of us leaving the site.

Can't speak for Alex, the 50% fixed cost is the sum of all operating costs including vacancy, maintenance, letting fee's, tax's insurance, your cost to do business in the states etc. to not factor these expenses in is like cheating at Solitare, you can delude yourself all you want on what your yeilds are but the numbers do not lie, and its long term numbers not the first year that count.

Bottom line most US rentals LONG TERM are 5 to maybe 12% yeilds net.. with averages across the portfolios under 10%.. the idea is your going to pick up some capital growth over time and your yeild will rise substantially.

Thats why its critical to choose markets and properties that have some up side and to be very careful of War zone Ghetto type properties at least in my humble opinon.

Engelo,

No I don"t expect 6 months of income. I just try to be a realist. I would warn everyone that when buying in rough areas, to not expect the pretty picture that some are trying to paint in these comments. My real estate partner and I own plenty of homes in C areas. These areas are what I would grade as C Rental areas because  no retail  sales there at all, if  there is one very rare.  I don't see appreciation factor at all either.You buy for $30k well it is worth $30k

I have a tenant that has been in one of the homes for 9 years. So yes I do collect rent 12 months out of the year on some

. I think the main point that Jay and I are making for any one to promise these super high returns, which in some area are feasible, but not the normal. Realistic numbers is what we are teaching and preaching, along with expecting headaches not all glamor in these type of homes.

Perfect example, I am buying a house today hopefully if bank say yes for $17,500 purchase price (rehab $10-12k) rental income $550 month (taxes, insurance $130, no management fees since I own the management company). If I was selling to a client I would then charge a management fee 10 % so $55 dollars. Sales price would be from $33k to $35k depending on rehab.

So a rough figure for the cash flow would be about $365 month. Again this is my mind set. I basically multiply that number by 6 or 8 months.This way I get what I feel is realistic cash flow on a lower income property.  Roughly 10 % return when * by 8 months. Now if I sell to a client price would be $35k and roughly based on honest figures  8 % . 

Again I rather over deliver then over  promise…..and under deliver ….

Alex

20% net yields for a passive turn key investor off shore really are just not realistic.