How did I ever choose Buffalo/Western NY as a place to invest?

After my last post, I had a comment from a realtor in Buffalo who wanted more details on how I decided that Buffalo is a good place to buy property.  So here's the (perhaps convoluted) logic that brought me to Buffalo.

I have purchased several properties in Seattle over the last six years (4 single family residences, and most recently a 7-unit apartment, all within a few miles of my house.  (98117 zip code if people are interested in seeing the area.)  I also have a day job which funds these acquisitions, so I need to keep my time investment per property at a minimum.  The problem with Seattle is that the cap rate is very low.  For Single Family/duplexes, it's around 4%.  For the apartment, I got what I think is a great deal at around 8%, although I had to put about $40k into it once I had purchased it.  So including that, the cap rate is about 7-7.5%.  The <4 unit properties are cash flow negative to start and for the foreseeable future with 30-35% down payment.

So one night I couldn't sleep, so I did a search for "turnkey investment property" in Google.  One of the results that came up was http://www.cashflowwithequity.com/. This is a firm which buys properties in Buffalo, rehabs it, puts a Section 8 renter into the property and sells it to you.  When you do the calculation, these end up being about $200/month cash flow positive on a purchase price of $60k or so.  This is much better than -$400/month on an investment of $350k in Seattle.  I was wary of finding a company like this on the internet and investing sight-unseen.  So I did a search for Commercial Real Estate in Google, and found http://www.loopnet.com.  I did a search for multifamily properties in Buffalo and Rochester and found many properties for similar prices (a duplex for $60k or less, with cap rates of 10-12%).  I then decided that maybe this is real, and property really is cheaper outside Seattle!

I discussed with my realtor in Seattle, David Sligar, who has worked with me to purchase the 11 units in Seattle.  I asked him to join me for a trip out to Western NY for a few days to look at properties.  He couldn't make it, but did find me realtors in Buffalo and Rochester, through a nationwide referral service.  He interviewed the guys and set up first conversations with them.  He will get a referral fee on any properties I buy through them.

Next, serendipity intervened.  I knew I wouldn't buy any properties remotely without at least getting to know the cities and the people I would be working with.  So I had been thinking about taking a trip to Western NY.  It turned out that in September, my company was sponsoring a recruiting trip for our team to Toronto.  I volunteered and the company covered the expense of getting me to Toronto.  After our recruiting was done, I rented a car and drove down to Buffalo and Rochester.  I met with the agents there, Mark Hiscock in Rochester and Corey Rossi in Buffalo. They each had found 4-5 properties for me to walk through, and we also drove by some of the properties that I had found on Loopnet. The Loopnet properties were in somewhat dicey neighborhoods, and Mark and Corey warned me away from these.  I also met with the guys from "cashflowwithequity.com" and they showed me around their duplexes for sale. Corey warned me away from them with a set of reports from ripoffreports.com, where people had complained about shoddy work from these guys.

Anyway, we didn't find anything on that trip that resonated with me.  Corey and Mark both set up automated searches for me which sent me properties which fit my parameters.  Corey also followed up a few weeks later, pointing out a set of four duplexes next to each other which were for sale. Assuming we close, the potential cap rate is 10-12% and the cash-on-cash return in the first year will be 16-18%.  Not too bad...And as an added bonus, they're on a commercial lot so I will have the option to build something else in the future if the opportunity presents itself.

Corey also introduced me to a Property Management company, Superior Management Services, in the Buffalo area.  They walked through the properties with him, and gave me suggestions for areas for improvement (although they're in pretty good shape now).  I am headed out there in December to do my own walk through before we close.

If you're interested in investing in multifamily real estate, I recommend Investing in Apartment Buildings: Create a Reliable Stream of Income and Build Long-Term Wealth, available on Amazon in paperback or Investing in Real Estate which you can get on your Kindle Wireless Reading Device, Wi-Fi, 6" Display - with New E Ink (Pearl) Technology or in paperback..