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Stranger in a Strange Land | By: Multiple Speaker(s)

Stranger in a Strange Land
By Vena Jones-Cox

So, you may be wondering why you didn’t get an inner circle e-letter last week (if you’re one of those people who actually bothers to read it. I don’t know why I even said that, since if you’re not, you didn’t read that, either).

Well, here’s my excuse.

Thursday of last week, I got a long-awaited call from a bulk REO buyer telling me that he had—finally—49 properties in a single package. Only hitch was, the package was in Columbus, not Cincinnati.

For those of you who aren’t familiar with Ohio geography, Columbus is 2 hours north of Cincinnati—through 100 miles of cornfields. Although I do run a real estate association in Columbus (another whole, complicated story), it’s not a market I’m super-familiar with . So I did something I’ve sworn I’d never do: I hiked myself up to a strange city in an attempt to buy a bunch of houses.

For the next 4 days (interrupted by a drive to Grand Rapids through a blizzard to speak at RPOA’s annual convention—great event, by the way), I toured house after house, looked at comp after comp, and tried, in a very compressed period of time, to familiarize myself with a market that I barely knew at all.

I’ve often talked about the difficulties of being an “out of town” buyer, unable to evaluate properties as to their ARVs, projected rents, and so on. I’ve always said that it helps to have people “on the ground” who can give you a reality check about various neighborhoods and local practices—as I did, thanks to 3 local investors who spent their Saturday touring ugly houses with me (and many thanks to Christina, Scott, and Dave for that).

Despite all of my preaching, I was still completely unprepared for some of the major and minor differences in a market just 100 miles from my own. Every one of these things affects rehab costs, or property values, or income, in a significant enough way that someone unfamiliar with the Columbus market might make major errors in buying properties or pricing wholesale deals.

If you still think “virtual wholesaling”, or buying turnkey rentals outside of a market you understand, are good ideas, let me share some of the unexpected details that can make a big difference in whether your deals are profitable or not.

Understanding the area, block by block. There’s a joke in the Cincinnati market that you can cross particular streets and go from near-warzones to move-up areas. However, in Cincinnati, it’s going to tend to be the case that ALL the streets on one side of the “divide” will be of one type, and ALL the streets on the other will be of the other.

In Columbus, I discovered that the neighborhoods can be checkerboards of different types of housing, with one street looking great, the next street over a near-warzone, the next street a decent bread and butter area, then back to warzone. Finding comps within a quarter of a mile fo you no good, unless you understand which street is which.

Understanding relative rental rates. In Cincinnati, there’s hardly any such thing as a 3 bedroom house that won’t rent for $650 a month or more, even in a borderzone. In Columbus, there are lots of areas where 3 bedrooms typically rent for $575 a month. Needless to say, this enormously affects both the relative values of properties in each city (a $65,000 house in Cincinnati becomes a $45,000 house in Columbus) and the amount of work one can afford to do to any particular property.

Understanding local renovation standards. In Cincinnati, gas forced air furnaces and boilers are very much the norm. In Columbus, I saw a significant number of gravity furnaces and electric furnaces. At first, I made plans to replace them with gas forced air—until I found out that they are common enough in Columbus that no one would think to replace a working one. Furthermore—again, probably due to the low rental values and therefore property values in the area—kitchens cabinets are almost always “saved” if they can be painted, where in Cincinnati we’d never bother to rebuild cabinet doors—we’d simply buy new cabinets.

Understanding local practices. Where I live, one can’t get more than about 18 months behind in taxes without a tax lien on ones’ property being auctioned off. In Columbus—a city, I will point out, that’s also in Ohio—it’s apparently common for owners to get 2-3 years behind before a tax lien is issued, meaning that more sellers have more back taxes to pay at the closing.

Other odd things about Columbus vs. Cincinnati: an apparently less-active wholesale market—I saw almost no “cheap house for sale” signs in my travels, and few craigslist ads from wholesalers. A less-active turnkey rental market: I saw few sales of fixed-up rentals, despite the fact that the “metrics” (employment market, growth, etc) are better in Columbus than they are in Cincinnati. These 2 things are almost undoubtedly the result of the fact that, until very recently, Columbus had no viable real estate association to disseminate ideas like how to sell turnkey rentals.

In any case, I say again—if you’re considering making an investment in a market you don’t understand, make sure you have the help you need to realistically evaluate that market, no matter how experienced you THINK you are.

Reprinted with permission of Vena Jones-Cox. To get more free articles and tips, subscribe at www.TheRealEstateGoddess.com

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