Am in Troy, NY with the b0ys visiting my folks.
Driving around, you can see tons of boarded up old buildings, many of them beautiful old row houses.
This would never happen in LA, because the demand for housing is so high that no one leaves anything vacant for long, absent some major issue with title.
Seeing so many buildings vacant got me to thinking about the differences between playing the apartment game in LA and somewhere like Troy:
1. Troy’s entry prices are low, relative to the rents. With so many vacant buildings around Troy, you can pick one up for basically nothing (in fact, that’s how my dad got his huge studio, an old newspaper distribution plant).
2. Because of the low entry price, yield in Troy is higher. You can actually buy 8-10% caps here.
3. But keeping your Troy units full is a challenge. Job growth is very limited in Troy and there are tons of vacant units. So, while you can get decent rents for nice apartments, you have to be a good operator to keep you units full at all times. In LA, you kind of have to be an idiot to experience material vacancy (hint: your rent is too high!).
4. And opex is awful. Two reasons: a. the weather destroys buildings quickly here if you don’t take care of them; and b. the city feels free to raise your property taxes whenever they feel like it… there’s nothing like Prop 13 to keep their greedy mitts off your money.
5. Exiting in Troy? Good luck. LA’s market is liquid. If you price your asset correctly, it will sell within weeks, because there are always people looking to buy in LA. Not so in Troy. You can put a perfectly good building on the market at a fair price and still wait months for it to sell.
So, why invest in Troy? A good operator with even a tiny amount of capital can build a cashflow monster here. But you better like management, because you won’t be able to sell!