TO `B`OR NOT TO `B`

Pros & Cons of Investing
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Right-to-Profit Locations:
The Numbers Don’t Lie
PROFITABLE?
TO ‘B’ OR NOT TO ‘B’
SECONDARY MARKETS AS INVESTOR’S BEST OPTION
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1
MASTER INVESTOR — Brenton Hayden, Founder & Chief Executive Officer, Renters Warehouse
www.PersonalRealEstateInvestorMag.com
CAPITAL CITY / MIDWEST
“Ohio claims they are due a
president as they haven’t had
one since Taft. Look at the
United States – they have not
had one since Lincoln.”
— Will Rogers
“I went back to Ohio
But my city was gone.”
— “Ohio,” The Pretenders
Buck$ &
Buckeye$
Columbus, Ohio
“Oh me oh my oh, look at Miss
Ohio
She’s a-running around with her
rag-top down
She says I wanna do right but
not right now.”
— “Look At Miss Ohio,” Gillian
Welch
By Scott C. Seckel
A
stopping. Few have the deep pockets to invest exclusively in
“A” American cities like New York or San Francisco unless
their name is Bloomberg or Trump, so investors research
cities like Phoenix, St. Louis and Tulsa, hoping to earn the
most bang for their buck. (See “B Cities,” this issue.) In the
grand scheme of investing nationally, Columbus is a Class
A “B” city.
fter Ohio became a state in 1803, fights broke out
between political leaders over where to put the
Capitol. It went from Zanesville to Chillicothe and
back again. The state legislature decided putting the building and seat of government smack dab in the middle of the
state was the most sensible compromise. Before their decision in 1812, Columbus didn’t exist; it was a forest, popular $BUCKS & BUCKEYE$
with hunters. But the site was in the middle of the state And it’s why B cities are great. Columbus never expeand at the confluence of two rivers in a time when a lot of rienced the precipitous rises and falls of the palm tree and
people got around by boat, so they built Columbus there. bikini cities like Miami, Las Vegas and Phoenix. It’s also not
More cities have been founded in worse places for worse tied to any one industry in particular that has fallen on hard
times. Here’s a list of what they do in Columbus: education,
reasons.
In terms of population, Columbus is an oddity. It’s the insurance, banking, fashion, defense, aviation, food, logis15th largest city in the country (more than 787,000 residents, tics, steel, energy, medical research, health care, hospitality,
according to the 2010 census), but only the 32nd-largest retail and technology. Not exactly representative of a onemetropolitan area (1.8 million, according to the last census). track mind or economy, unless you are talking Ohio State
It’s the rare investor who sticks strictly within a particular Football. Then locals go beyond one-track or religious to
city’s limits. Most go after metropolitan areas since cities zealot! Ohio State (the nation’s seventh largest university),
have been growing since World War II and show no signs of along with having great post-grad academics, is Ohio’s tem44
March - April 2013 . Personal Real Estate Investor
www.PersonalRealEstateInvestorMag.com
ple of college football. Columbus is also the state capitol,
home to not only state government, but city, county and
federal government employees as well.
J.P. Morgan Chase’s second-biggest office outside
New York is in Columbus. Wendy’s headquarters is also
here. It’s hard to say who makes America happier, but both
are strong in Columbus.
Golfer Jack Nicklaus, zookeeper Jack Hanna, ace of
aces Eddie Rickenbacker, humorist James Thurber and
burger slinger Dave Thomas have all called Columbus
home.
This is the time one feels like an amateur comedian
who has just told his one good joke. “What Columbus does
not have, to the despair of its leaders, is an image,” said a
New York Times article about that topic in 2010. “As home
to major research centers, it has long outgrown its 1960s
self-concept as a cow town, and its distinction as the birthplace of the Wendy’s hamburger chain does not quite do
the trick these days.”
The story continued: “ ‘Columbus has not had a
bad image,’ said Paul Astleford, director of Experience
Columbus, which promotes tourism and conventions. ‘It
has just had no image in the national marketplace.’
“And so, just as the Scarecrow searched for a brain and
the Tin Man a heart, Columbus has embarked on a multiyear quest to define the city’s soul,” the Times continued in
a truly inspired vein.
“We are a diverse, youthful, knowledge-based community that is open to new ideas coming in,” Astleford told the
Times. “That has not been the tradition in the Midwest.”
So there’s Columbus as it is and as it would like to be
known.
BROAD “PINK COLLAR” ECONOMY
“Columbus is home to many diverse industries; we have
banks, restaurants and insurance companies, health care,”
said Chris Knoppe, director at Autumwood Funding. His
company funds single-family home sales via hard-money
loans in all states and has been investing in Ohio since the
late 1980s. Autumwood Funding has been flipping homes,
www.PersonalRealEstateInvestorMag.com
buying REOs and doing hard-money lending since 2003.
The principals own and manage 180 properties throughout
central Ohio. “We’re active on the property management
front, we’re active in rehabbing,” Knoppe said. “We know
what it takes to borrow money. We’re probably more valuable in Columbus than anyone else because we have 20
years of local knowledge.”
Columbus wasn’t “isolated from the downturn – that’s
for sure,” Knoppe said. “But because of our economic
strength, we weathered it a lot better than other places in
the state (that are) dependent on manufacturing and the
automotive industry. Our unemployment was always a little
less than the rest of the state.”
Donato D’Alberto, of D’Alberto Real Estate Investments
Inc. and Exit Trinity Realty, started in real estate with his
brother in 1989 in their parents’ basement. Since then
they’ve purchased hundreds of homes, rehabbed and rented them.
“We deal with all aspects of real estate,” D’Alberto said.
“After 25 years of doing this, it’s the best market I’ve ever
seen. It’s a phenomenal time to buy. Inventory is low, and
it’s been low since June of last year. The banks have not
released a new batch yet, but they’re preparing to. ... The
market seems to be up. Probably in the next two to three
months we’ll see a new flood of inventory.”
Local Market Monitor analyzes conditions in 100 U.S.
markets, using such economic data as home values and
growth in employment and population.
Its latest report on Columbus characterized the investment suitability of the city as “low risk.”
“The next year is relatively flat, but it looks like it will
increase after that,” said Local Market Monitor chief operating officer Carolyn Beggs. “Job growth is outpacing the
national average, so that’s pretty good.”
Rents will significantly increase over the next three
years, Beggs said. “It’s a good market to buy and hold. You’ll
see an appreciation on your investment and an increase in
rent. ... Things are looking good.”
Let’s take a closer look at the Arch City.
March - April 2013 . Personal Real Estate Investor
45
CAPITAL CITY / MIDWEST
COLUMBUS
at a glance
•
•
•
•
•
•
•
•
•
•
•
Capital of and largest city
in Ohio, 15th largest city in
the United States
Area: 212.6 square miles
Population: 797,434 (1.725 million in the greater metropolitan area)
Elevation: 902 feet
Cultural diversity: 65.8% white, 25.2% African-American,
4.3% Asian, 4.7% Hispanic. (Has the second-largest Somali
population in the United States.)
Geographic advantage: Lies within a one-day drive or onehour flight of 60 percent of the population of the United
States and Canada.
Total employment (eight-county metropolitan area): 904,000
Nowhere but Columbus: The American Whistle Corp. is the
only maker of metal whistles in the United States.
Weather: Moderate climate, with temperatures ranging from
an average low of 20 (January) to an average high of 85
(July). Average rainfall is 37 inches per year; average snowfall is 28 inches.
Firsts (if not in Columbus, then close – so fame by association!): pop-top can (Kettering), cash register (1879, Dayton),
electronically lit city (1879, Cleveland), U.S-built automobile
(1891, John Lambert of Ohio City), automobile self-starter
(1911, Charles Kettering of Loundonville).
Attractions of Note: Motorcycle Hall of Fame Museum,
Thurber House (former home of American humorist James
Thurber), Topiary Garden (Georges Seurat’s famous painting
“A Sunday Afternoon on the Island of La Grande Jatte,” created in topiary in downtown’s Old Deaf School Park, includes
54 topiary people, eight boats, three dogs, a monkey, a cat
and a real pond), The Wilds (10,000 acres of reclaimed mine
land is home to a variety exotic animals and offers overnight
stays in cabins and yurts as well as safari tours and rustic
experiences)
SOURCES: U.S. Census Bureau, City of Columbus, Experience
Columbus (formerly Columbus Convention & Visitors Bureau),
www.ByCityLight.com
46
March - April 2013 . Personal Real Estate Investor
STATE OF THE MARKET
“Columbus has really started to come back,” Knoppe
said. “Prices are rising.”
Sales volume is increasing and days-on-market is
shrinking, he said. “Inventory is also shrinking. ... (We
have a seller’s market now.) ... All those factors conclude prices will rebound in 2013. ... It’s kind of a double-edged sword; the bargains we’ve found over the
past few years are harder to find.”
Garland Ferguson sees the market picking up.
Ferguson is principal of Diversified Realty Investments,
a full-service real estate investment corporation that
specializes in buying all types of distressed residential
properties, from single-family homes to medium-sized
apartment buildings. Diversified rehabs properties for
owner-occupants, wholesales properties to other contractors and investors and has a full-time property management division that manages rental properties for the
corporation and other investors. “Columbus wasn’t a disaster, but Columbus was No.
2 in foreclosures in Ohio, behind Cleveland,” Ferguson
said. “Prices didn’t totally bottom-out, but there were a
lot of foreclosures.”
MLS numbers are all starting to pick back up, he
said. “Year-to-date, there’s been an overall 13 percent
increase,” Ferguson said. “The average sale price in the
market has been about 7 percent increase year-to-date.
... We have a large influx of out-of-state investors in this
market. California investors have basically been feasting on this market.”
Columbus is solid, said Sam Thompson, owner of
Real Property Management Midwest, with offices in
Cincinnati, Columbus and Dayton.
“It’s definitely coming back,” Thompson said.
Sales manager Matt Pelton said he is seeing fewer
bank-owned properties.
“They’re getting snatched up,” he said. “We’re seeing a lot more investor-owners involved in short sales
before it makes it to the bank.”
WHAT TO BUY
Ferguson likes single-family homes, duplexes and
small apartments (four units).
“The cash flow on those, especially duplexes, is
amazing. You can pick up stuff for $50,000 that’s worth
$100,000, and rent them for $650 (a month).”
Vacant houses can be good buys. Columbus is not
like Detroit or Youngstown or East St. Louis, where
entire blocks are vacant.
“Most of the streets and neighborhoods have some
vacancies in them, but the majority of houses have people living in them,” Ferguson said. “You have to look at
it from an opportunity viewpoint.”
Knoppe likes single-family homes at a certain price
point.
www.PersonalRealEstateInvestorMag.com
“We like to be near the median price point,” he said. “Most
people are buying houses in that price point. We’re looking at the
$139,000 median price; it’s nice to be within 30 percent of that.”
Pelton believes single-family homes with three bedrooms is the
way to go.
“Singles with three bedrooms and up,” he said. “You want to
stay away from two-bedrooms, one-bedrooms, unless you’re in a
hot area like urban Short North, an isolated hot area where you can
do pretty well with high pricing.”
Short North is a trendy area adjacent to the Ohio State campus.
“What’s been hot out in the urban areas outside of downtown
are starter homes that rent for $1,000 a month,” he said. “That’s
the new trend for investors – they’re going after the $80,000 to
$100,000 (price point).”
Shoot high of the middle, Thompson said. “We’re seeing around
a $1,000 renting a whole lot quicker,” he said. “It’s an easier tenant
to find, it’s a more solid tenant to place.”
Pelton agreed. “They stay four times as long, and take so much
better care of the place,” he said. “You can still rent a place close
to downtown for $650 to $700, but the problem is the people only
stay nine months, and they tear the place up. You’re much better
renting that three-bedroom for $800 a month. Your turnover cost is
so much lower, and your income is greater. “
Thompson said he’s seeing many people choosing to rent rather than buy.
“We‘re seeing so much better tenants,” he said. “We’re seeing
a lot more qualified tenants, people who used to own homes who
are renting now.”
Urban Columbus is undergoing a lot of revitalization, and rents
are rising as well as prices. One- to three-bedroom condos in Short
North rent in the $2,500 range and landlords are getting it.
“People in Short North who are roommates will split a threebedroom for $2,500,” Pelton said. “It’s near campus, it’s trendy, it’s
near OSU. That’s driving the rents up – just out of college and just
starting a job.”
The median sales price for homes in Columbus is $81,000
(based on 1,523 sales from October 2012 to December 2012
and a decrease of 12 percent from the same period a year
earlier). The average price per square foot is $77 (down
nearly 90 percent compared to the same period a year previously). Some of the most popular neighborhoods and average listing prices include German Village ($311,585), Olde
Town East ($79,838), Forest Park East ($88,500), North
Linden ($58,168) and Blendon Woods ($156,071).
SOURCE: Trulia
www.PersonalRealEstateInvestorMag.com
WHERE TO INVEST
“Anything around the (70/270/670) belt or inside it is a good
price to start,” Knoppe said.
Here are his picks: Grove City, Blacklick, Pataskala, Gahanna,
Westerville, Reynoldsburg, Hillaird, Marysvale and Delaware.
“Those are all good suburbs where the prices are going to be
$100,000 to $180,000,” Knoppe said. “Those are the suburbs that
saw a lot of building during the 2000s and a lot of foreclosures.”
First- and second-home buyers like these neighborhoods, he
said. “They’re great for buying, fixing and selling. They’re also good
holding areas.”
Closer to the city, properties will cash flow better – on paper.
“Those areas are less stable, with higher crime, and you’re going to
need a stable local property manager,” he said.
Thompson had an almost identical list of good suburbs to invest
in. “As far as suburbs go, Westerville, Grove City, Worthington,
Dublin and Hilliard,” he said. “Dublin is 25 minutes north of downtown; we get a lot of properties there. We can’t keep them. They
rent in 48 hours. “
March - April 2013 . Personal Real Estate Investor
47
CAPITAL CITY / MIDWEST
Ferguson’s personal favorite is an
area west of downtown called Hilltop.
“It’s a good cash flow area for investors,” he said. “A lot of people have
made a lot of money buying properties
on the Hilltop. Properties are inexpensive, and they cash flow great.”
D’Alberto also has a soft spot for
western Columbus.
“To me, I love the west side of
town,” he said. “I’ve had so much success on the west side. You can pick up
property dirt cheap and rent it out.”
Become acquainted with school
districts. There are about 30 of them,
some small, some huge.
“Team up with someone local who
can navigate from one area to another,”
Knoppe said. “There are a lot of them,
and that’s what makes it tricky. Even
within the Columbus School District,
which is huge, there are going to be
some pockets with better schools.”
D’Alberto said he worries more
about school districts when he’s handling upper-middle-priced homes.
“School districts are a concern
WHAT INVESTORS NEED TO KNOW when you’re dealing with upper-ech There are lots of pockets of good elon homes, but people in that lower
and bad areas.
price point will take what they can get,”
“You need to know your area,” he said.
D’Alberto said. “Columbus has a lot of Holding is the correct strategy in
Swiss cheese in it.”
the current Columbus market.
Get a good rental analysis before “Right now the market is in holdbuying, Pelton said. “You can go three ing properties,” D’Alberto said. “This
blocks over and the rent is $1,000 is the time to build cash flow. ... Right
more,” he said. “You want someone now you’ve got builders who are buildlocal (to advise you) for sure.”
ing apartments for cash flow. There
Rea l Pr o p e r t y M a n a g e m e nt are tons of renters on the market.
Midwest is happy to help out investors Columbus is better than Cincinnati or
looking for property. “We get a lot of Cleveland right now. We’re the best
inquires from investors,” Thompson city in Ohio (for investors).”
said.
Ferguson agreed that now is the
Keep an eye on property taxes. time to build a portfolio in Columbus.
They may be too high, said D’Alberto. “I believe the market will come
“Taxes aren’t rising anymore, but back, so now is a great time to get your
they’re not dropping either,” he said. properties,” he said. “There’s a lot of
Investors can appeal to the Franklin stuff here that needs work done to it.
County Auditor.
It’s not so bad that it has to be totally
“You’ve got to be aggressive,” rebuilt, but if you buy something like
D’Alberto said.
that, you can buy a house that needs
RESOURCES
Sam Thompson, Owner
Matt Pelton, Sales Manager
Real Property Management Midwest
614-678-5550
[email protected]
[email protected]
www.rpmmidwest.com
Chris Knoppe
Autumwood Funding/Ohio Rehab
Homes
614-433-0570 ext.101
[email protected]
www.fundingbyaw.com
Garland Ferguson
Diversified Realty Investments
614-259-5711
[email protected]
www.WholesaleHomesColumbus.com
www.SellHomeColumbus.com
www.DiversifiedRealtyInvestments.com
Donato D’Alberto
D’Alberto Real Estate Investments
Inc.
Exit Trinity Realty
614-269-4663
[email protected]
www.columbusohioproperties.com
www.dalberto.com
Carolyn Beggs
Local Market Monitor Inc.
919-896-6313
[email protected]
www.LocalMarketMonitor.com
a total rehab for $5,000. ... You’re not
going to have any problems in this market if you do your due diligence and
buy your properties right. The market
is good, and the tenant base is good.
There’s a lot of opportunity out here.
Work with someone who has feet on
the ground. We can help you find the
best properties available out here.”
48
March - April 2013 . Personal Real Estate Investor
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