How do I know where to invest?

Question

Hi I come from the NY tri state area and I am not sure where to invest. What tools, or pros/ cons can help me decide if I should invest locally or out of state?

Joshua Filkill · Answer

@Agatha Michalak I recommend trying to invest locally when you start and then you can expand to long distance when you're ready. When investing long distance you need to put together a great team that you trust.

Attend local meetups, network on BP and build a team in your area.

Alfath Ahmed · Answer

Hi Agatha, The NYC market is tough to invest in for investors in their early years. It is definitely an appreciation play over cash-flow but if you can get into the bustling market of NYC and raise private capital then that would change the game of real estate for you.

I primarily invest in the Columbus market. I have found a lot of luck through appreciation and cash-flow. I would say that the Columbus market is great for real estate investors to get started. There are areas that I recommend in the Columbus market!

I personally invest in like Old North, Old Town East/King Lincoln Bronze Ville, Merion Village, Driving Park, North Linden, Hungarian Village, Bexley, and North Hilltop. These are all great areas that you can buy investment properties in and let your net worth skyrocket.

These are all areas within the Columbus market that is next to an economic base. They are surrounded by economic development which is causing a good increase in population and rent growth.

Ben Firstenberg · Answer

I think it's all about what you're looking for and where you can find good people.

Decide what mix of cash flow and appreciation potential you're looking for. That will narrow it down significantly.

Let's say you're looking for appreciation potential. Great markets for that are (just for example) Denver, Salt Lake City and Atlanta.

Now you start looking for good agents, managers, lenders and contractors in those markets. Eventually you'll find someone you feel good about working with and maybe they help you build out the rest of the team.

Your true advantage will come with finding the right people to work with, not in selecting the market correctly.

Vicki X. · Answer

Agreed with @Joshua Filkill about investing locally/near you.

Here are the major factors to consider in evaluating the market. Hope it helps!

• Your budget: are you looking to buy under $200K, $200-300K, $300-500K or higher? It can help you create a short list
• Population and business growth, including the type of businesses, are the most important factors in the health of the market. There are many analysis, charts out there. Specifically. places where the millennials are attracted to are interesting as they are becoming the biggest renter and homebuyer group
(Note: Be careful with 'historical' data. The top growing markets in the last 2 years are unlikely the most sound choices. Good examples are Austin and Phoenix. Try to add the futuristic lenses into your analysis whenever you can. In the ideal case, there be a "new California" emerging somewhere in the next 10 years. But to be frank, CA's trajectory is impossible to replicate as working remote has become more prevalent, companies more “decentralized”, and more people think about not just professions, but also lifestyles these days).
• Are you able to find trustworthy realtors/PMs or even service providers? Do not get into a market before you know whom to work with. Many investors interview many to find the best one.  In my case, I started in the Houston area as my friend had very good recommendations for me. So use your network to get more ideas!
• Cost, with the effective property tax rates being one of the biggest ones. It typically range from 0.5%-2%+
• Rental regulations as some States are more friendly to renters while some more friendly to investors
• Distance to you. If you find a good area 2-5 hours drive from you, it’ll be easier to meet your team and check out the properties in person
• Certain hazards or costs that you want to avoid.  Drought, flooding, snowstorms, tornados, just to name a few

Your budget: are you looking to buy under $200K, $200-300K, $300-500K or higher? It can help you create a short list

Population and business growth, including the type of businesses, are the most important factors in the health of the market. There are many analysis, charts out there. Specifically. places where the millennials are attracted to are interesting as they are becoming the biggest renter and homebuyer group

(Note: Be careful with 'historical' data. The top growing markets in the last 2 years are unlikely the most sound choices. Good examples are Austin and Phoenix. Try to add the futuristic lenses into your analysis whenever you can. In the ideal case, there be a "new California" emerging somewhere in the next 10 years. But to be frank, CA's trajectory is impossible to replicate as working remote has become more prevalent, companies more “decentralized”, and more people think about not just professions, but also lifestyles these days).

Are you able to find trustworthy realtors/PMs or even service providers? Do not get into a market before you know whom to work with. Many investors interview many to find the best one.  In my case, I started in the Houston area as my friend had very good recommendations for me. So use your network to get more ideas!

Cost, with the effective property tax rates being one of the biggest ones. It typically range from 0.5%-2%+

Rental regulations as some States are more friendly to renters while some more friendly to investors

Distance to you. If you find a good area 2-5 hours drive from you, it’ll be easier to meet your team and check out the properties in person

Certain hazards or costs that you want to avoid.  Drought, flooding, snowstorms, tornados, just to name a few

•

Henry Clark · Answer

The key is to pick an area where you will scale.  You want to be able to build a team.  I would recommend staying local within an hour drive.  That should cover a large market where you’re at.

This allows you to be more active in the search for properties and be knowledgeable of the neighborhoods.

Another approach is to find a Property Management company you like and work with them to find properties.

Decide on your metrics and deal type.

Joseph Waitkevich · Answer

There isn't one answer as I believe it depends entirely on the individual. Some areas have better cash flow, some areas have more potential for long-term appreciation. Obviously with local you can self-manage if thats something you are interested in. With local investments you also have a better idea of the area whereas out-of-state you need to do some thorough research of the market.

I think in general just narrowing down your individual preferences is a good place to start. There are a lot of really good articles and podcasts on this website alone to help you with that. Just knowing all the pros and cons of investing locally vs out-of-state is big because once you figure out what kind of investing you want you can start researching the best areas for that.

Eric Fernwood · Answer

Hello @Agatha Michalak,

“Live where you like but invest where you can make money.”

Your financial goal determines what and where you want to buy. For most people, the goal is financial independence. To achieve and maintain financial independence, you need a passive income that keeps pace with inflation and lasts a long time.

To accomplish this, it's necessary to choose the appropriate location and property.

• The location determines all long-term income characteristics, including whether rents will keep up with inflation and how long the income will continue.
• Each property defines a specific tenant segment, and the segment determines income reliability.

In this post, I will discuss location and property selection.

Location Selection

Your financial future is tied to the economic future of the metropolitan area where your investment is located. Fortunately, there are straightforward metrics to help with location selection. Below are three.

• Metro area population size greater than 1M. Small towns may rely too much on a single business or market segment. Wikipedia
• Both state and metro populations are increasing. Do not buy anywhere if the state or metro populations are static or decreasing. Wikipedia
• Low crime - High crime and long-term appreciation and rent growth are mutually exclusive. Do not invest in any city on Neighborhood Scouts’ list of the 100 most dangerous US cities.

If you would like a complete list of location selection requirements, let me know.

Property Selection

The reliability of your income depends upon having a reliable tenant continuously occupy your property. A reliable tenant is someone who stays many years, pays all the rent on schedule, and takes care of the property. Search tenants are the exception, not the norm.

Select a tenant segment with a high concentration of reliable tenants to increase the likelihood of always having a reliable tenant in your property. You can find this segment by interviewing multiple property managers.

Once you determine the segment you want to target, identify their housing requirements. Understanding the specific housing needs of each segment is critical, as tenants will only rent properties that meet all of their requirements.

Below is an example of a segment's housing requirements.

• Property type: Single Family
• Location: North of the river and east of 14th St within 10 miles of the city center.
• Rent range: $1,600 to $2,000
• Configuration: 3 or 4 bedrooms, 2+ car garage, one or two-story, 1,200 to 2,000 SF, 3,000+ SF Lot

You need a property description that you can hand to any realtor so they can find conforming properties. To accomplish this, you must translate the rental range into a property price range. Search for rental properties that meet your target segment's requirements on any real estate website. Once you locate conforming properties, search for similar properties that are for sale or have recently sold. This will provide you with a price range for conforming properties.

Summary

Your financial future is tied to the economic future of the metropolitan area where your investment property is located. The reliability of your income depends upon having a reliable tenant occupy your property. To choose properties that provide inflation compensation and a long-lasting income stream, follow the approach outlined above.

Anthony L Amos Jr · Answer

This will depend on your real estate goals and your current financial standing. It's no secret that the midwest has a lower cost of living compared to the NY area. If your looking for affordable real estate with cashflow and potential appreciation check out Ohio. Billions of investment dollars are being poured into the state making it a growing and desirable place to live.

Jimmy Lieu · Answer

Hey Agatha, I would say it depends on what your financial goals are - do you have enough capital to invest in the NY tri state area? If not, then you may have to look at other markets elsewhere. Personally, I really like Columbus Ohio and work with a lot of out of state investors - there's so many catalysts for why you should invest here. Specifically, there's job growth (Intel, Honda, Amazon, Nationwide, etc) and the population is growing (unlike Cleveland or Cincy). I really see Columbus Ohio as an extremely safe bet for the next 10-20 years. Plus, there's still so many positive cash flowing and 1% deals here in Columbus Ohio. Just a few weeks ago, I helped a client close on a deal getting them 20% cash on cash return. My biggest advice for out of state investors is finding the right team members who has your best interest at heart (and not chasing a commission check or see you as a paycheck!). If that means interviewing multiple people, you should definitely do so! As a local investor and agent here in Columbus, let me know if you have any questions or want to connect!

Marc Rice · Answer

If you are willing to house hack in your local area, I think that will always net the highest financial results. If you cannot do that locally, then investing out of state in a good cash flow/appreciation hybrid market is a great option too.

How do I know where to invest?

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