Choosing a Rental Market- Analysis Paralysis!

[Alex Johnson]

Hello everyone, 

I am looking to purchase my first investment property this year and am having some trouble deciding on a market. I know to look for areas that are landlord friendly, have population/job growth, limited seasonal/environmental issues, high rent/price ratio, and areas within my budget (under $200Kish). However, my issues run into seeing a few markets that look good and then I can't seem to finalize my decision on which is better or where to really focus my time searching. So far I've been interested in Cleveland, Columbus, Birmingham, and Memphis. 

Am I missing anything in my criteria? Does anyone have a system they use to filter through the endless available markets and narrow down your options to something a bit more manageable? Any words of wisdom are welcomed too!

[Henry Clark]

Your best market, best returns, best risk/reward as a first time investor is where you live and your own housing.  You have far more options than a larger investor.  

[Jordan Ray]

Quote from @Alex Johnson:

Hello everyone, 

I am looking to purchase my first investment property this year and am having some trouble deciding on a market. I know to look for areas that are landlord friendly, have population/job growth, limited seasonal/environmental issues, high rent/price ratio, and areas within my budget (under $200Kish). However, my issues run into seeing a few markets that look good and then I can't seem to finalize my decision on which is better or where to really focus my time searching. So far I've been interested in Cleveland, Columbus, Birmingham, and Memphis. 

Am I missing anything in my criteria? Does anyone have a system they use to filter through the endless available markets and narrow down your options to something a bit more manageable? Any words of wisdom are welcomed too!

Let me know if I can help in Memphis!

[Jonathan Greene]

Right now, it's clear you aren't looking at properties in real life, so it's not surprising you are stuck in analysis paralysis. Looking online and running numbers when you aren't looking at anything in real life will never give you the confidence to pull the trigger. It's like a video game you are playing with real money.

Do you have friends from local meetups who invest in any of those areas? Do you have boots on the ground in any of those areas? How did you make that list? Where is your competitive advantage in those areas?

[Henry Clark]

OP you’re a realtor.  Look through the listings in Portland and where you might live.

1.  What is your personal situation?  Single, roommates, spouse kids, etc.

2.  Do you need to live in a specific area or can you choose?

3.  Look for both cash flow and value add.

4.  Look for the worst house in a great neighborhood with good school system or near major attraction.

5.  Look for a demo home in a new development in a great neighborhood.

6.  What is your rent rate versus mortgage payments? Can you get a roommate.  Could be travelling nurses near med centers.  You’re looking for your unfair advantage versus other investors.

7. Look for a house you can ADU, BRRRR, or sell off a lot.

8.  Look for a nasty lot that you can split 2 or 3 times.  Hire an excavator or bulldozer and leave big trees.  Build a small pond.  Has a great view.  Walk out basement potential. Etc.  

9.  Any town near you look for a flat topped church or old elementary school for sale.  Move into it and slowly rehab.  

10.  Rent near a military base. They have guarantee funds from the government. Any issues you call their commanding officer.

If your looking for the same 3/2 perfect home or 4 unit MFH everyone else is looking for they have you beat as a new investor. Use your unfair advantages.

Tax free capital gains in primary 2 out of 5 years.  Guarantee good renter, you.  Already positive cash flow if your paying rent out.  Part of the sales commission goes to you when you buy.  Possibly all of the sales commission goes to you when you sale.  You know the market.  You can vet your team plumbers, electricians, your the property manager, insurance, banking, etc.   You have the unfair advantage. Use them. 

[Regina Blake]

Hi, Ohio is a great place to invest in real estate. I am an Ohio Realtor and if you have any questions, please feel free to contact me. Thanks!

Regina Blake-Ohio Realtor

[Samuel Diouf]

Columbus, Ohio is a great market if you're leaning towards appreciation. The other markets you are looking at are going to be more cash-flow focused due to the smaller population and infrastructure growth. 

I think out of the cities you chose Columbus is your best option. You will see some of the best returns with the lowest risk involved.  

[Charles Granja]

You should invest locally first if you can. If you househack, you will learn costs and how to rehab a house. That is much more valuable than buying a property out of state

[Jeremy Melloul]

Hey Alex! Columbus is definitely the market to invest in. Let’s chat.

[Becca F.]

I agree with the comments about investing locally or within a reasonable drive, say 2 hours. 

@Henry Clark made some great points and you're a realtor so you can use that to your advantage. The reality is that 2024 is a challenging market with higher prices and interest rates.

I still believe in West Coast appreciation.  I invest in the Bay Area (pre-2013) and Indianapolis metro area. I posted many times about this but I'm going through a lot of challenges with Indy. What was supposed to cash flow on paper isn't my reality - my suggestion is don't buy Class C inexpensive properties OOS (best left to locals). Being 2000 miles puts me at a disadvantage to not be able to check on my Indiana properties. 

If you're considering OOS, I would highly recommend flying there. Video tours, photos, Google map images don't show a lot of things.  Also look at property tax rates, how often properties are re-assessed and if there's a cap on property tax increases. I had 17% property tax increases recently in Indy. I'm going to be the dissenter here but I may exit out of the Midwest in the near future.

This is a great post about cash flow and why numbers on spreadsheets only present a partial picture. 

https://www.biggerpockets.com/forums/12/topics/1171104-the-m...

[Alex Johnson]

Quote from @Jonathan Greene:

Right now, it's clear you aren't looking at properties in real life, so it's not surprising you are stuck in analysis paralysis. Looking online and running numbers when you aren't looking at anything in real life will never give you the confidence to pull the trigger. It's like a video game you are playing with real money.

Do you have friends from local meetups who invest in any of those areas? Do you have boots on the ground in any of those areas? How did you make that list? Where is your competitive advantage in those areas?

I have realtors and property managers in some of the areas. The list came from mentors and my own research primarily. I’ve been going to more meet ups recently but haven’t been able to connect with anyone in person that invests in the markets I’m interested in. 

[Alex Johnson]

Quote from @Henry Clark:

OP you’re a realtor.  Look through the listings in Portland and where you might live.

1.  What is your personal situation?  Single, roommates, spouse kids, etc.

2.  Do you need to live in a specific area or can you choose?

3.  Look for both cash flow and value add.

4.  Look for the worst house in a great neighborhood with good school system or near major attraction.

5.  Look for a demo home in a new development in a great neighborhood.

6.  What is your rent rate versus mortgage payments? Can you get a roommate.  Could be travelling nurses near med centers.  You’re looking for your unfair advantage versus other investors.

7. Look for a house you can ADU, BRRRR, or sell off a lot.

8.  Look for a nasty lot that you can split 2 or 3 times.  Hire an excavator or bulldozer and leave big trees.  Build a small pond.  Has a great view.  Walk out basement potential. Etc.  

9.  Any town near you look for a flat topped church or old elementary school for sale.  Move into it and slowly rehab.  

10.  Rent near a military base. They have guarantee funds from the government. Any issues you call their commanding officer.

If your looking for the same 3/2 perfect home or 4 unit MFH everyone else is looking for they have you beat as a new investor. Use your unfair advantages.

Tax free capital gains in primary 2 out of 5 years.  Guarantee good renter, you.  Already positive cash flow if your paying rent out.  Part of the sales commission goes to you when you buy.  Possibly all of the sales commission goes to you when you sale.  You know the market.  You can vet your team plumbers, electricians, your the property manager, insurance, banking, etc.   You have the unfair advantage. Use them. 

Thanks! All solid points but investing in my market isn’t really feasible or at least doesn’t align with my goals. Properties are above my budget in Portland and my housing situation isn’t set up for ADU’s, renting out, etc. 

I’m pretty set on out of state, just looking for tips on narrowing down my options. 

[Alex Johnson]

Quote from @Becca F.:

I agree with the comments about investing locally or within a reasonable drive, say 2 hours. 

@Henry Clark made some great points and you're a realtor so you can use that to your advantage. The reality is that 2024 is a challenging market with higher prices and interest rates.

I still believe in West Coast appreciation.  I invest in the Bay Area (pre-2013) and Indianapolis metro area. I posted many times about this but I'm going through a lot of challenges with Indy. What was supposed to cash flow on paper isn't my reality - my suggestion is don't buy Class C inexpensive properties OOS (best left to locals). Being 2000 miles puts me at a disadvantage to not be able to check on my Indiana properties. 

If you're considering OOS, I would highly recommend flying there. Video tours, photos, Google map images don't show a lot of things.  Also look at property tax rates, how often properties are re-assessed and if there's a cap on property tax increases. I had 17% property tax increases recently in Indy. I'm going to be the dissenter here but I may exit out of the Midwest in the near future.

This is a great post about cash flow and why numbers on spreadsheets only present a partial picture. 

https://www.biggerpockets.com/forums/12/topics/1171104-the-m...

 Thank you Becca! That’s helpful. Yeah the market and interest the best but I’m planning long term so not too much of a concern for me as long as the deal still works. I’ve been looking in B+ neighborhoods for the most part and have gone back and forth about flying down when I decide on where I’m going to invest. 

Local is definitely a plan but just feasible at the moment. I’ll take a look at that post too! 

[Remington Lyman]

Quote from @Alex Johnson:

Hello everyone, 

I am looking to purchase my first investment property this year and am having some trouble deciding on a market. I know to look for areas that are landlord friendly, have population/job growth, limited seasonal/environmental issues, high rent/price ratio, and areas within my budget (under $200Kish). However, my issues run into seeing a few markets that look good and then I can't seem to finalize my decision on which is better or where to really focus my time searching. So far I've been interested in Cleveland, Columbus, Birmingham, and Memphis. 

Am I missing anything in my criteria? Does anyone have a system they use to filter through the endless available markets and narrow down your options to something a bit more manageable? Any words of wisdom are welcomed too!

It does not matter where you start as long as you develop your Core 4. The core 4 is David Greene’s long-distance investing strategy and consists of a realtor, contractor, property manager, and lender. Once you have this team in place, you should be able to invest in any market confidently.

As for picking a specific market - I would go after one with an increasing job and population growth. I invest and work in Columbus, Ohio. I am also looking to invest in Cincinnati and Cleveland.

[Michael Smythe]

@Alex Johnson Not sure I'd invest on the west coast due to all the tenant-friendly laws!

If you are trying to pick a market, the logical process would be to:

1) Analyze their potential - which it seems you've done

2) Interview Core 4 team members and compare what they know, their approaches and how comfortable they make you feel. Just be careful of not falling for hype and be analytical!

3) Pick an area and ask the Core 4 member you spoke with to intro you to the other Core 4 members. Make sure they are all consistent with their knowledge, approach and professionalism.
---If one seems out of sorts with the rest, ask for more intros.
---If you can't assemble a cohesive Core 4, maybe it's time to go back to Step #2.

Also recommend you check out the Detroit market! There's a TON of online feedback about the city as we just hosted the NFL Draft and shattered the Nashville attendance record:)

We can also show you where there's a committed $3.5B in investment in Detroit.

[Maz Pardhan]

Congratulations on looking beyond where you live. I've found the best deals are rarely where you are especially on the west coast. Since the numbers may be very similar in these markets its important to have a few conversations with people on the ground that you can rely on. That could be  realtors,   PM co's or turnkey providers who can bring you all of that. If you can get comfortable with the team and can rely on them, this could save you headaches and costs over the long term. I've had success in Detroit, you should add it to the list. 

[Joseph Bui]

Hi Alex, I'm also based in the pacific northwest (Seattle) and own 9 doors in the midwest (Memphis and Detroit). I've had success in both and would be happy to connect and share my thoughts. I'm also looking into Cleveland as well.

[Alex Johnson]

Quote from @Michael Smythe:

@Alex Johnson Not sure I'd invest on the west coast due to all the tenant-friendly laws!

If you are trying to pick a market, the logical process would be to:

1) Analyze their potential - which it seems you've done

2) Interview Core 4 team members and compare what they know, their approaches and how comfortable they make you feel. Just be careful of not falling for hype and be analytical!

3) Pick an area and ask the Core 4 member you spoke with to intro you to the other Core 4 members. Make sure they are all consistent with their knowledge, approach and professionalism.
---If one seems out of sorts with the rest, ask for more intros.
---If you can't assemble a cohesive Core 4, maybe it's time to go back to Step #2.

Also recommend you check out the Detroit market! There's a TON of online feedback about the city as we just hosted the NFL Draft and shattered the Nashville attendance record:)

We can also show you where there's a committed $3.5B in investment in Detroit.

 Thank you! It seems like my next step is to really drill down on getting my core 4 set up for these markets. I was thinking to try to pick my market and then find good connections, but it does make much more sense to build that up first and have people there to give me additional info. 

The west coast is definitely tenant friendly! Another reason why it's not my main focus. I was under the impression Detroit was pretty tenant-friendly as well. Is that not the case? 

[Alex Johnson]

Quote from @Joseph Bui:

Hi Alex, I'm also based in the pacific northwest (Seattle) and own 9 doors in the midwest (Memphis and Detroit). I've had success in both and would be happy to connect and share my thoughts. I'm also looking into Cleveland as well.

 Thank you Joseph! I'd love to connect and pick your brain a bit. I'll send you a message! 

[Alex Johnson]

Quote from @Maz Pardhan:

Congratulations on looking beyond where you live. I've found the best deals are rarely where you are especially on the west coast. Since the numbers may be very similar in these markets its important to have a few conversations with people on the ground that you can rely on. That could be  realtors,   PM co's or turnkey providers who can bring you all of that. If you can get comfortable with the team and can rely on them, this could save you headaches and costs over the long term. I've had success in Detroit, you should add it to the list. 

 Thanks Maz, seems like recurring mentions of getting my team on the ground set up, so that's next on the list!

[Drew Sygit]

@Alex Johnson Detroit-Michigan falls in the middle of the pack regarding "tenant-friendly".

As you start to build your Core Four, NEVER believe what people tell you unless they can explain it logically or provide 3rd party proof.

Here's 3rd party proof that Michigan is in the middle of the pack:)

https://realwealth.com/learn/landlord-friendly-states/

https://www.lawdistrict.com/articles/most-renter-friendly-us...

[Taz Zettergren]

@Alex Johnson you're looking at the right things. I work with hundreds of investors who prefer the middle part of the country and south of the mason dixon line. Places like Memphis, Little Rock, TX, Oklahoma or even Alabama. 

Would be happy to discuss the pros and cons of each. Feel free to reach out if I can be of any assistance. Best of luck! 

[Joshua Janus]

Quote from @Alex Johnson:

Hello everyone, 

I am looking to purchase my first investment property this year and am having some trouble deciding on a market. I know to look for areas that are landlord friendly, have population/job growth, limited seasonal/environmental issues, high rent/price ratio, and areas within my budget (under $200Kish). However, my issues run into seeing a few markets that look good and then I can't seem to finalize my decision on which is better or where to really focus my time searching. So far I've been interested in Cleveland, Columbus, Birmingham, and Memphis. 

Am I missing anything in my criteria? Does anyone have a system they use to filter through the endless available markets and narrow down your options to something a bit more manageable? Any words of wisdom are welcomed too!

 Cleveland is priced on the lower end nationally so you can get into cash flowing properties with less cash down and build your base of investing quicker. That's why I like it. 

[Brendan Harrison]

Hey there!

It sounds like you've done your homework on what to look for in an investment market, which is fantastic. Since you're considering markets like Cleveland, Columbus, Birmingham, and Memphis, have you thought about exploring opportunities closer to home in the Oklahoma City/Tulsa area? Both cities have been experiencing growth and are considered favorable for real estate investors.

When narrowing down your options, it might be helpful to create a scoring system based on your criteria. Assign weights to each criterion based on its importance to you, such as job growth being more critical than seasonal issues. Then, score each market based on how well it meets these criteria. This can help you objectively compare different markets and make a more informed decision.

Also, networking with local real estate professionals or joining investor groups in your target markets can provide valuable insights and help you gain a better understanding of each market's nuances.

Would you like more specific insights into the Oklahoma City/Tulsa real estate market?

[Evan Hopple]

@Alex Johnson

Cleveland is a cashflow market with higher rent to price ratios. Columbus has average rent to price ratios but comes with the growth potential that the tech developments bring (intel, amazon, google, etc).

Buy a turnkey deal on your first out of state investment to take some of the riskier variables out of the equation