Looking for a less volatile market for my first investment property

[Saeed J.]

Hi all,

I'm planning to buy my first long term rental, a single family resident in the next 3-6 months. I'm in the Bay Area houses here are very expensive for me to start with. I have relatives in Houston, TX and did toured a few houses there last year. I feel like that's a good option with okish cash-flow. But when I checked some houses in Cincinnati, the deals are lot better with higher cash-flow. I'm confused now as to which market to focus on. Any help is appreciated!

[John Clarken]

Most markets have potential but it all depends on your strategy. Having relatives in the Houston area who potentially could help with small would be a positive asset. Also having the local market knowledge of areas that are up and coming, where to stay away from, and any other improvements is helpful. If you visit annually or even every couple years it gives you a reason to check in on the properties. Investing in a city or state you haven't visited and and do not have extensive knowledge on can add unforeseen variables that make a deal not pencil or too much of a headache. 

Which ever market you choose will depend on your strategy and how involved you are going to be. Having someone you know in the area that you can trust is a good head start.

[Sam McCormack]

Quote from @Saeed J.:

Hi all,

I'm planning to buy my first long term rental, a single family resident in the next 3-6 months. I'm in the Bay Area houses here are very expensive for me to start with. I have relatives in Houston, TX and did toured a few houses there last year. I feel like that's a good option with okish cash-flow. But when I checked some houses in Cincinnati, the deals are lot better with higher cash-flow. I'm confused now as to which market to focus on. Any help is appreciated!

Hey Saeed, I jsut shot you a message

[Saeed J.]

Quote from @John Clarken:

Most markets have potential but it all depends on your strategy. Having relatives in the Houston area who potentially could help with small would be a positive asset. Also having the local market knowledge of areas that are up and coming, where to stay away from, and any other improvements is helpful. If you visit annually or even every couple years it gives you a reason to check in on the properties. Investing in a city or state you haven't visited and and do not have extensive knowledge on can add unforeseen variables that make a deal not pencil or too much of a headache. 

Which ever market you choose will depend on your strategy and how involved you are going to be. Having someone you know in the area that you can trust is a good head start.

 Thank you this is helpful. Yeah, having family in Houston is it's biggest advantage. I will still try to get more idea of different markets.

Do you know what is the best way to get "local market knowledge"? I understand this happens when you walk around a neighborhood but I've seen many people invest out-of-state and still do fine. I just want to get more comfortable taking that risk!

[Becca F.]

Hi Saeed. Without knowing anything about your financial situation or what price ranges you're looking at, if you don't already own a primary residence in the Bay Area, I would house hack. If you're paying high rent here (e.g $2500 to $4000+ a month), I think it makes no sense to buy out of state and continue to pay high rent (unless you live with family or have some other type of very low rent situation). If you can buy within a 2 hour drive (maybe Sacramento area, which is what I'm considering), you have a lot more control as far as checking on the property than buying OOS. 

Since you have relatives in Houston, they could help keep an eye on the property and assuming you would visit there, that might be a possibility. With the properties in Cincinnati, did you visit in person? 

I invest in the Bay Area and Indianapolis. With 7% interest rates, it's difficult to cash flow in anywhere unless you go the STR or MTR route. Wealth in real estate is built on appreciation. I have long term rentals in Indianapolis and my cash flow is declining with increasing property taxes, 17% with the last assessment, but I'm keeping my Class A (nice suburb with great schools) because of appreciation (owned 11 years now). I bought Class C in Indy in 2023 and now my cash flow is non-existent from repairs called in by tenant (7 times in 9 months), capital expenses (stolen AC unit before tenant moved in). I lived in the Indy area so and now I know there areas down to more of a detailed level.

My suggestions: 

- don't buy in unknown markets despite whatever numbers someone is showing you or that it will cash flow X amount of dollars. 

- Do your own research (including finding out about property taxes and insurance) and talk to lots of people including property management companies - they know what rents are in different neighborhoods, tenant base, etc. Talk to contractors to get a sense of what renovations and repairs cost 

- Fly or drive to the area and get to know it really well. Network with local investors (someone unbiased, not an agent or anyone trying to sell you anything)

- pick a solid appreciating area (Class A or B) with good (or at least decent) schools. if you drive around the neighborhood, would you want to live there or would you feel safe walking around at night?  I wouldn't do Class C if I had to do things differently. 

- have lots of cash reserves. A house can pass inspection but once someone is living there it's being put under daily stress (faucets turned on/off, heat/AC on an off, etc) so be prepared for repair costs 

[Jonathan Greene]

Your plan is too basic right now, but it's a start. You are kind of throwing darts and hoping something lands from far away. As others have said, Houston is a better option over Cincinnati just because you have relatives there, but Houston is huge. It's better to have boots on the ground who can go with an agent and to inspections than trying to do it all virtually with people you don't know.

[Kerlous Tadres]

Quote from @Saeed J.:

Hi all,

I'm planning to buy my first long term rental, a single family resident in the next 3-6 months. I'm in the Bay Area houses here are very expensive for me to start with. I have relatives in Houston, TX and did toured a few houses there last year. I feel like that's a good option with okish cash-flow. But when I checked some houses in Cincinnati, the deals are lot better with higher cash-flow. I'm confused now as to which market to focus on. Any help is appreciated!

 Hey Saeed, 

I would develop your CORE 4 in whatever city you choose from. Look into finding the right Realtor, Contractor, Property manager, and attorney. In terms of investing, I invest here in Columbus, Ohio and I love it because I can get decent cashflow, while the appreciation here is great. Businesses like Intel, Microsoft, and Google are planning on coming here and this will be great for any rentals that you buy here. Let me know if there is anyway I can help

[Drew Sygit]

@Saeed J. appears you are not only comparing two different markets, but probably also two different asset classes.

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

[Saeed J.]

Quote from @Becca F.:

Hi Saeed. Without knowing anything about your financial situation or what price ranges you're looking at, if you don't already own a primary residence in the Bay Area, I would house hack. If you're paying high rent here (e.g $2500 to $4000+ a month), I think it makes no sense to buy out of state and continue to pay high rent (unless you live with family or have some other type of very low rent situation). If you can buy within a 2 hour drive (maybe Sacramento area, which is what I'm considering), you have a lot more control as far as checking on the property than buying OOS. 

Since you have relatives in Houston, they could help keep an eye on the property and assuming you would visit there, that might be a possibility. With the properties in Cincinnati, did you visit in person? 

I invest in the Bay Area and Indianapolis. With 7% interest rates, it's difficult to cash flow in anywhere unless you go the STR or MTR route. Wealth in real estate is built on appreciation. I have long term rentals in Indianapolis and my cash flow is declining with increasing property taxes, 17% with the last assessment, but I'm keeping my Class A (nice suburb with great schools) because of appreciation (owned 11 years now). I bought Class C in Indy in 2023 and now my cash flow is non-existent from repairs called in by tenant (7 times in 9 months), capital expenses (stolen AC unit before tenant moved in). I lived in the Indy area so and now I know there areas down to more of a detailed level.

My suggestions: 

- don't buy in unknown markets despite whatever numbers someone is showing you or that it will cash flow X amount of dollars. 

- Do your own research (including finding out about property taxes and insurance) and talk to lots of people including property management companies - they know what rents are in different neighborhoods, tenant base, etc. Talk to contractors to get a sense of what renovations and repairs cost 

- Fly or drive to the area and get to know it really well. Network with local investors (someone unbiased, not an agent or anyone trying to sell you anything)

- pick a solid appreciating area (Class A or B) with good (or at least decent) schools. if you drive around the neighborhood, would you want to live there or would you feel safe walking around at night?  I wouldn't do Class C if I had to do things differently. 

- have lots of cash reserves. A house can pass inspection but once someone is living there it's being put under daily stress (faucets turned on/off, heat/AC on an off, etc) so be prepared for repair costs 

 This insight is really helpful, thank you!

I was looking into Stockton too. But over there, for a few houses I checked, are 300k-350kish and rent is 2000-2100. Higher purchase price is not a problem, but lower price-to-rent ratio is a very big con keeping me away to buying a house in that demographic.

[Aristotle Kumpis]

Certainly agree with what the others have said. A linear market is always the best if you don't want to invest in places that have larger boom/bust cycles. A linear market like Cincinnati, Cleveland, Indianapolis or Birmingham are just a few examples of a linear market. And they don't go way up in value, and really do not go down either.

[John Clarken]

Quote from @Saeed J.:

Quote from @John Clarken:

Most markets have potential but it all depends on your strategy. Having relatives in the Houston area who potentially could help with small would be a positive asset. Also having the local market knowledge of areas that are up and coming, where to stay away from, and any other improvements is helpful. If you visit annually or even every couple years it gives you a reason to check in on the properties. Investing in a city or state you haven't visited and and do not have extensive knowledge on can add unforeseen variables that make a deal not pencil or too much of a headache. 

Which ever market you choose will depend on your strategy and how involved you are going to be. Having someone you know in the area that you can trust is a good head start.

 Thank you this is helpful. Yeah, having family in Houston is it's biggest advantage. I will still try to get more idea of different markets.

Do you know what is the best way to get "local market knowledge"? I understand this happens when you walk around a neighborhood but I've seen many people invest out-of-state and still do fine. I just want to get more comfortable taking that risk!

I'd start with everything you can find on the internet. Again, this depends on strategy. For example, I try to rent to families and try for longer durations with renters that will take care of the place and also might put down roots with kids in school etc.

Check crime stats, schools, population trends, big job suppliers, colleges, hospitals. This could give options to rent to students nurses etc. After initial research start calling real estate professionals and see where they invest. Again, align to your goals. Also call PM companies. Once this has all been done I would set up a trip to visit the area. This will allow you to see the properties which can vary wildly from the photos.

Last tip - dont force a buy. If you dont find something on the first trip wait. Its better with long distance to get the right property as the wrong one could be a huge time/money suck.

[Tanner Lewis]

Houston (and all of Texas) is difficult if your strategy is to prioritize cash flow due to the high taxes. I am a big fan of the Cincy market, and I have seen a bit of movement there recently form investors. 

[Jeremy H.]

@Saeed J.. My opinion is that TX is volatile.  

If you are concerned with cash flow, please check the insurance rate on an address, it can be very high, and then check the property tax before submitting an offer.

[Becca F.]

Quote from @Saeed J.:

 This insight is really helpful, thank you!

I was looking into Stockton too. But over there, for a few houses I checked, are 300k-350kish and rent is 2000-2100. Higher purchase price is not a problem, but lower price-to-rent ratio is a very big con keeping me away to buying a house in that demographic.

I would be cautious about Stockton. I don't know much about Stockton but I think that price range probably isn't the best neighborhoods. There are some high crime areas. I just did a brief search and the better neighborhoods have homes selling in $600,000 range (I indirectly know someone who bought there in 2019 in the $400,000 range so property values are going up, comps now in $600,000s). My agent here recommended Turlock - as people are priced out of the Bay Area they keep moving farther out. 

Anytime you can get a SFH for $300,000 range in CA it will either need lots of renovation, is not in good area or both factors. Your rent to price ratio for long term rentals will be negative (depends on how negative you can go) in many locations because of 7% rates.

Would also consider a property where you can force appreciation, like add a bedroom or bathroom or an ADU (more of a West Coast thing with ADUs).

Another possibility is Reno or Vegas. Nevada is more landlord friendly than CA.  Could drive to Reno in 4 hours. Property tax rates are low. If I exit out of Indiana, that's where I would consider but would need to do lots of research. 

[Samuel Diouf]

Hey Saeed, Columbus, Ohio is a great market to consider if you're leaning towards appreciation. Multiple, billion dollar companies are investing heavy in our area, such as Intel, Google, and Amazon. Which will bring plenty of other investors and general business to the area. I moved here from Florida after seeing the projected growth.

[V.G Jason]

If all you want is cash flow back, go buy a note or govt debt. You're better off.

If you want to actually own an asset, start focusing on the quality of it and not think about how to stretch yourself to get into the barrier of entry. If the latter is your issue, you're not equipped and you're going to tap out in whatever market you invest in at the first sign of adversity cause you're weak. Come in from a position of strength, form a thesis on why you're doing this and invest. 

Otherwise, do the more passive route.

[Wale Lawal]

@Saeed J.

Picking a good market for a long-term rental investment means looking at job and people growth, low-cost homes, and tax perks. Houston, TX offers job growth, affordable housing, and tax benefits, while Cincinnati, OH has high cash flow, affordability, and tenant demand but faces slower population growth and cold winters. Think about what matters to you, the place's ups and downs. To choose well, see both places, visit both markets, speak with local real estate agents and property managers, and run detailed financial projections for specific properties.

Good luck!

[Bradley Buxton]

@Saeed J.

There are many good markets as every agent will tell you they have had success there.  A good investment is more than numbers.  The numbers need to work for you and the time, energy, and lifestyle dimensions of your life.  There are many low cost areas of the US that are impractical to invest in because of the distance with the travel and hassle building a team.  As a former CA resident I know the costs there are out of reach for many.  I find the Reno, NV market close to CA with the benefits of out of state. Higher priced means higher margin dollars on the exit. An investment property is a business that will take your time and money along with your energy resources.

[Regina Blake]

Hi, yes Ohio is a great place to invest in real estate. Come check it out for yourself!

[Min Zhang]

Hey Saeed! Welcome to BP community.! Ohio market in general is a very beginner friendly state to get started with your real estate journey. In Cincinnati specifically, homes are generally older for the most part, but the return is very high. City is home to seven Fortune 500 companies, including Procter & Gamble, Kroger, and Fifth Third Bancorp. But as long as you have a rockstar team of realtor, PM, contractor lender, you can confidently invest anywhere! Don't hesitate to ask if you need anything. Best of luck to you!

[Nicholas L.]

@Saeed J.

I'll simplify for you - there is no cash flow anywhere right now if you just buy a random long term rental.  Not in California, not in Houston, not in Cincinnati.  If you want to INVEST somewhere, that's great.  But for the first few years you will be investing - putting money in.  If you run numbers and show 'cash flow' in month 1 or year 1... you're omitting something.

@V.G Jason said it best.  If you want cash flow investing in Treasuries or a savings account.

[Michael P.]

Why do you want to buy one rental? Do you think it will make you rich?

[Joseph Chiofalo]

Hi Saeed, 

Both markets you mentioned are attractive to investors due high rent demands and location. 

As of recent though, more of my investor buyers have targeted Ohio.  The price points to acquire a property are more manageable. 

Best of luck!

[Marcus Auerbach]

@Michael P. Actually a valid point. What's your 10 year plan, how many properties do you want to buy, what systems will you have in place - other than your family?

Pick a market you know, or at least you can learn. One you have easy access and can visit often. 100% remote is a unicorn, REI is not passive, no matter what someone on the internet will tell you.

[Autumn Cain]

Hi Saeed! 

As many others have recommended, I would definitely do some deep research into an area to understand what housing rates and property taxes look like in the areas you are interested in. I would also say look at numbers of how much property value in the area has increased in the past 5 years or so, so you can get an understanding of appreciation alongside the cashflow of your investment property. Really hunt for a deal- remember if a property is cash flowing changes are the seller wouldn't be selling unless there is a point of distress.

Just throwing it out there- I live in the Stroudsburg PA area- here I have seen rental rates and property value absolutely skyrocket post covid due to the migration of people out of NYC- maybe look for areas like that that are more up and coming.

[Bob Stevens]

Quote from @Saeed J.:

Hi all,

I'm planning to buy my first long term rental, a single family resident in the next 3-6 months. I'm in the Bay Area houses here are very expensive for me to start with. I have relatives in Houston, TX and did toured a few houses there last year. I feel like that's a good option with okish cash-flow. But when I checked some houses in Cincinnati, the deals are lot better with higher cash-flow. I'm confused now as to which market to focus on. Any help is appreciated!

  I know dozens of investors from your area that have purchased many many props in Ohio, cash, with 10% or better net caps, 

All the best