How to choose a location from the US?

[Mike Tikh]

Currently stuck in analysis paralysis on trying to find the right location for a first property, with a willingness to move anywhere in the US. 

Goal

My objective would be to go with a MFH, 2-4 units, higher would be better. I'd house hack and live in one of the units the first year, and use an FHA 3.5% loan. For amount, it would likely be in the $500-700k range.

My expectations are to have a negative cash flow while living there, and possibly a slight negative cash flow after moving out (until interest rates lower or rents increase). For example, a $650k 3-4 unit where each can rent out at $1,500, allowing for a negative cash flow of $2-2.5k/month the first year.

Possibilities

Given those goals, it would rule out the more expensive places (California, Seattle area, Austin). However, I have no idea how to choose from the remaining cities, it seems there are a lot of potential options:

- Midwest - Michigan (ie: Grand Rapids) seems to have options, also seeing Columbus Ohio and Indianapolis coming up

- Reno - I've seen mentioned several times on here

- Pittsburgh / Philadelphia / Twin Cities - All mentioned as lower cost to get started, and seem to be experiencing growth

I'd ideally like to find a place that has strong potential for future growth, a diversified economy, and I don't mind living in (being close to nature would be a plus). 

Any thoughts on how to choose - what metrics to evaluate, resources to read to help?

[Austin Wolff]

Quote from @John Fanous:

Quote from @Austin Wolff:

Hi Mike, I'm the Market Intelligence Analyst here at BiggerPockets, and as someone who just moved across the country for my own house-hack, I feel qualified to answer this.  

First, I wrote an article regarding this specific question, take a look if you're curious:

The 10 Best Markets for Your First House Hack

Second, if you'd rather do your own research, we created a simple "Where to Start" dataset that includes data such as population, price, and rent growth. You can find that here: https://www.biggerpockets.com/resources/market-data/where-to...

Third, my biggest mistake was not talking to enough property managers to fully understand the rental market. For example, in Los Angeles (where I'm from), rentals are always in high demand. However, in Fayetteville, AR (where I moved), the "leasing season" is in the summer. Demand for rentals is near non-existent in this specific town during the winter, and demand is extremely hot in the summer months. Because most units are rented in the summer anyway, the "median rent" here is basically just a reflection of the rents you can get in the summer, not in the winter (big oops on my part). This is something that even I didn't pick up in my data analysis, and I'm supposed to be the "market analysis guy." Some things you just learn by picking up the phone and talking to boots-on-the-ground.

Long story short, there are many markets that could work (you've alluded to some in your post, and almost every market already mentioned in this thread is a solid pick). But because you're house-hacking, I'd also account for "quality of life" if I were you. Some things matter more than saving an extra $200/month because you chose to live in a market you didn't necessarily like.

@Austin Wolff, how recent is the Where to Start data?

 It was made about 2 months ago.

[Tim Swierczek]

Quote from @Patrick Drury:

@Mike Tikh
Keep in mind if you are buying an FHA 4-unit it needs to meet the sustainability test. I don't believe triplexes need to. A lender can probably chime in on that. The sustainability test is that 3/4 of units need to cover 75% of the mortgage from my understanding. The last thing you want to do is put a deal in a contract pay money for inspection and get an appraisal when you could have just ruled it out from the start with that. The sustainability test usually makes it hard to owner occupy 4 units in A locations in Columbus. If you can find smaller local banks in the market you pick they may have more unique products that they keep on their balance sheet or try and do the 5% down conventional on a 4-unit

FHA's self-sufficiency test applies to both 3 and 4-unit properties. Everything else you said was spot on. If someone wants to purchase a 3 or 4 unit they can use the Fannie Mae conventional 5% down product that came out a little under 2 years ago. That product is more expensive and does require reserves after closing.

[Tim Swierczek]

Quote from @Mike Tikh:

Currently stuck in analysis paralysis on trying to find the right location for a first property, with a willingness to move anywhere in the US. 

Goal

My objective would be to go with a MFH, 2-4 units, higher would be better. I'd house hack and live in one of the units the first year, and use an FHA 3.5% loan. For amount, it would likely be in the $500-700k range.

My expectations are to have a negative cash flow while living there, and possibly a slight negative cash flow after moving out (until interest rates lower or rents increase). For example, a $650k 3-4 unit where each can rent out at $1,500, allowing for a negative cash flow of $2-2.5k/month the first year.

Possibilities

Given those goals, it would rule out the more expensive places (California, Seattle area, Austin). However, I have no idea how to choose from the remaining cities, it seems there are a lot of potential options:

- Midwest - Michigan (ie: Grand Rapids) seems to have options, also seeing Columbus Ohio and Indianapolis coming up

- Reno - I've seen mentioned several times on here

- Pittsburgh / Philadelphia / Twin Cities - All mentioned as lower cost to get started, and seem to be experiencing growth

I'd ideally like to find a place that has strong potential for future growth, a diversified economy, and I don't mind living in (being close to nature would be a plus). 

Any thoughts on how to choose - what metrics to evaluate, resources to read to help?

 You can make money in any of these areas. Pick a place you want to live. The Twin Cities has traditionally been an excellent place for growth, but there are many metro areas that will offer you similar profits. This one purchase will not make you rich, your not buying Mar-la-go so don't give it so much importance. Find a solid property in any major city and you will do fine, then focus on getting your finances ready for the next one. Do this 4 times, and you will be happy.

[Devin Conley]

Hey Mike, good discussion and good that you have some clear expectations going in.

As others have mentioned, since you'll be living there, it can be better to start with a subset of cities that you'll genuinely enjoy living in, then work backwards into data and metrics from there.

For the cities you mentioned, here's a visualization of current rent-to-price ratios. I can share a full report with a lot more metrics too if useful.

[Isadore Nelson]

Quote from @Joe Hammel:

Metro Detroit has what 99% of Real Estate Investors want. Couple hundred bucks a door monthly cash flow, solid ROI, and yes plenty appreciation. (#1 appreciating city 2023)

I know many investors that have house-hacked with your exact criteria and done really well. 

It's a great market to grow your investment portfolio afterwards if you choose to do so.

I personally make well over $100k/yr cash flow from 21 properties here. All of which, I’ve purchased within the last 4 years.

There are 2 types of people who dog on Detroit..

1. People who don't actually own property in Detroit

2. People who did it wrong and weren't able to execute.

If you do it right, it’s arguably the best market to invest.

Purchase: $80k-$130k

Rent: $1100-$1500 (no rent control in MI)

1% rule: .9%-1.4% rule deals

Coc ROI: 5-12%

Total ROI: 20-40%

Cash flow: $50-$250/door (after all expenses and budgeting for maint, capex, vacancy)

Appreciation: 3-10%+ (has been double digit for a decade)

Location: C+, B-

These numbers are based on the "sweet spot" in Metro Detroit. These are largely in the suburbs and some markets within the city. You can find higher ROI (on paper) here and probably in other cities…but the probability of actually collecting rent significantly decreases. Where these numbers are found, there is a very high rate of rent actually being paid.

We have over a dozen Fortune 500 companies just in Metro Detroit with huge Healthcare, Auto, and mortgage industry National footprints. Ford, Rocket mortgage, Beaumont hospitals and more. All complimented with Amazon fulfillment centers, google, and more tech manufacturing jobs.

The bad reputation of “Detroit” comes from OOS investors wanting sub $40,000, D class properties in poor condition, because they pencil out to 2-3% deals on paper. We don’t buy those.

We have found what works and repeat it as much as funds allow.

Detroit has one the highest rent to price ratios in the country…and we focus on the best balance of price/location within the area.

Here is a picture of my portfolio if you/anyone is curious.

Woo, you are articulate. I'd like to consider some local investment opportunities. 

[Joe Hammel]

Quote from @Isadore Nelson:

Quote from @Joe Hammel:

Metro Detroit has what 99% of Real Estate Investors want. Couple hundred bucks a door monthly cash flow, solid ROI, and yes plenty appreciation. (#1 appreciating city 2023)

I know many investors that have house-hacked with your exact criteria and done really well. 

It's a great market to grow your investment portfolio afterwards if you choose to do so.

I personally make well over $100k/yr cash flow from 21 properties here. All of which, I’ve purchased within the last 4 years.

There are 2 types of people who dog on Detroit..

1. People who don't actually own property in Detroit

2. People who did it wrong and weren't able to execute.

If you do it right, it’s arguably the best market to invest.

Purchase: $80k-$130k

Rent: $1100-$1500 (no rent control in MI)

1% rule: .9%-1.4% rule deals

Coc ROI: 5-12%

Total ROI: 20-40%

Cash flow: $50-$250/door (after all expenses and budgeting for maint, capex, vacancy)

Appreciation: 3-10%+ (has been double digit for a decade)

Location: C+, B-

These numbers are based on the "sweet spot" in Metro Detroit. These are largely in the suburbs and some markets within the city. You can find higher ROI (on paper) here and probably in other cities…but the probability of actually collecting rent significantly decreases. Where these numbers are found, there is a very high rate of rent actually being paid.

We have over a dozen Fortune 500 companies just in Metro Detroit with huge Healthcare, Auto, and mortgage industry National footprints. Ford, Rocket mortgage, Beaumont hospitals and more. All complimented with Amazon fulfillment centers, google, and more tech manufacturing jobs.

The bad reputation of “Detroit” comes from OOS investors wanting sub $40,000, D class properties in poor condition, because they pencil out to 2-3% deals on paper. We don’t buy those.

We have found what works and repeat it as much as funds allow.

Detroit has one the highest rent to price ratios in the country…and we focus on the best balance of price/location within the area.

Here is a picture of my portfolio if you/anyone is curious.

Woo, you are articulate. I'd like to consider some local investment opportunities. 

 Sure thing, Isadore! Feel free to send me a direct message and I'd be happy to connect.

[Geoff Stuhr]

I am from the Midwest and have also lived in Reno, NV so I know these areas really well. I think Reno would have higher appreciation but bigger swings both up and down. It is booming though, but they are also building a ton of apartments there. The Midwestern cities generally are linear markets that don't see swings in appreciation as much as markets like Reno do, so that is something to consider. I like Grand Rapids, Columbus, and Indianapolis. I'm biased towards Milwaukee and Madison because I live here but these cities have great rental markets as well, if you're willing to consider Wisconsin I'd recommend you look at Waukesha, WI - in between Milwaukee and Madison, low crime, and great occupancy rates.

First, I'd visit some of these markets to see where you'd like to live. Secondly, I'd look at population migration trends (Reno will look very good here). I'd try to understand landlord laws in each market - i.e. figure out which markets are more landlord friendly. I'd look at crime rates and I'd also look at multifamily supply projections to see how many units are expected to come online in the next few years. 

Happy to chat through this with you and I think you have a great strategy. Best of luck!