What parameters to use to choose a state to invest in?

Question

As a young foreign national who wants to start investing in the US I started working out a step by step investment plan. One of the first and maybe most important steps is obviously picking my market, not an easy task with such a wide variety to choose from. I decided to try and narrow it down to a small handful of states before going into a more detailed market.

My main goal is to get that first deal under my belt to gain experience and get me started. I’m hoping to find a small multifamily in a “cheap” & healthy market that cash flows for less than 150K.

Here is the thought process I’ve gone trough so far:

As I will not be living in the US and unfortunately won’t be able to manage it myself I definitely want to go with a state that is landlord friendly. I came up with the following list.

TEXAS
INDIANA
COLORADO
ARIZONA
FLORIDA
KENTUCKY
GEORGIA
MISSISSIPI

As I started looking into these states I quickly realized how easy it is to start making decisions based on emotion. I started leaning more towards states that appealed to me because of their cultural or geographical aspects.

I started looking for parameters to run on the different states to make a more numbers based decision. All I have come up with so far is property tax and the fact wether the states have an income tax or not. (will this even matter as an investor or will I be able to write off most of it trough deprecation etc?)

Based on emotion my personal favorite would be colorado but I found the property prices to be that much higher and I want to start very small. Or am I missing something here?

stateproperty tax----yearly tax on 176K house-------median house price ----median house taxes

Colorado

0.62%

$1,097

$239,400

$1,495

Mississippi

0.78%

$1,377

$100,800

$790

Kentucky

0.84%

$1,471

$121,600

$1,018

Arizona

0.84%

$1,484

$162,900

$1,376

Indiana

0.88%

$1,539

$122,700

$1,075

Georgia

0.96%

$1,682

$148,000

$1,417

Florida

1.10%

$1,932

$156,200

$1,718

Texas

1.93%

$3,392

$131,400

$2,537

TLDR:

What parameters are useful to narrow down my choice of state ?

Is it a bad thing to let my emotions play any part in my decision between these markets or does the importance of picking an actual marker outweigh the importance of state?

Any input or tips for foreign investors are appreciated.

Benoit Roose · Answer

Thanks @David Hedges & @Dustin Lauer. I'll definitely keep all of those in mind when I start looking for actual markets. For now I'm simply trying to narrow it down between states so I can go into deeper research of different markets and pick a couple. Whatever state I do end up picking I'm sure there will be different laws and taxes between the counties.

Benoit Roose · Answer

Thank you @Mike D'Arrigo, super helpful! This definitely backs my conclusion, I'm going to pick a state that appeals to me and start digging into the information on the markets. I'll make sure to check your website out.

Mike D'Arrigo · Answer

@Benoit Roose Personally, I don't think there is a lot of value in looking at things at a state level other than to identify those that are more landlord friendly, have lower property taxes and lower insurance rates. Most states will have good markets and bad ones so it will be more helpful to start at a Metropolitan Statistical Area where there is a lot of economic and demographic information readily available. The top level economic and demographic factors that I think are most important are 1. Job growth, 2. Population growth and incomes. As you drill down, you'll want to look at rent ratio's and ROI's. I have a report on my website on how to evaluate and choose a market and also talk about the subject on my podcast show which you can find on the website also under the "education" tab.

Benoit Roose · Answer

@Erica Muller it's definitely harder to break into back here. A lot of factors seem to work against you in Belgium compared to the US. Your neighbors are right, whenever I start talking to Belgians about US real estate numbers they usually don't even believe me. A lot of Belgians seem to be investing in FL from what I've seen. I'm going to try and pick the mind of a Belgian realtor that markets FL real estate to Belgian investors and try to figure out why.

Erica Muller · Answer

@Benoit Roose My neighbors across the street are from Belgium also. They said basically the same thing as you, there really isn't much opportunity over there for real estate investing. They ended up buying in Winter Garden, FL because it made the most sense to them financially.

Dustin Lauer · Answer

I like Orlando and Indianapolis more and more lately for rentals.Here's some of the factors I'd add into your search : employment, earnings much higher than the cost to own a home. Property taxes. Hazard insurance costs. Age of asset. Construction quality of Asset.

David Hedges · Answer

@Benoit Roose those numbers for tax on a 176k house in indiana look really low, though I'm a bit more familiar with NW indiana. I'd actually expect the taxes on a house like that to be around $4000-$5000/yr. When it comes down to it though, taxes are just part of the picture, and shouldn't really be all you look at. If you buy it right, the taxes come in to play as do all other expenses, but you should have a good amount of profit on top of that. at least for the property tax part, I think a lot of counties have it all online, and if you look up the county, you can search the tax records (indiana an investment property tax is roughly double what it is for an owner occupied). I'd say do your research on the properties first, - can you find the money for the deal- what condition is the property in and do you need additional money to repair it before its rent ready?- what are your other expenses... property tax, garbage, water, electric, town/city registration, maintainance/repairs, hoa, personal property tax, debt service, property manangement, mowing, etc. -what is the average rent for the area-will you be profitable after all expenses are subtracted from rent-what businesses are in the area to support tenant income? (are the growing or declining)

Benoit Roose · Answer

@Jim Wilcox I would love to invest in my own area, but seeing as I'm from Belgium it's almost impossible to get a property to cashflow out here. At least not in the same sense it does over in the US. Property prices are quite high and I have no intention in spending any majority of my life in Belgium. As soon as I find a market I will go out there and spend my time investigating it as thorough as I can.

James Wilcox · Answer

@Benoit Roose defining your buying criteria and target market is definitely very important. I have a question in return. Why don't you want to invest in a market that is in your own area? IMO having boots on the ground and someone you can trust is very important. Especially in the beginning. However, out of state LL can be done but proper procedures need to be in place and enforced.I would not let emotions play a part in any decision making. Trust your numbers and your buying criteria and only go by that. It is a numbers game and if it works out, great! If it does not work, move on.