How to research a new market?

Question

Hi everyone,

I’m a new investor looking to purchase my first 3-4 unit deal and need some advice. These types of units in my current market go for more than $200,000 with rents ranging $850-950 for two bed rooms apartments. Since I don’t make a lot of money and I don’t want to use partners for every deal, I’m looking into 2 different city’s that are about 1 - 1 1/2 hours away from me. Compatible houses start at $130,000 with rents ranging $650-$750 for 2 bed room apartments in these two areas. I have 20k to start off with, option for FHA loan, parents who would fund repair costs. My goal is to get into commercial real estate or purchase enough properties for finacial freedom. Here are my questions-

What steps can I take to research these new markets to know what my best options are?

Brian Garrett · Answer

As a general rule of thumb you want total rent to at least be 1% of the purchase price.

This example of a $135k property with $1,950 rent would be something I would look further into.

Steve DellaPelle · Answer

@Timothy Curry I do not think these are bad properties that you are looking at. Keep in mind the 1% rule and the 2% rule...take total gross rents and divide by the purchase price.

If you are between 1% and 2% then you are at least looking at good potential deals.

I think you should actually go take a look at some of these...find an agent and try to bring a long someone who has experience to point out the potential hazards.

Good luck!

Timothy Curry · Answer

@Brian Garrett And is there any steps you take to research a market

Timothy Curry · Answer

@Brian Garrett What rent ratio should I look at? One of the 3 unit properties I Iooked at was going for $135,000 with 8 beds 3 baths 2,900 sq ft, total rent estimate would be $1,950. Is that bad?

Brian Garrett · Answer

Both of those rent to price ratios are too low.

I'd keep digging for better deals, look at other strategies or look at another market.