Best Plan of Attack for Choosing Location

[Andre Crabb]

Hey BP! Quick question for you guys with experience out there :)

What would you guys recommend on how to start looking for my first deal? What is a good plan of attack? I live in CA so I'm looking out of state, and am leaning towards 4-plexes. Before I start learning a specific market and analyzing deals, does it make sense to:

1) choose a location, based on my price max/downpayment choose the type of property, find deals

or 2) choose the type of property, choose my price max/downpayment amount, find a location that has good deals for that type, find deals there

or 3) choose the type of property and my price max/downpayment, find deals wherever, choose the location that has the best deals/cash flow

Cheers,

André

[Timothy Doenges]

I think there might be a few metrics you would want to consider alongside price and property type. I’m playing catch-up on all the BP Podcasts, and several in the 225-235 range deal with assessing markets. Of the podcasts I’ve listened to, none really mention property prices, and only ‘kind of’ mention property type indirectly.

1) check affordability of living, even outside housing (though that is a huge part). What’s the employment rate? Average salary compared to national average? Also, what is the ratio of rent-to-mortgage in the target area?

2) what kind of actual employment, and what employers, are hot in the area? Make sure that no one employment sector (and no more than one employer) holds more than 15-20% of jobs in that city/region. This will help hedge you from changes in technology, employment trends, companies pulling out of an area, etc.

3) check supply versus demand. This is property type specific, to a point. Considering fourplexes, what is the inventory of that property type in the town? Do small multi-families work, or are the majority of renters/owners either in SFRs or apartments/condos? You can have the perfect fourplex in my area and still not be able to rent it at market rate because we have something like 80% home-ownership, a few small multis here and there, and maybe three apartment complexes in a county of 70,000 people. Since the fourplex isn’t popular near me, all the other economic indicators could be strong and a fourplex could still not work.

Typically, these metrics are what drive people to places like Milwaukee, Memphis, NC, Cinci, Indy, and several towns in TX and FL. High on job growth, population trends in the right direction, good supply/demand (at least up to episode 233 of the BP podcast lol), good affordability, and markets that don’t seem to have topped out on growth yet.

I hope this helps—and if I have missed any key indicators, please let me know. Good luck!