Choosing an OOS Market

[Corben Briggs]

Hello everyone,

I'm a young aspiring real estate investor looking to complete my first deal! At this point I am considering both options (in state & out of state) investing and am trying to weigh out my options on what might be a better fit. Being located in San Diego and not having much capital I am looking at possibly getting started in a cheaper market somewhere else and going that route.

As I start to consider this I was wondering if anyone knew of helpful ways of choosing which market to get my feet wet in flipping/BRRRR'ing. I know this question is very broad since each market depends on so many personal factors about who you are as an investor but I have been having a hard time finding one to even consider to focus on. Right now I have been using a helpful site: areavibes.com to narrow down my search a bit and my criteria has been this..

• Cheap (about 60k PP looking at my capital for a down payment & rehab)
• Good employment score
• Good housing score
• Low crime rate

This has helped me find a few cities to research but I am still unsure of which one is a good choice. Does anyone have any recommendations of where to look/what to do when trying to choose which market to hone in on? Also does anyone have any specific markets that they recommend I check out and begin to analyze deals & piece together a team to help me land my first deal?

Anything helps,

Cheers!

[James Wise]

Originally posted by @Corben Briggs:

Hello everyone,

I'm a young aspiring real estate investor looking to complete my first deal! At this point I am considering both options (in state & out of state) investing and am trying to weigh out my options on what might be a better fit. Being located in San Diego and not having much capital I am looking at possibly getting started in a cheaper market somewhere else and going that route.

As I start to consider this I was wondering if anyone knew of helpful ways of choosing which market to get my feet wet in flipping/BRRRR'ing. I know this question is very broad since each market depends on so many personal factors about who you are as an investor but I have been having a hard time finding one to even consider to focus on. Right now I have been using a helpful site: areavibes.com to narrow down my search a bit and my criteria has been this..

• Cheap (about 60k PP looking at my capital for a down payment & rehab)
• Good employment score
• Good housing score
• Low crime rate

This has helped me find a few cities to research but I am still unsure of which one is a good choice. Does anyone have any recommendations of where to look/what to do when trying to choose which market to hone in on? Also does anyone have any specific markets that they recommend I check out and begin to analyze deals & piece together a team to help me land my first deal?

Anything helps,

Cheers!

 The only market you should attempt to do a flip in is your own. There is almost a 0% chance of success of you doing flips in another market successfully right now. Reason being is you are unfamiliar with the other market & you'll need to hire other people to do all the work for you. Whenever you're doing a business transaction it's important to look at it from all angles. We all understand the value we are receiving from the businesses we are patronizing right? In the case of a grocery store they are providing us with needed groceries like Milk. An auto-shop is providing us with much needed Oil Changes. In exchange for the value we received in the products like Milk & an Oil Change the value the businesses receives from us is enough money to cover their costs + a healthy profit.

Now let's think about a business that provides house flipping services pragmatically. Why would a company do a flip for an out of state investor? What value could an out of state investor provide to a house flipping company? To successfully perform a flip the house flipping company needs to

• Spend time & money marketing to distressed sellers to source a deal with a large profit potential
• Estimate the ARV of the deal
• Estimate the repair costs of the deal
• Determine if there is enough profit in the deal to make sense for a flip
• Negotiate a sales price with the owner of the property
• Hire the General Contractor
• Manage the renovation
• Ensure the renovation is completed on time & on budget
• Market & sell the property for the estimated ARV to ensure they hit the estimated profit margin

After successfully doing all of that why would they then hand over the majority of the profits to you? Let's say you needed to NET $30,000 to consider putting your money in a deal like that. After all you've got risk, you're putting money up to get a return on it. So say we found a deal that would have a spread of $40,000. Why would that company do all of that & give $30,000 of that $40,000 profit to you? Why wouldn't they just keep the entire $40,000 for themselves? What value as a buyer of that product are you providing to them? What value do they receive by setting up a business utilizing that model? The answer is pretty clear. No value is transferred from you to them. So any company utilizing that as a business model doesn't make any sense. As such you'll probably never find what you're looking for. 

You could go out of state & invest in the turnkey model. That works for people in your position so long as you can save up enough money to cover down payments on the rental properties. Tons of turnkey markets out there with Real Estate that is dirt cheap compared to what you are used to. Many are well represented by sellers & turnkey operators here on BiggerPockets (myself included) The most popular markets are

• Cleveland
• Toledo
• Memphis
• Birmingham
• KC
• Indy
• Detroit

Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.

One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

• Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
• Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
• Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
• Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
• Make sure your property manager is a licensed real estate brokerage.
• Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.