Good Markets to Get Started

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Good Markets to Get Started

Bastian Kneuse
Rental Property Investor · San Francisco, CA · Member since 2017 · 132 posts · 56 votes

HI BP- Community,

I am a new investor and have been studying real estate investing for quite some time from the sideline. The time has come to get my feet wet and actually make something happen. However, I feel that I am suffering from analysis paralysis. I have absorbed so much information (possibly too much) that I don't even know where to start. The first hurdle I am trying to take is identifying a 2-3 good markets to invest in. I am currently living in the San Francisco Bay area and look to invest out-of-state, given the crazy housing prices here. I am looking for a market that would be good for a newbie investor. More specifically, I am looking for SFH in the range of $100-150k in a balanced market (acceptable cash flow – ideally around the 1% rule and acceptable value appreciation). The goal is to hold the property long-term. I totally understand that my first property will most likely not be the deal of the century, which is ok. My goal is to get my feet wet and learn the ropes of real estate investing by getting involved and slowly building up a portfolio, which generates passive income.

I have been hearing a lot about markets such as San Antonio, Kansas City or Indianapolis as good markets to get started given the healthy local economy (economic and demographic trends, housing inventory, rental demand) and also the good supply of real estate agents, contractors and property managers. Given this is my first rodeo, I would really value any insights all of you may have. Originally, I looked into Jacksonville, FL, but that does not seem to be a good place to invest anymore. In summary, I am trying to find answers for the following questions:

1. What are good markets to invest in for newbie investors?

2. Is now still a good time to purchase investment property given where we are in the economic cycle? Pro – still low interest rates/Con – real estate prices have come up quite a bit (seller market), looming recession

3. Given this is will be my first deal and it will be a long-distance investment, should I look for a turnkey property or one that needs some work? I have read David Greene’s book on long-distance real estate investing, but my guts tell me that it won’t be that straight-forward as outlined in the book.

I would appreciate any insights/thoughts/feedback/concerns. 

Thank you very much!

1Reply
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Seth Ferguson
Rental Property Investor · Member since 2019 · 407 posts · 267 votes
7y

Hi @Bastian Kneuse,

There are no "good markets" for newbie investors. Every market is unique and has its own pros and cons. No market is safe from mistakes and you need be become an expert wherever you choose to invest.

Today is the best time to invest. Unless you have a crystal ball, you should be dealing with what you know to be true today, not what might happen tomorrow.

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  • Seth Ferguson
    Rental Property Investor · Member since 2019 · 407 posts · 267 votes
    7y

    Hi @Bastian Kneuse,

    There are no "good markets" for newbie investors. Every market is unique and has its own pros and cons. No market is safe from mistakes and you need be become an expert wherever you choose to invest.

    Today is the best time to invest. Unless you have a crystal ball, you should be dealing with what you know to be true today, not what might happen tomorrow.

    2Reply
  • Ernest Fernandez
    Real Estate Agent · San Antonio, TX · Member since 2017 · 122 posts · 37 votes
    7y

    San Antonio is a great city and has a lot to offer. 

    As far as the type of investment, turn key might just be the “safer” route for you being out of state. There are still other factors that we’d need to look at to help determine what best fits you and your goals. 

    Feel free to reach out, I’m an agent/investor here in SA and I’d love to help. 

    0Reply
  • Aaron Bihl
    Investor · San Antonio, TX · Member since 2017 · 344 posts · 268 votes
    7y

    Bastian,

    I also think you could get great value out of visiting some of the markets you aren’t interested in once you get that list down to 2-3 cities.  

    I met up with an out of state investor last year who narrowed his list to 3 cities and then visited each of the cities for 2-3 days and looked at properties, explored the city, and met with investors.  It seemed like time well spent. 

    If you coordinate those trips right you could even go to some local meetups. Just some thoughts. 

    Good luck, and if I can be a resource hit me up. 

    0Reply
  • Ross Denman
    Real Estate Consultant · Whitestown, IN · Member since 2014 · 549 posts · 933 votes
    7y
    Originally posted by @Seth Ferguson:

    Hi @Bastian Kneuse,

    There are no "good markets" for newbie investors. Every market is unique and has its own pros and cons. No market is safe from mistakes and you need be become an expert wherever you choose to invest.

    Today is the best time to invest. Unless you have a crystal ball, you should be dealing with what you know to be true today, not what might happen tomorrow.

    Well said Seth.

    Here are some things that I see in my local market and with the clients we work with:

    • People keep complaining about deals getting thin... but the truth of the matter, we're just back to normal after being spoiled with the opportunities presented from the previous recession. There are always deals in good markets.
    • Markets are not as important as working with a good team. There will always be opportunities in good markets, but if you do not have a team you may not be able to move as fast, gather necessary data, etc. to capture good deals when they come across.
    • Build your portfolio around a solid/established home. Your first home will be the cornerstone of your portfolio in many ways. At some point in the future, you will be accessing the equity in this deal to expand your portfolio further. If your first home is constantly costing you more money than the cash flow and returning negative some years, it's hard to build a portfolio around that. Choose homes that already have value in areas that have retail sales and demand. This creates the best opportunity for equity growth in your portfolio.
    • While a good home in a good location will likely have an inferior ROI, it will frequently outperform a terrible home in a terrible location over a 5-10 year period. The lesser quality homes almost never perform the way they look on paper, but the higher quality homes tend to meet or exceed expectations and become much more valuable the longer that you hold them.

     I would pick about 5-10 markets to explore. Then I would start trying to understand that market. What is the median rent range? Where do you find homes above the median rent range? What are the costs of those homes? What property managers do you find managing those types of homes? Start interviewing PM's that work with the kinds of homes that you may be targeting and ask them for realtor referrals. Ask them if they help with rent rate determination and deal evaluations. Do they have contractors or handymen that they can have help with estimates if necessary? Whatever market seems to have deals that make sense and a team that you can build and feel comfortable with, is probably the place to start. Next... I don't care what anyone else says... I highly recommend visiting your target market. Drive the city with different providers and professionals. Meet people face to face and interview them. The most successful OOS clients that I work with visit the city at least once each year.

    Hope that gives you some guidance.

    0Reply
  • Kiera Underwood
    Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes
    7y

    1. What are good markets to invest in for newbie investors?

    I love Oklahoma City because the market is so ridiculously stable. When other markets have seen huge drops, OKC barely moved.. Forbes called it recession proof. It's been named best bang for your buck to rent and to buy. I could go on and on.  

    2. Is now still a good time to purchase investment property given where we are in the economic cycle? Pro – still low-interest rates/Con – real estate prices have come up quite a bit (seller market), looming recession. 

    There aren't big drops in OKC, so I'm not holding back on investing there right now. 

    3. Given this is will be my first deal and it will be a long-distance investment, should I look for a turnkey property or one that needs some work? I have read David Greene’s book on long-distance real estate investing, but my guts tell me that it won’t be that straight-forward as outlined in the book.

    I think the sweet spot are properties that haven't been fully rehabbed, but that have had structural, safety, mechanical and are updated cosmetically enough to keep the tenant happy. As long as you have major mechanicals that aren't about to go out, or the cash reserves or warranty if they are, there's not much to worry about!

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    7y
    Originally posted by @Bastian Kneuse:

    HI BP- Community,

    I am a new investor and have been studying real estate investing for quite some time from the sideline. The time has come to get my feet wet and actually make something happen. However, I feel that I am suffering from analysis paralysis. I have absorbed so much information (possibly too much) that I don't even know where to start. The first hurdle I am trying to take is identifying a 2-3 good markets to invest in. I am currently living in the San Francisco Bay area and look to invest out-of-state, given the crazy housing prices here. I am looking for a market that would be good for a newbie investor. More specifically, I am looking for SFH in the range of $100-150k in a balanced market (acceptable cash flow – ideally around the 1% rule and acceptable value appreciation). The goal is to hold the property long-term. I totally understand that my first property will most likely not be the deal of the century, which is ok. My goal is to get my feet wet and learn the ropes of real estate investing by getting involved and slowly building up a portfolio, which generates passive income.

    I have been hearing a lot about markets such as San Antonio, Kansas City or Indianapolis as good markets to get started given the healthy local economy (economic and demographic trends, housing inventory, rental demand) and also the good supply of real estate agents, contractors and property managers. Given this is my first rodeo, I would really value any insights all of you may have. Originally, I looked into Jacksonville, FL, but that does not seem to be a good place to invest anymore. In summary, I am trying to find answers for the following questions:

    1. What are good markets to invest in for newbie investors?

    2. Is now still a good time to purchase investment property given where we are in the economic cycle? Pro – still low interest rates/Con – real estate prices have come up quite a bit (seller market), looming recession

    3. Given this is will be my first deal and it will be a long-distance investment, should I look for a turnkey property or one that needs some work? I have read David Greene’s book on long-distance real estate investing, but my guts tell me that it won’t be that straight-forward as outlined in the book.

    I would appreciate any insights/thoughts/feedback/concerns. 

    Thank you very much!

     Most investors living in markets like the one you are living in invest in the turnkey markets. Tons of turnkey markets out there. Many are well represented by sellers & turnkey operators here on BiggerPockets. 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.
    1Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    7y

    1. What are good markets to invest in for newbie investors?

    The market isn't going to be what's good or bad for a newbie. It's going to be the property and the specific neighborhood it's in. Because those two things are going to be what gives you a run for your money if they are high-maintenance.

    2. Is now still a good time to purchase investment property given where we are in the economic cycle? Pro – still low interest rates/Con – real estate prices have come up quite a bit (seller market), looming recession

    I wouldn't consider it the most optimal time, but if you wait for an optimal time (like in a crash), you may end up waiting a while. The trick is to buy smart given where the economic cycle is, whatever that may be. Otherwise you'll just be on the sidelines not making any moves.

    3. Given this is will be my first deal and it will be a long-distance investment, should I look for a turnkey property or one that needs some work? I have read David Greene’s book on long-distance real estate investing, but my guts tell me that it won’t be that straight-forward as outlined in the book.

    That's a personal preference question. Here's considerations to think about-

    https://www.biggerpockets.com/blog/buy-rehab-turnk...

    I've always been an advocate of turnkeys for any newbie--regardless of what strategy you plan to do later--because they let you learn some critical fundamentals while you aren't tied down trying to figure out the advanced stuff (rehabs, etc.) You learn due diligence, property and market selection, managing managers, etc. All hugely beneficial things to learn, and kind of required to succeed down the road. Once you have those under your belt, you can move on to more advanced stuff a lot safer. Personal opinion, at least.

    0Reply
  • Tom Ott
    Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
    7y
    Originally posted by @Bastian Kneuse:

    HI BP- Community,

    I am a new investor and have been studying real estate investing for quite some time from the sideline. The time has come to get my feet wet and actually make something happen. However, I feel that I am suffering from analysis paralysis. I have absorbed so much information (possibly too much) that I don't even know where to start. The first hurdle I am trying to take is identifying a 2-3 good markets to invest in. I am currently living in the San Francisco Bay area and look to invest out-of-state, given the crazy housing prices here. I am looking for a market that would be good for a newbie investor. More specifically, I am looking for SFH in the range of $100-150k in a balanced market (acceptable cash flow – ideally around the 1% rule and acceptable value appreciation). The goal is to hold the property long-term. I totally understand that my first property will most likely not be the deal of the century, which is ok. My goal is to get my feet wet and learn the ropes of real estate investing by getting involved and slowly building up a portfolio, which generates passive income.

    I have been hearing a lot about markets such as San Antonio, Kansas City or Indianapolis as good markets to get started given the healthy local economy (economic and demographic trends, housing inventory, rental demand) and also the good supply of real estate agents, contractors and property managers. Given this is my first rodeo, I would really value any insights all of you may have. Originally, I looked into Jacksonville, FL, but that does not seem to be a good place to invest anymore. In summary, I am trying to find answers for the following questions:

    1. What are good markets to invest in for newbie investors?

    2. Is now still a good time to purchase investment property given where we are in the economic cycle? Pro – still low interest rates/Con – real estate prices have come up quite a bit (seller market), looming recession

    3. Given this is will be my first deal and it will be a long-distance investment, should I look for a turnkey property or one that needs some work? I have read David Greene’s book on long-distance real estate investing, but my guts tell me that it won’t be that straight-forward as outlined in the book.

    I would appreciate any insights/thoughts/feedback/concerns. 

    Thank you very much!

     People who live in CA or other big states often invest in the Midwest. Prices are lower, but the rent is still good. Most properties hit the 1% rule or better. I would look at cities such as Cleveland, Pittsburgh, and Detroit.

    Good luck to you! 

    0Reply
  • Gary Swank
    Real Estate Agent · Pittsburgh, PA · Member since 2014 · 822 posts · 255 votes
    7y

    Hi @Bastian Kneuse Pittsburgh PA is a great option for Investors, new and experienced. The buy-in is much better than other more saturated markets of which entices many Investors. The neighborhoods are very diverse, and in different states of renovation. Therefore types of properties and conditions change sometimes dramatically and often street by street in the same neighborhood. So I always recommend, especially for an out of state Investor, to get with someone very knowledgeable in your market of choice. 

    Pittsburgh continues to grow through a strong revitalization that not only attracts Investors, but people coming to live/work here especially those in the healthcare and tech fields. Many initiatives are slated for Pittsburgh's future as well, thanks in part, to a very proactive Mayor. Investors have had strong success here. Starting out, and also being remote, I would recommend leaning towards turnkey. You can always branch out as your comfortability and profitability increase. If you ever want to talk more about the Pittsburgh market, feel free to reach out. I've lived here my whole life and know the area and market very well. Best of luck to you.....Gary

    0Reply
  • Orlando Rodriguez
    Flipper/Rehabber · San Antonio, TX · Member since 2019 · 11 posts · 0 votes
    7y

    @Ernest Fernandez

    Ernest I’m here in San Antonio and love to connect with you at some point. Thanks

    0Reply
  • Ernest Fernandez
    Real Estate Agent · San Antonio, TX · Member since 2017 · 122 posts · 37 votes
    7y
    Originally posted by @Orlando Rodriguez:

    @Ernest Fernandez

    Ernest I’m here in San Antonio and love to connect with you at some point. Thanks

    I’ll be in touch. 

    0Reply
  • Greg Wa
    Member since 2018 · 11 posts · 5 votes
    7y

    @James Wise

    This is a nice list.

    Do you have any contacts for investing in Birmingham?

    0Reply
  • Melissa Nash
    Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
    7y

    @Bastian Kneuse  Start with your main strategy first. Everyone has different criteria and it is easy to get lost on here with so many opinions. 

    What is your main objective? Cashflow, Appreciation? Hybrid (mix of both) start there first-- then you can fill in the markets that fit that strategy, and then narrow down by price, and all the other little things that you want in a property. 

    For example- you can't really compare San Antonio to Memphis, these are totally different strategies. One is more cashflow based with lower growth and the other higher growth with less cashflow. 

    I think turnkey is easier for new investors buying out of state- you don't have all the equity, but everything is done for you, so it's very simple. Its really laid out to you on a silver platter and you just have to pick one.  If you need help sorting out what markets fit in each of the 3 categories above DM me, and I will send you a list that breaks it down. 

    0Reply
  • Antoine Martel
    Rental Property Investor · Miami, FL · Member since 2017 · 2k+ posts · 911 votes
    7y
    Originally posted by @James Wise:
    Originally posted by @Bastian Kneuse:

    HI BP- Community,

    I am a new investor and have been studying real estate investing for quite some time from the sideline. The time has come to get my feet wet and actually make something happen. However, I feel that I am suffering from analysis paralysis. I have absorbed so much information (possibly too much) that I don't even know where to start. The first hurdle I am trying to take is identifying a 2-3 good markets to invest in. I am currently living in the San Francisco Bay area and look to invest out-of-state, given the crazy housing prices here. I am looking for a market that would be good for a newbie investor. More specifically, I am looking for SFH in the range of $100-150k in a balanced market (acceptable cash flow – ideally around the 1% rule and acceptable value appreciation). The goal is to hold the property long-term. I totally understand that my first property will most likely not be the deal of the century, which is ok. My goal is to get my feet wet and learn the ropes of real estate investing by getting involved and slowly building up a portfolio, which generates passive income.

    I have been hearing a lot about markets such as San Antonio, Kansas City or Indianapolis as good markets to get started given the healthy local economy (economic and demographic trends, housing inventory, rental demand) and also the good supply of real estate agents, contractors and property managers. Given this is my first rodeo, I would really value any insights all of you may have. Originally, I looked into Jacksonville, FL, but that does not seem to be a good place to invest anymore. In summary, I am trying to find answers for the following questions:

    1. What are good markets to invest in for newbie investors?

    2. Is now still a good time to purchase investment property given where we are in the economic cycle? Pro – still low interest rates/Con – real estate prices have come up quite a bit (seller market), looming recession

    3. Given this is will be my first deal and it will be a long-distance investment, should I look for a turnkey property or one that needs some work? I have read David Greene’s book on long-distance real estate investing, but my guts tell me that it won’t be that straight-forward as outlined in the book.

    I would appreciate any insights/thoughts/feedback/concerns. 

    Thank you very much!

     Most investors living in markets like the one you are living in invest in the turnkey markets. Tons of turnkey markets out there. Many are well represented by sellers & turnkey operators here on BiggerPockets. 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.

     I completely agree with James Wise here.

    0Reply
  • Bastian Kneuse
    OP
    Rental Property Investor · San Francisco, CA · Member since 2017 · 132 posts · 56 votes
    7y

    Wow...thank you all so much. No wonder everybody talks about the BP forum anywhere I go. So many amazing and knowledgeable individuals here. All this is great information!! This gives me plenty of food for thought. 

    @Ernest Fernandez I would love to connect and learn more about your experience as San Antonio sounds like a very interesting market (...and I am a big Spurs fan). :-)

    @Aaron Bihl Great suggestions - I would definitely love to chat some more. Please let me know the best way to connect. 

    @Gary Swank I have had Pittsburgh on my extended list. I have been reading a lot about big tech companies setting up camp there. Would love to connect and pick your brain.

    1Reply
  • Bastian Kneuse
    OP
    Rental Property Investor · San Francisco, CA · Member since 2017 · 132 posts · 56 votes
    7y
    Originally posted by @Melissa Nash:

    @Bastian Kneuse  Start with your main strategy first. Everyone has different criteria and it is easy to get lost on here with so many opinions. 

    What is your main objective? Cashflow, Appreciation? Hybrid (mix of both) start there first-- then you can fill in the markets that fit that strategy, and then narrow down by price, and all the other little things that you want in a property. 

    For example- you can't really compare San Antonio to Memphis, these are totally different strategies. One is more cashflow based with lower growth and the other higher growth with less cashflow. 

    I think turnkey is easier for new investors buying out of state- you don't have all the equity, but everything is done for you, so it's very simple. Its really laid out to you on a silver platter and you just have to pick one.  If you need help sorting out what markets fit in each of the 3 categories above DM me, and I will send you a list that breaks it down. 

    This is great! As I stated in my intro, I would fall into the Hybrid category (respectable CF and decent appreciation). I would very interested in your list as this will help me formulate my ideas. I will be reaching out to you via DM.

    0Reply
  • Ernest Fernandez
    Real Estate Agent · San Antonio, TX · Member since 2017 · 122 posts · 37 votes
    7y

    @Bastian Kneuse looking forward to it!

    0Reply
  • Gary Swank
    Real Estate Agent · Pittsburgh, PA · Member since 2014 · 822 posts · 255 votes
    7y

    @Bastian Kneuse Yes Bastian, Pittsburgh has the tech companies. Look forward to hearing from you....Gary

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    7y

    @Bastian Kneuse first of all, forget about the 1% rule. It is in no way a measure of returns and profits in that it does no take in to consideration any expenses. It is not a meaningful number. I don't know the San Antonio market at all but I suspect that it does not cash flow well. First of all, median prices are somewhere in the range of $220K. Secondly, TX has some of the highest property taxes and insurance rates in the nation. High prices combined with high expenses will make cash flow virtually non existent. You might as well invest in some of the lower cost CA markets. I do know Indianapolis and Kansas City very well. We've been both those markets for nearly 10 years. These are two of the most affordable markets in the country plus they have growing populations and growing jobs. Both markets cash flow very well as long as you buy in the right area. 

    As far as whether it is still a good time to buy, that depends on the market and your long term plans. One of the reasons I like Indy and Kansas City and the Midwest in general is that they don't have the big booms and busts that some other markets do. Yes, prices have risen significantly in some of these markets but a a lot of the appreciation has been recovery from the housing crash of 2008. I would however be careful of markets that have a history of up and down cycles, particularly today. Take a close looks at where their prices are in relation to their pre crash highs. I'd be happy to share my insight and experience in the Indy and KC markets with you if want to reach out.

    0Reply
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