How to Select a City to Invest in Buy & Hold Property

Question

Hi,

I am a new investor in CA that has a HELOC on my primary residence and looking to invest in single family or small multifamily out of state due to the high prices in CA.  I have read how many people have found success in many various Cities across many state.  With all information out there I am almost on information overload and cannot figure out the best way to select a City and find investment properties.  My budget is properties in the 100-200K price range.  I would like to find a city that has a growing economy and has a potential for appreciation as well.

Can anyone share their process or steps that have worked for determining which state & city to invest in?

Michael T. · Answer

@Mark Bommarito it all depends, what are your goals?  Do you want cash flow, do you need cash flow, are you okay with being a long term holder waiting for appreciation?

There are numerous markets in the mid-west that will allow you to buy reasonably priced single family rentals that cash flow.  Some of the states that are good for this are; Indiana, Kentucky, Missouri, Kansas, Ohio and Tennessee.

If you're okay with less cash flow and a mixed amount of appreciation then other states such as Texas, Arizona, Nevada, Colorado and Utah will be good options.

You can do a few searches here on BP for states that cash flow and states that appreciate and I'm sure there will be quite a few investors in the states your interested in that will be able to give you guidance.

For me personally, I invest out of state in Texas and Indiana for cash flow, however, I invest in Los Angeles and Inglewood for appreciation.

Parth Patel · Answer

@Mark Bommarito I am in the same boat. I just started reading heavily on BP and have the same exact questions you have. I am personally looking for cash flow. Once I figure out which city, I still have to find out how to find a property, where to get rent numbers in the area, which agent, which pm, which rehabs brings tenant faster, which lender.

Mark Bommarito · Answer

@Michael Tripp,  I was curious where in Texas you invest.  It appears the Fort Worth/ Arlington area is growing as i have been doing research in this area too.  I have read some other blogs mention concern for high State property taxes.  Have you experienced that?

-Mark

Doug McVinua · Answer

@Mark Bommarito @Parth Patel No one can truly answer that question for you. What are your personalities, are you hands-on or hands off? Are you solely interested in cash flow, what about appreciation? Where do you currently or want to visit occasionally as I think every owner should occasionally want to at least do a drive-by, see what the area is doing, etc. Do you want to buy as many units as possible with your funds or are you OK with one?

I know lot's of questions for you and few answers, sorry.

With all that stated, Phoenix is a popular market for CA as stated by Account Closed Phoenix is an easy flight and generally about a 5-hour drive from LA so it's pretty easy to visit. Arizona is a pretty landlord friendly state, no rent control, evictions are pretty simple and quick, etc.

The economy is doing very well in Phoenix, lots of inbound moves, growing diversified job market, reasonable tax structure, great weather, no natural disasters, and at least one great Realtor and Property Manager.

Strong demand for rentals in Phoenix, the last 2 rentals I turned over this month: one generated 423 leads and the other one 192. Rents are going up at every turnover!

The numbers aren't going to be as strong, we can come close to 1% on a few decent 4-Plex's in areas.

Just my 2 cents, hopefully, some of the questions help you two sort out your priorities. It's not a right or wrong answer, it's what's right for you at this time.

Account Closed · Answer

Probably Las Vegas or Phoenix are the best choices for someone in California. The laws are similar and I think there is less of a learning curve. Here is a spreadsheet you can use as a comparison as you look at various markets and properties.

Average Cash Flow Per Door In Phoenix Metro Area

https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area

Mark Bommarito · Answer

Good Stuff @Jibran Najmi.  I am looking into AZ currently for rental property but also going to take your advice and start looking into Fort Worth properties as well.  I will DM you as I have more questions.  Thanks for the good advise!

Jibran Najmi · Answer

Hi @Mark Bommarito, speed to lead? Haha, I'm kidding.

I would agree with you that a team is key, especially for those with little to no experience.  Finding & funding the deal is simply the first step, and in my experience I've found that many investors starting out do not have a plan moving forward after acquisition.

Understanding state specific property management issues is key, and if that area of knowledge is lacking, having a someone with that as a strength becomes more important.  It sounds really obvious, however it's overlooked often.

I have several clients from out of state - California in particular.  I focus on finding deals for investors specific to their objectives.

For those unfamiliar with TX, it is a special place that funds a majority of its budget through property taxes.  In Tarrant county a good GUESStimate is about ~2.2% of the ARV, however there are numerous exemptions.

PRO tip: If you are considering a property in Texas and the Seller/other agent is unclear about what the UNEXEMPT taxes are:

1) Google "Pay COUNTY NAME taxes online"

2) enter the property

3) get the taxes paid and unexempt taxes from directly from the CAD

I personally like small multi-family with 2-4 units, purchase prices ranging from 100K - 300K, with value add opportunities.

Mark Bommarito · Answer

Hi @Jibran Najmi, quick response that's cool!  I am okay investing out of state as long as they say in the Podcasts that there is a solid team that I can become comfortable with that can manage the month to month operations of the property.

Do you work with out of state investors?  Whats your thoughts on the property tax rates in TX?

What type of properties do you invest in?

-Mark

Jibran Najmi · Answer

@Mark Bommarito

I think Michael's response is on point.  It depends on what your goals are, your risk tolerance and what you ultimately are comfortable with.  Invest in what you understand, stay away from what you dont.  I personally believe Arlington/Mansfield & Tarrant County are going to be some of the top markets due to UTA, the Cowboys/Rangers, Google and a host of other factors.

Mark Bommarito · Answer

Hi @MichaelTripp, I was curious where in Texas you invest.  It appears the Fort Worth/ Arlington area is growing as i have been doing research in this area too.  I have read some other blogs mention concern for high State property taxes.  Have you experienced that?

-Mark

How to Select a City to Invest in Buy & Hold Property

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