How to Find the Right Market

Question

Fellow investors! I am eager to buy a multifamily, buy and hold rental property!

My question is: If your current market is undesirable to invest in, how do find the best market out of state?

I currently live and work in New York City, but due to the market being too expensive for me personally, I've pretty much ruled out investing here. There are a number of other markets I'm currently thinking of.

I'm going to provide my thought process for each so bear with me...

Columbus, Ohio

• I grew up in the area, have friends and family here, and know it like the back of my hand.
• I know that the market is doing well - with a good volume of  multifamily homes (quads in particular) that you're able to purchase that meet the 1% rule. 
•

Birmingham, Alabama

• My parents moved here shortly after I graduated college in 2017, and they are supportive of me investing in real estate.
• I have a very knowledgeable family friend who is a real estate investor here, who would be willing to mentor me.
• I am not as knowledgeable of the area.

Washington, DC / Virginia / Maryland Area

• I travel to DC often for work, and I went to school here. 
• I imagine multi-family properties may be more expensive, since it's more of an urban center.
• I have a good understanding of the layout in DC, but very little knowledge of the surrounding area - which would include properties that'd likely be more affordable.

Overall, the drawback for Cbus and Birmingham is that they are much farther from me than DC. DC is relatively agreeable in this regard, as it's a short train or bus away, and I'm there almost every other week. In Cbus and Birmingham, though, I might have more support given my knowledge of the areas or close relatives who'd be willing to support me.

What do you think?

Also, if you have any thoughts on the state of the market in each area, this is welcome as well. Thank you in advance for your time!

James Wise · Answer

Pope there are a bunch of investors around here in the same position as you. Living in a high cost market and looking towards the Midwest or what we call the turnkey markets. There are tons of turnkey markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors

• Cleveland, Ohio
• Dayton, Ohio
• Toledo, Ohio
• Youngstown, Ohio
• Cincinnati, Ohio
• Memphis, Tennessee
• Birmingham, Alabama
• Kansas City, Missouri
• Saint Louis, Missouri
• Indianapolis, Indiana
• Detroit, Michigan
• Erie, Pennsylvania
• Louisville, Kentucky
• Milwaukee, Wisconsin
• Jackson, Mississippi

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.

P.S.

I see that two markets on your radar are BHam and Columbus. For BHam I recommend you give The Ultimate Guide to Grading Birmingham Alabama Neighborhoods a read. As for Columbus I don't have an Ultimate Guide for that market yet but I do have one for their neighbor up north Cleveland. So you may find value in reading The Ultimate Guide to Grading Cleveland Neighborhoods as well.

James Wise · Answer

Anytime. I am currently working on Ultimate Guides for Indianapolis, Indiana and Memphis, Tennessee so stay tuned if you're looking for more info on either of those markets.

Cassidy Burns · Answer

Hey @Pope Lake , great detail in the post, we can appreciate that as most just say "help me buy real estate" which gives us no ground to stand on, so thank you.

I think you really need to nail down your strategy.  As you mentioned, these 3 markets are very very different.  Do you want cash flow, higher equity pay down/monthly, OR potential appreciation (remember, this should be the cherry on top.)

This is my analysis on each Asset Class:

-Lower Income : higher cash flow, more maintenance / turnover, less appreciation, not as passive/more management required.

-DC Market: Less to $0 Cash flow, once stabilized very little maintenance, higher chance appreciation , much more passive (know when you buy real estate it is never 100% passive, not in what I have experienced at least).

Good luck!

Remington Lyman · Answer

@Pope Lake FHA is a form of an owner-occupied loan but there are other types of owner-occupied loans. There are better products for first time home buyers.

Pope Lake · Answer

@James Wise yessir! Will be on the lookout.

Pope Lake · Answer

@James Wise thank you for this detailed response!

It’s good to find out that two of the cities I’m mentioning are on the list of top turnkey markets.

Additionally, I know your feedback on some of the best practices of out of state investing will prove useful to me.

The Birmingham neighborhood guide is great as well. All around solid post - thank you for taking the time out!

April Kennedy · Answer

@Pope Lake My suggestion for investing at a distance is to initially start where you are familiar & where you have the support. You have the resources there for you, so start using them & get in the game. I wouldn't cancel out DC, it just may not be the first place to start if you have other options (as you are not familiar with the areas of the DMV). If you do decide to start in the DMV, ensure you have a realtor that is familiar with investing and familiar with the area. You will also need to put in additional time to confirm what your RE agent is saying in the beginning just to ensure you have selected someone who is truly knowledgeable. I think there are a lot of great agents out there so its doable if you want to initially put your own boots on the ground.

Remington Lyman · Answer

@Pope Lake If you buy in DC then you might be able to convince a bank to give you an owner-occupied loan. This is the easiest way to get into real estate since the rate is cheaper and the down payment is less. That is how I got started with my first 3 properties.

Pope Lake · Answer

@Jasmine Hu I appreciate your insightful response as a broker in the area!

I resonate with your comment about southwest dc - many of my friends there would love to move to the wharf, but the prices are crazy! Good for appreciation seeking investors as you’re mentioning.

Since I’m looking for cash flow maybe dc is not the move, but it’s good to have this context in mind if I’m looking for cash-flow down the road. Thanks for your time Jasmine!

Pope Lake · Answer

@Cassidy Burns I like your post - thanks for taking the time out. In terms of your two options presented, I’d much prefer the cash-flow / equity for now relative to potential appreciation. This is very interesting when it’s put into this perspective!

In this sense, cbus Bham might be better, also given my goals. Very insightful on your part in mentioning the lower potential for cash flow in dc.

Also I think this might be a better strategy with the impending recession?

How to Find the Right Market

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