Where to move and invest if you live in an expensive area?

[Matthew Odou]

Hello everyone,

    I feel that I’m ready to invest in my first house hacking rental property (2-4 units); I have the $ for a down payment, closing costs, and am going to be using the 203k loan for rehab. I have the knowledge after reading numerous books and listening to many podcasts. My criteria in terms of price range is $100k-$300k.
         

           The only thing holding me back is that I currently live in Southern California where real estate prices are way too expensive for me to start, and I’m going to be moving out of my parents house into the area where I’m going to invest and taking that huge leap of faith is a bit scary to me. I’m basically going to be starting a new life with a new job in this new area I’m going to be investing in, so I want to make sure that I’m moving in an area that I know is growing, has potential opportunity for appreciation, and is affordable for someone like myself. How do I figure out and analyze where the best place is to start investing? Any tips for a newbie?         

          Thank you very much in advance for your guys’ advice. It is greatly appreciated! :)

[Trent Stone]

Sounds exciting!! Good for you. I would say a big factor is if you want more appreciation or more cashflow. I think where you want to live is important too, not just where you want to invest. I invest with $0 of my own money in Indianapolis. I chose it because it has shown steady appreciation and job growth, gentrification projects, and decent cashflow. The midwest and the south are good cashflowing markets. So are Detroit and Cleveland, but then you have to live in Detroit or Cleveland....Might be for some people but not for me lol. Utah, Indianapolis, Denver, and Arizona are markets that are showing strong appreciation, but your cashflow will be pretty poor compared to those other markets.

What to look for: 

Price to rent ratio, how much can you buy it for vs. how much are rents? What has the appreciation been for the last year, 5 years, 10 years? What has job and wage growth been, what are they forecasted to be? What are vacancy rates for the area you are looking in? Talk to property management companies. What is the supply vs. demand? If a bunch of new construction is going up, then stay away because it will directly impact your rents. Is there an explanation for a sudden increase in prices and demand? ie. a new Amazon plant, giant construction project, military base, etc. If a town is dependent on a military base or a large plant and they shut it down, then you are screwed. So know what is sustaining your area. I grew up in Ridgecrest, CA connected to China Lake Naval Base. If China Lake gets shut down, then Ridgecrest will disappear forever. Check crime statistics and demographics to know who you will be renting to. Once you narrow down a few areas, run the numbers hard and make sure it's still positive cashflow if you move out and be sure to include property management and conservative capex, vacancy, and repairs. 

I'm sure there's more I'm missing right now but that should give you plenty of hw lol. Hope it helps!!