The Real Reason Nobody Can Find Deals In 2020

[Brian Ellwood]

50% of the new investors I talk to live somewhere that's not affordable as a rental market.

They want to invest but feel handcuffed by the high prices and competition around them.

I say "dude, you need to pick a new market and invest virtually!"

They are usually both surprised and excited...

To learn that they could have been investing all along.

For many people I talk to...

Picking the market is their very next step.

If this is true for you, this post is going to spell out exactly how to go about doing that.

I got started by investing in Nashville around 2014.

I knew nothing about picking markets.

I just happened to live there.

The properties I bought appreciated a huge amount over the years after I bought them.

But, Nashville quickly became too expensive to continue to invest in.

I had to branch out to a new market.

I picked a couple surrounding cities in TN, and bought a dozen or so properties in those markets.

But within a year or two, those areas became too expensive as well.

Then I went down into Huntsville, Alabama and got some deals done there. It seemed like the next rapidly appreciating market so I was excited to lock in some deals and create the opportunity for long term appreciation.

But very soon after I arrived, Huntsville became too expensive and competitive to find deals in. There were still deals to be had, but finding them was so hard it almost wasn’t worth the effort.

Investors still did deals in all of these markets, but they became “fix and flip” markets more so than “buy and hold markets”, because the numbers just didn’t work.

At this point I grew frustrated.

“How many times will I have to move to a new market?”

“As soon as I get set up with a good contractor and property manager, and learn a new area, it becomes too expensive to invest in!”

Then I questioned my strategy:

“Is looking for growth markets really the best thing to be doing right now, given the crazy inflated and competitive status of the market in 2020?”

I shared my frustration with my business coach, who, while not a full time RE investor, has some rentals in Tulsa, OK.

His reply was “You should look in Tulsa. Nobody is looking here. Maybe you’re just looking in the wrong areas!”

After researching Tulsa and seeing how many cheap houses are freely available there, I considered the idea of starting to buy houses in that market.

When I did that, an interesting feeling arose within me.

It was RELIEF.

By giving myself permission to NOT fight tooth and nail in the hot, growth markets…

I could remove all pressure of “finding a good deal”.

(Which, by the way, is everyone's biggest bottleneck fright now. They might think it’s financing, but that’s usually caused by a misunderstanding of all the ways you can invest in RE with little to no money. It’s your market, bro)

I realized that by insisting on investing in growth markets, I was actually shooting myself in the foot.

These markets have a narrow window of time where there is opportunity.

But, much like an exploding stock price, the value soon gets baked in and the opportunity is gone.

I didn’t ultimately settle on Tulsa, but picked a similar but smaller market, Little Rock, AR.

It’s not often talked about on Bigger Pockets, nor does it make many lists of the “Top 10 markets to invest in”.

But, I'm seeing deals on the MLS for 40K. I just got a deal from a wholesaler for 35K, the house is in good shape, rents for $700, and is across the street from new construction!

Is this real life?

(Better believe I made an offer on that one)

So what’s the difference between a market like Little Rock, and all the other markets out there?

One of the key differences is that the other markets are growing in population, while Little Rock is “flat”.

Meaning, the population has roughly stayed the same for quite some time.

This causes the average home price to stay the same as well. Since it’s not growing, the demand for houses has not outpaced the supply.

Another word used to refer to a market like this is a “linear” market, whereas other markets that have large swings in price are called “cyclical markets”.

Linear markets don’t go up much during a bull market, but they don’t go down much during a recession either.

But, it’s clear that investing in these markets is not an appreciation play. It’s a cashflow play.

Which, if you want real financial freedom, is all you should really be concerned with anyways.

Also, keep in mind that in addition to monthly cashflow you still get the benefits of:

1) debt paydown

2) depreciation, and

3) getting to pay todays debt with future dollars

(#3 can be confusing one. It basically means that, since the value of the dollar is always decreasing, it will be easier to pay a debt in the future than it is now. 50K won’t be as much money 20 years from now than it is now. Since many mortgages are fixed for 5-30 years, the person who holds the debt gets in an easier position to pay the debts off as the years go by)

Some will point to the markets I’ve mentioned as being “high crime”.

I just want to say that many of the good RE investing markets are riddled with crime. Memphis is simultaneously a very popular market to invest in, as well as one of the highest crime cities in the U.S.

I own multiple rentals in high crime cities and haven’t ever had a problem, because I bought them in the right zip codes/neighborhoods.

The key to success comes down to learning the market. Knowing which neighborhoods to invest in and which to stay out of.

Now, this post is not to get you to invest in any certain market, or to act like my markets are the best ones out there.

There are literally hundreds of qualified “linear markets” in the U.S., just waiting for you to come and buy houses in.

If you are open to the idea of considering a market like this, the question becomes:

“How do I go about finding and selecting a linear market?”

In Part 2 of this post next week, I’m going to highlight the specific “6 Pillars” that you should look for in your market if you want to find deals with ease, get positive cashflow, while also protecting yourself and making solid investing decisions.

Isn’t that the dream?

Let me know what questions you have, and I’ll see you for Part 2.