Need advice in an impossible real estate market

[Mark McCollum]

Thank you for clicking on my post. I have been working hard and can't resolve two questions. I am hoping an expert here can shed some light on my struggles or point me in the right direction.

My first question is I can't find any local properties that will cash flow. Am I doing my calculations wrong (examples below)? My second question is, since nothing locally cash flows, how do I go about finding a market outside of my area?

First a quick background - I am trying to buy my first rental property in the state of Montana. Since this is my first property, I would like to buy in my city or at least state, but I can't make the numbers work. Below are some examples (with a lot of assumptions included) of several of the most popular cities in the state. What am I doing wrong?

Example 1: Largest city in the state is Billings, MT. The cheapest 3bd+ property for sale now that is not in a trailer park is $190,000 for a 3bd 2ba single family. Taxes are estimated at $150 a month and insurance about $70. With 20% down on a 30 year mortgage with a 3.3% interest rate, the monthly payment would be around $885. It would rent around $1200 a month minus 20% for repairs and property management fees for a total of $960 remaining. After mortgage, I'd clear $75 monthly and $900 annually. With an initial down payment of $38,000, my ROI for the first year would be 2%.

Example 2: A smaller city than Billings, but a large business and college city is Bozeman, MT. The cheapest 3bd+ property for sale now that is not in a trailer park is a 3bd 2ba condo for $399,000. Taxes are estimated at $270, HOA $100, and insurance $150 monthly. With 20% down on a 30 year mortgage with a 3.3% interest rate, the monthly payment would be $1,730. According to craigslist, this would rent for about $2,000 a month. Again, taking 20% off for fees and repairs that would leave $1,600. This would result in a negative monthly cash flow of -$130 and with an initial down payment of $79,800 the first year RIO is -2%.

The above two examples are similar across all areas that have a rental demand within Montana. Is my analysis wrong? I have just about come to the conclusion that I cannot purchase real estate alone in my local market and will most likely need to look elsewhere. My search outside the state feels aimless like throwing a dart at a map. In addition to the above question about my local market, I would appreciate any advice on real estate investing from a distance. I have about $65,000 to begin with. Thanks

[Michael Rutkowski]

No, I think Belgrade and Livingston are right up there in terms of price gains, and even Ennis, Manhattan, and Three Forks are catching up. But the Gallatin, Madison, Paradise, and Shields Valleys should all be your market. There's at least a half dozen towns which are still good buys, and bedroom communities to Bozeman. In fact, people are starting to commute from Whitehall, which is in the Jefferson Valley, and also well priced. All of these areas are manageable in terms of distance.