How do you choose a market to buy your first property?

Question

Hey everyone, total newbie here to real estate investing. I'm 26, single, and I want to begin real estate investing to supplement my stock portfolio and grow my net worth to get closer to my goal of financial independence. My job is fully virtual, so I can live anywhere in the country but I will not get a COL increase. I'm currently based in Miami, FL and I want to leave this city and find a property elsewhere. My plan is to buy a single family home and live in it for a couple of years as I save more money for a down payment on a new home elsewhere.

My main issue is that I'm not sure when & where to buy. I can buy pretty much anywhere in the country and while I know some cities that are not going to work but that leaves most of the cities in the country open to me. I'm looking for some advice to point me in the right direction for the following:

•  When is a good time to buy? 
•  How do you narrow down a housing market to buy into?

If it helps, my main goal is to generate cash flow so that I can save that and use it towards a down payment on another property or funnel it into my stock portfolio. I currently have about $25k saved up for a down payment & other expenses (including closing costs, and any repairs). I plan to buy summer or fall of 2022 and I will continue saving until that point. Looking to save up between $40k-$50k.

Thank you for reading, I appreciate any advice!

Marc Rice · Answer

@Rahul Srivastava

The short answer is only you can make that decisions, but there are some pieces to consider.

1. The best time to buy was after the 2008/2009 but you missed that and many of us did. The next best time to buy is now. Just make sure you’re not over leveraging and only buying fundamentally good cash flowing real estate. The best season to buy on the MLS usually is winter or not spring/summer when the market is the hottest with home buyers.

2. In regards to market to invest, the Midwest is a great market for cash flow but the quality of life can be lower compared to the coasts/warm environments (that’s coming from someone who grew up on the ocean but moved to Ohio for school and stayed for rental investing). You really need to find a city you enjoy and you should be able to find some deals there over the long term. If you want to fast track that process, you should buy as many owner occupied low money down multi family 2-4 units as possible - skip the single family.

Just my two cents.

Alecia Loveless · Answer

@Rahul Srivastava Personally I would recommend a house hack as the fastest way to build up your passive income dream. If you choose a city that has a lower cost of entry point but a nice level of rental cost you could use an FHA loan that requires 3.5% down and live in 1 unit for several years while the other three tenants pay for your mortgage and bills and hopefully generate you excess cash flow to bank into your next down payment fund.

Then once you’ve saved up again you can either use a property manager for that property and move away or stay and buy yourself that single family home or you can get another FHA loan and continue house hacking and building your portfolio.

Some good locations right now that I hear about are in and around Kansas City, Ohio, someone just mentioned South Dakota but that’s the first I’ve heard of that one, Texas is growing but more expensive, you’re in Florida so you know that market is hot.

Melinda McDonald · Answer

Rahul -

The Midwest continues to perform.  Kansas City is a great market, and while you will not get the warmer temps from FL, you will see a wonderful quality of life.  The areas around KC still have good bargains to help you reach your investment goals.  Let me know if you would like to chat.

Best,

Melinda

Remington Lyman · Answer

It does not matter where you start as long as you develop your Core 4. The core 4 is David Greene’s strategy for long-distance and made up of a realtor, contractor, property manager, and lender. Once you have this team in place, you should be able to confidently invest in any market.

As for picking a specific market - I would go after one with an increasing job and population growth. I invest and work in Columbus, Ohio.  I am also looking to invest in Cincinnati and Cleveland.

Patrick Drury · Answer

@Rahul Srivastava

I recommend house hacking a duplex which is where you live on one side and rent the other. With the rent from the other unit, it should pay for the mortgage and you should be living rent-free or even maybe you will get a little cash flow out of it depending on the deal. The best time to buy is always the present you'll be 80 years old waiting for the right time. As for what market should you invest in I recommend somewhere in the mid-west more specifically Columbus OH. Columbus OH has lots of job opportunities and population growth. As for the real estate in Columbus, they have good appreciation and solid cash flow.

Sam Smith · Answer

@Rahul Srivastava

1. (When to buy) Consider buying during winter time if you are not rushed. On average, prices are lower. Spring and summer are the highest prices.

2. (Where to buy) That's open to debate, as you can see from the comments. With a $50k downpayment you have some solid options. So, congrats in advance! I agree with one of the other people above that house-hacking is a good option.

If you are fully remote, you only have to commit to living in the house for 1 year. If you rent out the other bedrooms and have roommates for the other bedrooms you will come out ahead.

I live in Texas, so if you have any questions about this area let me know. I'd be happy share what info I can

Good luck!

Cameron Braig · Answer

@Rahul Srivastava

Congratulations on getting started and welcome to the forum.

When looking at different metros and conducting due diligence some metrics that can help find the best deal are; job growth, job diversification, rent growth and population growth. These can sound simple but are great foundational metrics that help determine the momentum of a market.

Best of luck and congrats again.

Clay Boykin · Answer

@Rahul Srivastava Hey there Rahul, I understand your mindset completely when it comes to this matter. Your goals and expectations can definitely perform in markets such as Columbus, Oh. Columbus is on track at the moment to reach new highs in the coming years and is 100% capable of doing it. The market rates are insane!. More specifically, Cbus is growing 68% faster than most cities, homes are up 12.8% as of July 2021, and renting rather than owning is becoming a must. Which is beneficial to people like you who are wanting to tap into new markets to generate respective cash flow. Feel free to reach out to me if you have any questions. Anyways, best of luck to you and I hope you reach your goal soon!!

How do you choose a market to buy your first property?

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