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Updated about 3 years ago, 10/27/2021
Beginners Market Analysis
Hello BP!
This is the 1st time I've made a post on BP. Hopefully first of many as I learn more about real estate investing and execute on the first deal!
My partner and I have been doing a ton of work (probably too much analysis) on determining which market we should invest in out of state. We both live in San Francisco, and as you know the market does not cash flow. Together we created a market analysis of different and popular markets across the U.S. to invest in.
Feel free to check out our analysis using the following link: https://docs.google.com/spread...
If anyone has any questions about how we created this, feel free to let me know!
Disclaimer: We are not professional data analyst and definitely not perfect, so there may be a few errors in this analysis. All info is public data online.
Hope this is useful for some.
Thanks!
So after doing all of this what have you selected as your market or your top 3 markets? MSA metrics are great for picking a market but don’t forget to vet individual locations with that market, happy to send you some ideas on how to do that.
Hey @Lee Ripma!
Great question - after combing through this analysis we first sorted the data by Price to Rent Ratio (as a good measure for cash flow) but the top 3 markets based off Price to Rent Ratio, which were Cleveland, Memphis, and Indianapolis. We didn’t like those markets mostly due to the crime index being well over 500 in each location and relatively low appreciation over the last 20 years.
We came down to Killeen, Phoenix, and Boise as (for right now) our top 3 markets based on a variety of stats but mainly population growth, household income, and home value growth.
Our next step is now reaching out to agents in those locations and running analysis on a variety of multi family properties in those locations to try to find a good deal to start making offers.
Would love to hear your opinion if those are good logical next steps and any ideas/thought you may have here.
Our goal is to purchase our first rental property in this quarter (Q4 of 2021)!
Thanks!
@Nicholas Gayton thanks for posting this. I am also a newbie and in the process of market analysis. I am glad I cam across this post since my analysis was initially just based on the 2% and 50% rule and eliminating a lot of locations. Will definitely use this spreadsheet for a more indepth analysis.
Love to hear it, let me know if you have any questions on how we got this data or thought process behind this.
Thanks!
@Nicholas Gayton Thank you for sharing! I'm a newbie too and have been stuck in analysis paralysis stage. I, too, created a spreadsheet similar to yours but I like yours better. Easier to read and color coded! Again thanks for sharing. By any chance did you consider Kansas city, MO in your search? Decent cash flow with some apprececiation possible
@Victoria Knutson Glad to hear it was helpful!
No, but I think that would be a great market to add. We'll add that to the list.
Thanks!
@Nicholas Gayton I think you're looking at a lot of the right things but you have to prioritize which are most important for your goals and objectives. You need to define those in order to help narrow the list down. You need to quickly get this list down to about 5 markets. The biggest mistake I see is making price to rent ratio your first priority for sorting markets. Price to rent is not a measure of cash flow or return on investment. It's a top line metric only. It might be a useful tool when comparing several opportunities within the same market but it becomes meaningless when comparing across markets. That's because the operating expenses vary across markets. For instance, TX has some of the highest property taxes and TX and FL have some of the highest insurance rates in the country. This makes it possible to have higher cash flow and COC returns in markets with lower rent to price ratios but also lower taxes and insurance. It's a misleading metric to compare markets, I also wouldn't pay much attention to city wide crime rates. Most larger markets have areas with low and high crime rates. One of the most important things is drilling down and knowing the neighborhoods. We're active in both Indianapolis and Kansas City and these are good examples of that. Both are excellent cash flow markets but you have to be in the right neighborhoods.
@Nicholas Gayton - I think you can be successful in a lot of markets and I'm glad to see that you avoiding the low growth midwest cities with "great" cash flow. Cash flow won't be a very large portion of your overall return but it is important. I talk about this more on my podcast and website. I personally am in Kansas City and it's hard to beat for cash flow and appreciation but the secret is certainly out (lots of competition).
Not sure if you're talking about the cities or the MSAs. Regardless I did a little pulling of that data for you, hopefully it helps. You want to make sure that the market you pick actually has the asset type you want. Killen only has duplexes really. You'll find Texas prop taxes are very high. Pheonix has the most small MF by sheer number, it's a way larger market than anything else on your list.
Thank you for sharing your research!
Appreciate your insight here!
We've essentially nailed it down to Austin Texas/Killeen Area, Phoenix, Las Vegas, and Boise and are now looking at other metrics, and really diving into analysis on specific properties (and contacting agents) in an attempt to find a deal. Will also definitely think about adding Indianapolis and KC to the mix. Seems like a lot of investors have had success in those areas!
Great point on operating expenses in various states and markets. That's definitely something to think about and consider when evaluating a market. Also, great point on the city wide crime rates. All cities have good and bad neighborhoods, so it seems very important to get down to the actual neighborhood level when doing research on crime rates.
Thanks Mike!
Thanks for sharing/post your work. This is great research. Appreciate you sharing.
@Nicholas Gayton Great post, thank you for sharing.
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@Lee Ripma - We used the actual cities for this data!
That's a great point on evaluating supply (of the target assets) in an area we are evaluating. Where did you happen to find the data on supply in various locations?
Listened to your podcast and read the articles today. Super helpful!
Hi Nicholas, I'm from California but I started my real estate journey here in Indianapolis. Now, I have more than a hundred doors. I'd love to share my experiences and chat you further if you're interested.
Boots on the ground perspective on Killeen. I own a 4-plex in Killeen have some first had experience I would like to share. Killeen is a funny market, unlike any other city in Texas. It is a one company town with Ft Hood Army Base being the primary employer. You'll want a PM who is experienced working with the military and the rules on deployments. Relative to other Central Texas markets the rents are low. A 2BR rents for $700, the same unit in College Station rents for $800. We've seen significant rent appreciation in the past year but it is still low. Prices are also low until this past year. Like the rest of the Texas Killeen is super hot right now. Expect to pay over asking price. You also need to pay very close attention to neighborhoods. A block or two makes a huge difference. I would highly recommend out of state investors come drive around to get the feel for the area before buying. Trulia crime maps can help. Old town North Killeen is particularly rough. There are sections I would not go after dark. We have friends who had a shooting right next door complete with a chalk outline in the middle of the street. North of Rancier is not for the faint of heart. The better sections are south of 14 and East Killeen. Harker Heights is better yet. Now that I've scared you here is the good part. Price appreciation has been strong, our 4-plex is up over 50% in two years with light renovations. Rents are growing steadily but you have to work for it. We've been raising rents after light renovations; paint and flooring. We have stayed fully rented. There is a bunch of inventory, even now it is not difficult to find duplex and 4-plex. There are even builders putting in whole neighborhoods of small multifamily properties.
@Nicholas Gayton I did my own analysis by looking at over 50 locations and I can say that my top contenders for investment are Killeen, TX, Phoenix, AZ, Boise, ID, Jacksonville, FL and Tampa, FL.
I used a lot of the same metrics as you did, but also like how you included landlord friendliness, DOM and vacancy rate.
Do you mind sharing where you got vacancy rate stats from ?
Hello Nicholas Gayton in San Francisco. A few months ago I did all the Zillow Searches for everything on the list from Houses to Land in San Jose where my brother lives. The one thing I found that would produce Cash Flow was with Manufactured Homes in San Jose. Cheap enough to buy, would Rent for good profits...If you own the land even better for longterm Appreciation. Same thing here in Tampa, Florida. You just have to aquire the right ones.