How to decide on a OOS property to invest in?

Question

Since I'm looking across the border (from Canada) into the USA, I will need to invest in a city that I have not much information on (at least not yet). Planning on a Buy and Hold. But how does one decide on what city/state to invest in?

What factors must I consider before focusing on a city/region?

Given - I don't have much of a network (at least not yet).

What factors must I consider before focusing on a city/region?

Given - I don't have much of a network (at least not yet).

Hank Keller · Answer

@Jessey Kwong - Here's what I've learned about market research:

Four things to look for in a market

1- Population over a million and good growth rate. This ensures that there are plenty of available houses (with an approximate 3% foreclosure rate, there are about 3000 houses at auction each month), renters to choose from and that the city is growing rather than stagnate or losing population. Good markets didn't drop during the 2008 crash...

2- Cheap Houses. Make sure you get at least the 1% rule meaning $1000 of rent for each $100k of purchase. This should also ensure youre getting about 8% return on your money.

3- Business Friendly and Credit worthy State. Look at how easy it is to set up an LLC, the costs of maintaining the business and the cost and timing of evicting a tenant. Also look for states, cities and municipalities that have a good credit rating which ensures that they will be pouring money into revitalization which increases jobs, growth, appreciation and rents. it also ensures that taxes won't go up in the event that a city starts going bankrupt. (http://www.zerohedge.com/news/2017-10-05/these-two-charts-depict-which-cities-will-file-bankruptcy-next)

4- Jobs. Look for cities where there is a good mix of manufacturing, warehousing and overall good job market with low unemployment.

Hope this helps!

Hank

Mike D'Arrigo · Answer

@Jessey Kwong I've done webinars and given presentations on this very topic so I could go on and on, but to simplify it in a nutshell, you want a market that has a combination of good cash flow and strong economic/demographic fundamentals. There's  lot's of markets with good cash flow but have stagnant jobs and declining populations. On the other hand, markets like Dallas have booming job and population growth but low cash flow due to high property taxes and insurance rates. I suspect their insurance rates are going to get even worse after Houston. Personally, I don't think that you can beat the Midwest for cash flow and Kansas City and Indianapolis in particular. The chart below shows the key economic and demographic factors for some of the most popular markets. You need to overlay this however with the rent/price ratio's, taxes and insurance and landlord tenant laws for the markets.

Jeff Wallenius · Answer

@Jessey Kwong I think I could write 4 pages just to begin answering your question but there is many more dynamic factors in place. If your looking to invest on the West Coast you'll have a difficult time finding cash flow positive properties as prices are very high compared to market rents. The Midwest US is an excellent option for buy and hold investing with the ability to find cash flowing properties. The midwest will not see much appreciation as those markets tick along at 1-4% so know that your investing for cash flow only. The key to investing out of state is your team, or company that you work with. Like any industry there are very solid, morally sound companies that do the right things and take care of their clients and there and shady companies as well. I am speaking about turnkey companies that offer rental solutions, typically to out of state investors. Job growth, geographical economic indicators, population growth, etc are all indicators of strong or stable markets as well. I could go on and on, but really it also depends on your goals, risk tolerance, level of involvement, etc on your end to continue answering questions. I'm happy to discuss further if you like or need more information.

Jay Hinrichs · Answer

@Sebastien Hitier I tend to agree with exception of Dallas... if you live in a state were there are no income tax's then dallas maybe makes sense.. but if U live in say CA with its sky high income tax.. marry that with SKY HIGH property tax's and price's ran up because of the herd mentality.. its about whats left over.. add in ever present foundation issues and high probability of massive hail storms.. and well it can be pretty tough place to actually make any positive cash flow.

Account Closed · Answer

@Jessey Kwong I think what most people start by vetting multiple turnkey providers. Getting references, experiences, etc.  I would say the key to investing out of state is making sure they have in house property management - keeping skin in the game. I've seen investors get burned when this is not the case. We are in Kansas City and it is a great cash-flow city and has been appreciating for years. Job growth, population growth, technology advances, you name it. Kansas City is my home town, so I'm bias - but there's definitely something to love for anyone who lives or visits!

Ryan Wood · Answer

I had the same questions and almost all were answered on this thread! Man BP is great!

R.

Tyler Jahnke · Answer

Dang @Jessey Kwong I just realized this original post is from 2 years ago. Anyways, this is still a valid and important question. Here are some of the factors that I look at when deciding on a market to invest in:

• Population growth
• Job growth with higher wages
• Business friendly
• Diverse economy
• Strong occupancy rates
• Acquisition price-to-rent ratio
• Landlord friendly
• Infrastructure development
• Lifestyle amenities
• Educational institutions

Happy to go more in-depth on these if you'd like...just shoot me a message.

-Tyler

Alyssa Dyer · Answer

@Jessey Kwong it depends on your strategy! If you're looking for stable cash flow, low entry points and decent cash flow, I'd look at the midwest!

I've seen investors that live in exciting markets flock to Oklahoma City for 70k rentals with 700/month rent rates and the comfort of being recession proof.

Matt K. · Answer

I let my budget guide me... I only had a set amount of money, but the quality of what I could buy changed dramatically depending on the market. Now with that said, you have to look past the on paper returns and find something that makes sense in real life. That will be impossible (but you could get lucky) to do with out visiting the areas you want to invest. Once you visit and find that market you need to learn it well enough you'd feel comfortable moving there and picking out a place to live. Know what each area is and isn't, who rents there, what do they do for work, this will allow you interview a PM/TK company and at least have a chance to see if their numbers are near what you've come up with.

Todd Dexheimer · Answer

Check out a recent BP blog I wrote on finding emerging markets: https://www.biggerpockets.com/blogs/10145/66160-how-to-identify-emerging-markets

How to decide on a OOS property to invest in?

Most Popular Reply