How to analyze a city for investing

Question

What’s the best way to know if a particular market is ripe for investing? For example I see a couple of houses in my hometown Dyersburg, Tn that are up for sale which to me signals some kind of motivation to sell. However I’m only actively investing in Memphis, TN and Chicago, IL at the moment. I’m interested in understanding how to profit from a situation like this.

Jack Inman · Answer

Just look up local rental rates on any rental website. Zillow, craigslist, hotpads; they'll give you a sense of what local rates are. Also those websites are decent for gathering home values as well; just know that they won't be accurate on each individual home, but overall they'll give you some good information.

For business trends; look in the news for new jobs opening in town, or for jobs closing. Drive around and look for new commercial construction, etc..

You can probably google major employers and get a sense of who the big players are in the area and what kind of local market share each major company holds.

Lupe Rodriguez · Answer

Hello! I'm new and looking for my first out of state city to invest in. I was listening to someone on Youtube talk about their favorite investment rental, and they mentioned that they heard a Walmart was moving in up the road, which was a big factor in them buying. Companies put lots of money into researching where to build, then the info often finds its way to the internet for free. I've been looking at where companies are building to help with my search. Whenever anyone mentions something moving into an area, my ears perk up. Also, I like the idea of places where the weather won't beat up on a place, so I'm favoring warmer latitudes (minus CA).

Jack Inman · Answer

Tyler, I don’t know much about Dyersburg, but from a very general approach there’d be a couple metrics that I’d look for.

1. How do the rental rates compare to the acquisition costs? Obviously low acquisition costs and relatively high rental rates would be a favorable scenario for a buy and hold investor.

2. I’d look at housing price trends and business trends. Trends over the last decade can provide some insight as to how properties and businesses in that area react to different economic situations.

3. Like Michael said; is the area’s economy diversified or does it henge on one main employer. This would be especially important when investing in a smaller town.

Those three items are probably the first things I’d look into when assessing a new market.

Michael Lee · Answer

Hello and welcome Tyler!  The only ways I would buy out of town is to buy a minimum of 30 units in an apartment complex so you can have enough money to hire a property management company that will take care of the daily stuff.  My next choice would be a Turnkey  Property that is renovated and managed by some other group of people and your only duty, after your original inspection and an evaluation, is to get a check from them each month.  The only other way I would invest out of town is to research the area and have friend there that is willing to use to do whatever is necessary and call you on the phone daily to give you an update.

You know when a particular market is doing well to see if the population and jobs are increasing.  Is its economy well diversified?  It is well diversified like Chicago is revealed to be the most diversified city.  Hopefully, its market favors sellers over buyers in that area you are looking at investing in.  Just seeing a couple houses does not always mean favorable news.

I have also heard some good things about Memphis from a company named Memphis Investments that has been a Turnkey investment provider for quite a while.  They are currently in about 5 cities including Memphis.  They expect to close on about 900 homes this year.  There is another thing that would make me invest somewhere out of state.  That, is if you have to travel to those cities often and can get reimbursed for your travel expenses and make time to visit your investments.  Good luck to you!

Tyler Hockett · Answer

Now where would I get these metrics from?

Christian Okoye · Answer

I’m new to real estate investing, but have tried to do a ton of reading about it. For various reasons, I’m going to attempt to purchase my first investment property out of state.

In doing my research, I came across the book by David Green called Long Distance Real Estate Investing, where he outlines his process. As a novice, I found there’s to be a ton of actionable advice there. But with regards to OP’s specific question, in addition to what was mentioned above, I think the book would have you think more broadly about the team you would need to compile to make the situation successful (ie realtor, property manager, lender, and contractor [if necessary]). After screening your team to ensure they have your best interests at heart, THEN leverage their local knowledge to guide you about the area, what is rentable, where the growth is, etc. To me, that sound much more grounded in truth rather than relying entirely on your own research. Do your due diligence, but confirm it with your team (and any large discrepancies serve as red flags, about either the information or the confidence in your team members).