How to find good markets to buy rental properties in the US

Question

Does anyone have an efficient way of finding out what markets are top choices to purchase rental properties(primarily under $60,000 for sfh or $150,000 for multi-family homes?

Chris Clothier · Answer

In reference to the chart I shared earlier, I'll list the markets that we really like.  A big factor for us is net job creation.  You often see lots of hoopla about new jobs when people are trying to promote a city.  Net jobs created is very important because it not only measures the new jobs created - the ones with all the press clippings and announcements - but it also measures the jobs that were lost.  The one no one tells you about!  So pay attention to that number very closely.  That tells you the true health of demand in a market.

We are already in Memphis, Dallas, Houston, Oklahoma City, Little Rock and St Louis and each of those six cities have positive job growth and strong data.  As with any two cities, the strength in each category varies.

We also have found that Fayetteville, Arkansas; Kansas City, Kansas; San Antonio, TX; Tulsa, Oklahoma; Chattanooga, TN; Jackson, MS; Baton Rouge, LA; Knoxville, TN. and Springfield, MO. have really strong numbers.  These markets are all in the south where snow is rare so winter problems are negligible and they each have not only net positive job growth, some are very strong in job growth and their 10-year outlook is very strong as well.

Just more food for thought on markets and how you go about analyzing and selecting where to invest.

Chris Clothier · Answer

Isaac,

I've written a book about this and my first suggestion is to find a market or markets that work best for you.  There are lots of ways to use objective information to build a case for narrowing your list of markets.  When you have the markets that make the most sense for what you are looking for in your portfolio, then you can begin to research good, quality companies or individuals to work with.

BestPlaces.com is absolutely the best place to find quality data on each market you like.  We have compiled data on 50 different metroplexes around the country to determine where we want to go to.

Here is the criteria that Memphis Invest uses to determine market criteria before going to visit.

Lastly, buying single family homes all in for $60,000 is very foolish, IMO.  Those houses are best for local investors.  Out of state investors have no business owning the low price properties far from home unless they are professional and seasoned investors.  These are landmines waiting to absolutely blow up in the faces of investors.  Just food for thought.  Look at buying the best property you can afford and look to be able to buy two to begin with.

Chris Clothier · Answer

You are looking to buy a property in a market outside of your own.  You want to buy single-family homes that are priced at $60,000 all in.  I am presuming that you mean all in and not priced at $60,000 in need of work.  So, you are looking to purchase and renovate a home for successful long-term buy & hold across the country with a property management question.

There are many, many investors who buy $60,000 all in properties successfully.  Most of those investors will fall into one of two categories and sometimes both.  First, they are local.  Second, they are professional investors.  They have teams and systems set up to help them be safe and efficient and most importantly profitable.

For new or even investors with limited experience, these price point look really good and they are almost always accompanied by stories of awesome returns and sky-high rental rates.  The numbers on paper look fantastic, but I am confident that a vast majority of investors in these price points will tell you that the reality is they are tough to manage, tough to cash-flow and the numbers never look as good as advertised.

Lastly, local investors are knowledgable and they buy what works.  If there are properties for that you can buy for $60,000 all in, then those properties have to be purchased and renovated for that price.  These price points tend to be older homes in more challenged neighborhoods.  If they are 1,000 square feet and they are properly renovated, then that should be roughly 1/3 of the $60,000 or $20,000 ($20 per foot).  That means after deducting closing costs, the property itself would be priced at roughly $30,000 to $35,000.

Houses at that price point that are located in even halfway decent locations and teetering on being a challenged area are scooped up by local investors.  So what is left?  The truly risky properties that local investors know they cannot make work.  They are then marketed and sold to out-of-state investors and often as a Turnkey investment.

Hence, my advice to up your price range and look for far better properties in better areas.  They are simply better passive investments for non-professional and passive investors.

Mike D'Arrigo · Answer

@isaac chun We don't really do Section 8 ourselves but that's not to say that you shouldn't consider it yourself. Personally, I don't believe that Section 8 tenants are any less desirable than market rate tenants in a comparable class of property. The biggest problems I see with Section 8 is the bureaucracy of approvals and getting tenants placed. Section 8 is administered at a local level by local housing authority. Some are better than others so if you're to consider it, do some research on your local administrator.

Jeffrey Holst · Answer

@Alex Washburn best of luck on the move.  Hopefully when you get here you will find exactly what you are looking for.

Isaac Chun · Answer

Hello @Mike D'Arrigo

First off I appreciate your input as well! I will ask you what you think about investing in housing for section 8 recipients? These families require safe and clean places to live like anyone else. Would it be a poor decision or bad investment to cater to this population, just because they are typically located in lower income parts of our cities? I’m open to your opinions, so please share them.

Isaac

Mike D'Arrigo · Answer

Issac, I agree with @Chris Clothier completely. I don't want to speak for Chris's reasons but I'm sure that they are the same as mine. Ask the investors that you've come across that are using this criteria if they are local and also how long have they held their properties. I have yet to see an inexperienced, out of state invetor be successful in this asset class. There's no mystery why. These properties are typically in rough, run down, high crime neighborhoods that don't attract quality tenants. You can't get good tenants to want to live in bad neighborhoods and no matter how good your property manager is, they cannot change bad behavior.

Alex Washburn · Answer

@Chris Clothier My apologies if this has been discussed elsewhere. My husband and I are actually moving to Chattanooga next week to pursue Real Estate full-time. (He is going to be working remotely on his W2 while I manage the day to day real estate efforts.)

Do you have any associates with AirBnB or VRBO experience in Chattanooga? It's not going to be a focus for us but I find it interesting and would love to be put in touch with someone that has experience with short term vacation rentals in that market.

Scott Mclaren · Answer

I have a friend who has a 6 bedroom house in Las Vegas who has been absolutely killing STR for years. That being said , you really need to see what the HOA has to say about a particular neighborhood. I dont think my friend has a HOA. Also any restrictions from any municipality. Here in AZ the governor signed a law forbidding municipalities from restricting STR , but the HOAs have gotten really crazy about restricting them .

Isaac Chun · Answer

@Jay Hinrichs

Do you know anything about getting larger homes accepted for STR license here in Las Vegas or North Las Vegas? I have a potential deal that could work if they’d allow a 6 bdrm home for STR.

How to find good markets to buy rental properties in the US

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