What locations do top investors invest in?

Question

I get confused.  Some of the top investors seem to contradict themselves sometimes.  I understand in real estate there are many answers to the same questions.  However, I’ve heard top investors say on YouTube “ I wouldn’t want my wife to jog down this street at night by herself” and then in a podcast I hear the same person say “ my rule of thumb is that if my wife can’t walk or jog down this street at night then it’s a property I will not go after”. I’m paraphrasing a little.  Just confusing.  Another one is: screen tenants extremely well but a lot of the good same investors have section 8.  Can anyone clear these topics up?  Thanks

Daniel J Rubio · Answer

I just follow where UHaul indicates where people are moving to most. A good rule-of-thumb is to stick to where job growth is increasing & the birth rate is higher. https://www.uhaul.com/Articles/About/16390/U-Haul-Announces-Top-25-Us-Growth-Cities-For-2018/

Tim Clarke · Answer

Thank you for the advice.  I’m currently in the process of getting seller financing on a duplex.  It is in a C to C- area.  I just have to agree to the terms.  Think I’m going to pull the trigger and try to get the ball rolling.

Scott Mac · Answer

Hi Tim,

The lower you go, the more possible rewards and the more probable the risks (personal and financial).

At the lowest end, it can be less costly to get into the business, but you get "tougher" tenants and possibly not much appreciation.

At the very top end there may be less risk and maybe less return (risk/return).

In the middle there is a spectrum between the two.

The question you want to ask yourself is how low in the tenant food chain do you want to go.

Good Luck!

Alyssa Dyer · Answer

Hey Tim! Every investor has different criteria. I know investors with deep pockets (that I guess you could call a top investor) that invest only in C class areas where I'd walk my dog at night, but they probably wouldn't let their wives do the same. They do this because rates of return are the best, however, you do deal with some more wear and tear on the property and a bit higher maintenance.

I also know investors that only buy A class. Their rates of return are lower, but they feel better about having tenants that might put more wear on a property and a property that will likely have less maintenance costs because it's newer. Every strategy has an upside and downside and you just have to decide what you're comfortable with!

To elaborate a bit more and to fully answer your question, I know investors that LOVE section 8. It sort of guarantees your rent because if the tenant doesn't pay they're at risk of losing their assistance. Also, section 8 requires an inspection every two years. Investors like that if there were ongoing unreported maintenance issues, that it would be caught during this inspection! Like lower income areas, there are sometimes more wear and tear/makeready costs with section 8 properties due to more kids in the home etc. However, as long as you do makereadys with more durable materials like snap in floors instead of carpet, flush lights instead of fans.. you're safeguarding yourself against those costs.