How to choose where to invest out of state

Question

I'm in Los Angeles and want to make the jump investing out of state into an area that has a profitable cash on cash return. How did you guys make your first jump to choose your location? I'm Looking for a quality team of contractors and property managers in a great investable city.

Darius Ogloza · Answer

Here's two cents worth of advice:

Judging by the volume of totally new to newish investors on this website asking this same question, your question naturally poses the further question of whether picking a local real estate about which you know nothing is a viable business plan to begin with. Simply learning enough about one market to invest with confidence takes an enormous amount of work, gaining enough knowledge so that you can confidently compare investment opportunities in Cleveland versus Toledo versus Columbus versus Pittsburgh versus Buffalo etc is a massive undertaking that is beyond the skill level of many experienced investors. Second, you should ask yourself what makes you think you will have competitive advantage over local investors as well as all of the out of area investors pouring into these places? Trust that the truly good opportunities will be taken. It's easy to find people willing to take your money but hard to make money by throwing a dart at the dart board.

Nicole Benton · Answer

Hi Sam, My husband and I just recently completed our first out of state deal. We spent a lot of time researching different markets before deciding which one to jump into. Living in the suburbs of Seattle, we ultimately were searching for a market with a lower price point. When researching, we looked for markets that had consistent population growth, job growth, home value and rent appreciation, and markets that had a variety of job sectors. We found that quite a few of the Midwest markets hit that mark.

After that, we started reaching out to different investors in those markets trying get further information and build connections. One of the biggest factors when choosing a market is where you can find and build a great team of people to be the boots on the ground for you. As Remington mentioned, the most crucial team members will be an agent to help you find the deals, lender to help finance the deals, contractor if you plan on doing any sort of rehab and a property manager if you’re planning on acquiring rental properties. If you can connect with and build a great team of people, they’ll help you succeed in your out of state investing journey.

Charles Cooper · Answer

@Sam Mahmood

Labor statistics on government websites and census for population growth

Jonathan Greene · Answer

"I'm Looking for a quality team of contractors and property managers in a great investable city" is what everyone wants. You have to adjust and tighten your focus a lot. Picking an OOS market is a dartboard if you don't know anyone there and think you will not go there and only build a team online, it's a recipe for potential disaster. I start by asking myself where have I lived, where do my friends live, where does my family live, where did I go to college or other school? These areas I either know well or have someone I trust on-site so that I don't have to trust all strangers. Then I see whether any of these markets look good for investments.

Saying you want the vague notion that everyone wants will only get agents to tell you that their market is great and use their providers and their PM and that is not in your best interests unless you are going to spend 3-7 days in the OOS market first to make face-to-face contact with everyone and the streets you are looking at.

Nicole Benton · Answer

@Kenneth Garrett The top 3 markets we were considering were Kansas City, MO, Indianapolis and Cleveland, OH. We ultimately decided to do our first deal in KC MO because of the connections we had built out there.

Jonathan Greene · Answer

@Sofia Sharkey no one said it can't be done, but if you take the number of people who have success OOS, without going there, versus the ones that fail miserably it will be 1 in 100. If you are detailed and analytical and can judge people well from long distance, you can do well, but most people are not and can not. And even the most savvy OOS investors are leaving some money on the table in the process that they don't know about, but that doesn't mean the spread isn't still ok. To say it is not accurate what I said is to encourage people to take higher risks based off of your success. Maybe it will help to tell the OP why your way worked for you, but also acknowledge all the ways it can go wrong. The problem with REI advice is too much yes do it and go, go, go, but when someone is taking their life savings and tossing it out on a first investment OOS, I would want to be very clear on the potential disaster.

Vaibhav Puranik · Answer

Hi Sam,

I would first find a city and then find out contractors on BiggerPockets who are replying to other people. Every city has trustworthy people. Choose your location first and you will find quality people on Biggerpockets.

To find a market or a city, I would start with some of the following Biggerpockets videos:

Brandon Turner's 7 Metros with the biggest rent growth - https://www.youtube.com/watch?v=Nwm59x40J78

Paul Moore's Best Real Estate Markets in every region of the US - https://www.youtube.com/watch?v=6lZfpw6r33M

Remington Lyman · Answer

I ended up investing locally here in Columbus, Ohio.

It does not matter where you start as long as you develop your Core 4. The core 4 is David Greene’s strategy for long-distance and made up of a realtor, contractor, property manager, and lender. Once you have this team in place, you should be able to confidently invest in any market.

As for picking a specific market - I would go after one with an increasing job and population growth.

Kenneth Garrett · Answer

@Nicole Benton

What were your top 3 markets you were considering?  I live in the Midwest ,Chicagoland market. I have a number of rental units in the northern suburban market  Curious what you thought were good areas.  I always felt Indianapolis or Columbus, Ohio were good choices.

Mike D'Arrigo · Answer

@Sam Mahmood start by clearly defining and quantifying your objectives. Once you've done that, you can start evaluating markets against your criteria. Assuming that you goal is cash flow, look for markets that offer the following:

1. Stability and affordability2, Strong economic/demographic fundamentals i.e. growing populations, growing jobs, high labor participation rate, and good incomes. You can get most of this info from the Bureau of Labor Statistics and the U.S. Census Bureau.3. Public and private investment in infrastructure and development projects4. Favorable landlord/tenant statutes

How to choose where to invest out of state

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