Best area of the US to buy rentals?

Question

I have asked this before and many said to only buy areas in areas I know. Perhaps I am crazy, but I feel like I can get gather enough information about an area from the internet and feel comfortable investing in states that I have never even been to. I also feel like a well researched property manager can effectively run my rental business for me.

On a purely cashflow perspective, what areas or cities would you recommend for the best rent yields?

Thanks.

On a purely cashflow perspective, what areas or cities would you recommend for the best rent yields?

Thanks.

Casey S. · Answer

I wouldnt do it. My town is loaded with propertys that are owned by investors from all over the world. I get a lot of my properties from these people that bought thinking it was a good idea and paid too much because they simply didnt know the market. They bought something that looks good on a map without ever visiting the property. They messed up and trusted a real estate agent or some other local to do their due dilegance for them and paid too much because they didnt fully understand the market. Managing the property manager from afar turns into a larger problem than they thought it would be so they decide to sell due to vacancy, theft, headache, etc. Problem is they paid too much so it sits on the market never moving because they are upside down. Its very common for them to have to bring 10K+ plus to closing in order to get out of a bad investment. All as a result of them hearing somewhere about this town that is great to invest in.

This is in a market where we never saw a down turn in prices too so it could be much worse in a falling market.

You HAVE TO HAVE TO HAVE TO know the market inside and out, upside and down. You cant do that from across the country.

This is in a market where we never saw a down turn in prices too so it could be much worse in a falling market.

You HAVE TO HAVE TO HAVE TO know the market inside and out, upside and down. You cant do that from across the country.

Michael Lauther · Answer

Joe A I believe we have discussed this before and each of us has a niche we are comfortable with. I invest in Dayton Ohio because I see a city that is on its way back. I invest in only areas I know well and in an area that has potential for some very concrete reasons.
An example of a rental property that I have put out there before is  a 3 bedroom 1 bath two story home completely renovated for under 20,000.  Taxes are under 900 annually and insurance is 600. Rent is 625 monthly. You can crunch these numbers for yourself. It is near Wright Patt Airforce base with 40,000 employees including active duty service members. It is less than 4 miles from the base and has good rental potential.

The cons are that it is 700 miles from my home,  good property managers have been elusive and the challenge is to manage these properties form afar.  I have actively solicited equity partners who live in the area and hope to continue to make the contacts that are essential to a sustained profitable business.

I would love to see how others would characterize their particular area. The numbers I have used do not represent any skill on my part in finding great deals. I am sure I could buy better and rehab for less if I had a partner who lived in the area.

Account Closed · Answer

That request puts a smile on my face. The whole world can be your oyster, but other fisherman aren't going to tell you where to find their best oyster beds!

Maybe start with researching the best property managers. Once you find where the good ones are, that might be your area? ...just tossing ya a bone...

David Krulac · Answer

Joe A

If all you are looking for is cashflow and you don't car about appreciation, there are small town USA, towns that you never heard of where you can buy houses for $20K and rent for $450 a month.  And ten years from now the house will probably still be worth $20K.  Theses towns are typically 50+ miles away from urban centers, so that they are at best on the fringe of the commuting areas.

Best, though implies to me growth & cashflow.  The above example is a cashflow NO GROWTH investment.  For the best areas look for:

1. Population growth
2. Economic growth
3. Increased employment numbers
4. Increased hourly wages/family income
5.  Increased school population
6.  Diversified employers in the area
7.  Infrastructure that supports the current employment and employment growth
8.  Good to great educational facilaiites in the area
9.  Low crime rates
10. Favorable tax rates

Michael Lauther · Answer

Uwe S. Thanks for the encouragement but working without a property manager is not by design. It was because they needed too much to do too little and added significantly to the cost of operation. I have several opportunities to partner with out of state inventors and I may do this  in the end because those investors who I have met locally do not need my equity or experience. I use equity trust as my custodian and there are hundreds of properties in my farm county (montgomery county) owned by local Self directed IRA's.

Joel Owens, I agree fully with your assessment. Apartment buildings and commercial property is better suited for out of state investing.   Given the capital and credit situation I find myself in, cash investments in small quality properties concentrated in a small well researched farm area has allowed me to maximize my return and minimize my risk.

at some point I will need to let go of some control and hire a local property manager or set up a group of investors to mutually manage our properties.   I have a very young family and if the need arises they would not be able to manage as I have.

Joel Owens · Answer

My clients buy apartment buildings and triple net properties but you have to have much larger liquid cash to play in that space which is why many on BP focus on the little houses.

The barrier to entry for houses is much,much cheaper.

I am not  a fan of having little houses all over creation.The logistics of keeping all that together is very hairy and I have heard of a few investors doing decent with it but many others have nightmare stories and outcomes.

The biggest mistake I see is an out of town investor using a broker/agent who does managing on the side.They do an okay job for awhile but then when a regular sale comes along they let your property slide.

You want a professional company that does not have a divided interest and only does managing. Rehabbing is fine if they are selling turn key but then you have to watch out that they are not padding the numbers.

One bad tenant in a house can wipe out your cash flow for that year in some cases.Some markets are rental only,some purchase only,and some are a mix of the two.

So you have to decide if you want cash flow only,appreciation only and break even for cash flow,or some of both for your strategy.

Best part of the U.S. to buy is a loaded question.Again that will be subjective as to do you want immediate yield only (cash flow) in a dumpy area that will not appreciate much if at all??

You could also buy in an area where you break even on cash flow but the area has a track record of rapid appreciation in the long run OR you could buy in an area that has shown to throw off decent cash flow and some appreciation. This gives you some money now and down the road.

So what areas will be a fit or not will depend on your objectives you are trying to accomplish which is why you will get so many different answers.

A buyer with 40,000 cash to invest might want 14% annually to grow capital fast but another buyer with 1 million cash might be happy with 8% annually in a much nicer area.It all varies.

You can absolutely buy apartment buildings and triple net out of state without any issues because the managing is different than with houses.

You have to get a qualified broker/agent that knows what they are doing and puts you first and thinks JUST AS MUCH about your exit timeline and strategy there as they do about the purchase part.

Uwe S. · Answer

Unbelievable you work without an partner in Dayton with sucess, great work Michael Lauther.

-Uwe

Uwe S. · Answer

I see areas for best cashflow like Michael Lauther - Dayton, Cincinnati, Columbus, parts of Cleveland and some parts of upstate Ohio, Pittsburgh (PA) and some towns in upstate New York.

-Uwe

Michael Lauther · Answer

Ned Carey, if I read your post correctly you market will yield a property with an after rehab cost of 50K and a market rent of 1,000 to 1300. Some taxes on the high side. Expenses than would be 1800 taxes and 600 insurance. If we use your lower tax number and lower  insurance number you would have $15600 rent minus taxes and insurance of 1900 =  13700 before accounting for vacancy property mg mt etc.

if I apply the 50% guide this property should generate NOI of 7800 per year for a cash on cash return based on $50,000 with no leverage of 15.6%  and a $1000 a month rent would return 12%.

If I understand your example this would be an excellent opportunity. How would you characterize the neighborhood in your example? Can you provide a representative zip code.

Account Closed · Answer

glad to be wrong! :-)

Joe A Ned's offer would be worth the trip!

Best area of the US to buy rentals?

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