Picking an out of market investment location. My hometown?

Question

I have been struggling with focusing my market research to one locale. My current RE market of Portland, OR is insane right now for my specific goals of entry level SFR or MFR yielding cash flow. There are two to three markets I am interested in that I have some small relationships within that I could utilize, my hometown, my wife's hometown or a place I visit often for work.

My questions concern the opportunity cost of learning the ins and outs of 3 different markets when the requirements of truly knowing the market increase the chances of success.

Do I select one based on distance, the potential to cash flow or appreciate, or one that I may have more connections in?

Thanks for any suggestions.

Ethan Wilson · Answer

@Austin Youmans

Market 1So one of the RE markets is my hometown which I haven't been to in ages. Pros- It has good schools, is very stable and has a low crime rate. I don't expect appreciation in this area but price wise the entry level investments SFR and MFR are doable and cash flow fairly well. I could also easily find old relationships to leverage in the RE community there.

Cons- A Higher rate of vacancy and across the country from me now.

Market 2Pros- A larger city with colleges, growing RE market, and fairly stable economyMy wife is from here so she would know the location, crime, etc. It is much closer but a 5-hour drive.

Cons- Higher property costs than Market 1 and much more crime so I could potentially pick a bad area to invest in.

Market 3Pros- Small College town with very high rental rates, very reasonable RE prices, higher rents. I travel here for work often and love the city.Cons- Across the country, high tax rates, I have very little knowledge of this area.

Ethan Wilson · Answer

@Doug Woodville I'm looking for cash flow 300$ a month minimum.  I ideally like Multi Family rentals for the scalability to fit my long term cash flow goals quicker, but I do analyze occasional deal for single family homes if they hit my metrics. I have been analyzing deals in the three areas utilizing the BP rental income analyzer to determine if they fit my criteria. My concern is if I'm spreading myself too thin across the three different markets for my first few deals instead of focusing on one area and really getting to know it and build my RE team in that location. I have found a few deals here and there but I would love to have property managers, contractors, and real estate agent relationships built before pulling the trigger. I gave myself 6 months to a year to increase my educational knowledge and practice deal analysis.

Austin Youmans · Answer

I would go with the area you know the most about assuming it is an ok market.

I have not bought out of my market but have thought about it. I tend to look at a few criteria first.

Cash on cash return

Population growth

Crime rate

Connections to area - meaning who is going to help you manage, find deals, maintenance and how often/easy you need to/plan to visit.

Doug Woodville · Answer

Hey @Ethan Wilson, what are your ultimate goals? Are you looking for cashflow, appreciation, flipping? Once you determine what you want it doesn't take much to analyze deals from different cities/towns to get a feel for what the potentials are. For example if you wanted to purchase multi families for cashflow: You could quickly check sales of duplexes/fourplexes etc. in the last 6 months to get a feel for ARV's. Grab the current rental rates you can find in the area and plug the info into your spreadsheet to analyze (I assume you have a spreadsheet to use, if not search the site, there are a bunch to use that are offered by other members for free). The toughest part would be insurance and tax rates but those you can get close enough through searching, at least close enough to do some quick number crunching. All of that should take 20 min or less. Obviously you can get more detailed with it but I think doing this will give you a decent start to determine if something is worth investing in. Once you do this enough and you know what money you have available for a down etc. you can do this pretty damn fast. If I see a duplex locally and it's going for $690k and rents are at $2100 I know that I'm personally going to scroll right by it (assuming that's a fair price for it). I just made these up but they are very real for this area.

There are so many people that do out of state investing that I would't worry to much about distance although having people in the city that could drive by houses for you is definitely an advantage. What are your goals?