Which location to buy Real Estate for Investment and how much to invest

Question

Hi, I am new to real estate investment. Should i buy multifamily , SFH, Townhouse. Which locations, towns are good for Investing in Real Estate.  I am around 45 years old and good amount of savings in cash. I work 9-5 job. I am based in New jersey. How much should i invest to get good cash flow. I plan to buy multiple properties out of state. I am looking for cash flow. Kindly advise

Stuart Udis · Answer

You build wealth through accumulation of equity, not cash flow. When I hear investors are chasing cash flow and looking to invest in distant markets alarms should go off because that typically means the investor is ignoring the fundamentals that are most important to sustained performance. Cash flow should be viewed as being necessary to cover expenses, provide sufficient reserves and through these two items provide the opportunity to obtain favorable loan terms on the real estate. Most who are able to generate cash flow that is meaningful are hands on operators and are really operating a business, investing is secondary.

Michael Smythe · Answer

@Ravi Pamarthi

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

Why is Property Class so important for investors to understand and apply in their investing strategies?

Because the Property Class dictates the Class of the tenant pool that the property will attract.

The Tenant Class
greatly impacts rental income stability and property maintenance/damage by tenants.

Both Property Class
and Tenant Class affect what type of contractors, handymen and property management companies will work on a property.

If you buy & renovate a property in Class D area to Class A standards, what Tenant Class will rent it?

Or, if you put several Class D tenants in a Class A four-plex, what do you think will happen to the property?

So, if you fail to apply the correct assumptions to a property, your expectations won’t be met and it may even be a financial disaster.

We use the following to rank Property Classes, in order of importance:

• Property Tenant Pool: closely linked to location, but not always.
• Property Location: closely linked to tenant pool, but not always.
• Property Condition & Amenities: it’s important to, “Maintain to the Neighborhood.”

Key metrics for each Property Class:

Class A Properties:
Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years. 
Tenant Default: 0-5% probability of eviction or early lease termination.
Section 8: Class A rents are too high and won’t be approved.
Vacancies: 5-10%, depending on market conditions.
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.

Class B Properties:
Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
Tenant Default: 5-10% probability of eviction or early lease termination.
Vacancies: 10-15%, depending on market conditions.
Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation.
Section 8: Class B rents are usually too high for the Section 8 program.

Class C Properties:
Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability.
Tenant Default: 10-20% probability of eviction or early lease termination.
Section 8: Class C rents usually meet program requirements, proper screening still recommended.
Vacancies: 10-20%, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.

Class D Properties:
Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”.
Tenant Default: 20-30% probability of eviction or early lease termination.

Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection.
Vacancies: 20%+, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.

Where did we get our FICO credit score information from?

Check out this chart:

FICO Score

Pct of Population

Default Probability

800 or more

13.00%

1.00%

750-799

27.00%

1.00%

700-749

18.00%

4.40%

650-699

15.00%

8.90%

600-649

12.00%

15.80%

550-599

8.00%

22.50%

500-549

5.00%

28.40%

Less than 499

2.00%

41.00%

Source: Fair Isaac Company

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

The City of Detroit has 183 Neighborhoods we’ve analyzed and ranked on a map on our website.

DM us if you’d like to discuss this logical approach in greater detail!

Aaron Ameen · Answer

Hey Ravi, welcome to BiggerPockets! Since you're focused on cash flow and open to out-of-state investing, you’ll want to target affordable markets with strong rent-to-price ratios—typically in the Midwest and the South.

I’ve built my portfolio across multiple states while working a demanding 9-5, so I’d recommend starting with:

• Clarifying Your Strategy – Multifamily can offer better economies of scale, but SFHs tend to have lower tenant turnover and easier financing. If you’re just starting out, a single-family or small multifamily (2-4 units) is a great way to learn the ropes.
• 
• Picking the Right Market – Markets like the Midwest (Ohio, Iowa, Indiana, Missouri) and the Southeast (Alabama, Tennessee, the Carolinas) tend to have strong cash flow with lower entry costs. I personally expanded to Iowa for exactly this reason—lower home prices and a strong price-to-rent ratio.
• 
• Deciding How Much to Invest – To maximize cash flow, look for properties where you can put 20-25% down and still hit at least a 1% rent-to-price ratio (i.e., a $150k home renting for $1,500+). Depending on the market, expect to start with $50k-$100k in capital per property to cover your down payment, closing costs, and reserves.

Since you're looking to build a multi-property portfolio, setting up the right team (agent, lender, property manager) in your target market is key. I’ve navigated these challenges firsthand, so feel free to DM me if you want to chat about picking the right market or structuring your investments. Happy to share insights!

Jorge Vazquez · Answer

Hey Ravi,

After managing hundreds of properties over the years, I’d say Central Florida is a great spot for cash flow investing. The Tampa area, in particular, has some solid neighborhoods to check out—like University Area, Seminole Heights, Ybor City, Clair-Mel, Town 'n' Country, Temple Terrace, and Odessa. These areas are growing fast and offer good potential for rental income and property appreciation. Since you’re working a 9-5, I’d lean towards single-family homes or smaller multifamily properties (2-4 units). They’re easier to manage, and if you go the DSCR loan route, you can buy based on the property's income, not just yours—makes scaling up a lot easier. As for how much to invest, I’d suggest putting 20-25% down if possible. You can start with one or two properties and build from there. If you want more specific advice or just want to chat about strategies, let me know. I’m here to help!

Jorge

Barron McWright · Answer

Hi Ravi, welcome to real estate investing! Your choice between multifamily, single-family homes (SFH), townhomes, and condos depends on your goals, risk tolerance, and investment strategy. Since you’re focused on cash flow, here’s a breakdown:

Multifamily vs. SFH vs. Townhomes/Condos

• Multifamily: Typically provides better cash flow due to multiple rental incomes under one roof. However, they require more active management and are often priced higher upfront.
• Single-Family Homes (SFH): Easier to finance, maintain, and sell. They appreciate well, but the cash flow is usually lower than multifamily.
• Townhomes/Condos: HOA fees can eat into profits, and condos in Florida are currently facing challenges with insurance and assessments, making them riskier.

Investing Out of State for Cash Flow

Since you’re in New Jersey but open to out-of-state investing, targeting landlord-friendly, high-cash-flow markets is key. Consider:

• Florida (Jacksonville, Tampa, Orlando) – No state income tax, growing job markets, strong rental demand.
• Texas (San Antonio, Houston, DFW) – Business-friendly, good appreciation, affordable multifamily.
• Midwest (Indianapolis, Columbus, Kansas City, Memphis) – Lower purchase prices, strong rent-to-price ratios.
• Southeast (North Carolina, Georgia, Alabama) – Emerging markets with good cash flow and growth potential.

How Much Should You Invest?

• A good rule of thumb is to target 8%+ cash-on-cash returns.
• For multifamily, you may need $100K+ to acquire a solid cash-flowing property.
• SFHs in strong rental markets can be acquired for $200K-$350K, requiring $40K-$70K down.
• Consider turnkey providers or property managers to help if you plan to be hands-off.

Key Takeaways

• Multifamily for cash flow, SFH for easier management/sales, avoid condos unless you’re well-informed.
• Invest in landlord-friendly states with strong job growth and rental demand.
• Budget at least $50K-$100K for your first deal, depending on leverage and market.
• Network with local investors and property managers to avoid pitfalls.

Would love to hear what markets you’re considering! Feel free to ask if you need help evaluating specific deals.

Drew Sygit · Answer

@Ravi Pamarthi

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

Why is Property Class so important for investors to understand and apply in their investing strategies?

Because the Property Class dictates the Class of the tenant pool that the property will attract.

The Tenant Class greatly impacts rental income stability and property maintenance/damage by tenants.

Both Property Class
and Tenant Class affect what type of contractors, handymen and property management companies will work on a property.

If you buy & renovate a property in Class D area to Class A standards, what Tenant Class will rent it?

Or, if you put several Class D tenants in a Class A four-plex, what do you think will happen to the property?

So, if you fail to apply the correct assumptions to a property, your expectations won’t be met and it may even be a financial disaster.

We use the following to rank Property Classes, in order of importance:

• Property Tenant Pool: closely linked to location, but not always.
• Property Location: closely linked to tenant pool, but not always.
• Property Condition & Amenities: it’s important to, “Maintain to the Neighborhood.”

Key metrics for each Property Class:

Class A Properties:
Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years. 
Tenant Default: 0-5% probability of eviction or early lease termination.
Section 8: Class A rents are too high and won’t be approved.
Vacancies: 5-10%, depending on market conditions.
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.

Class B Properties:
Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
Tenant Default: 5-10% probability of eviction or early lease termination.
Vacancies: 10-15%, depending on market conditions.
Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation.
Section 8: Class B rents are usually too high for the Section 8 program.

Class C Properties:
Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability.
Tenant Default: 10-20% probability of eviction or early lease termination.
Section 8: Class C rents usually meet program requirements, proper screening still recommended.
Vacancies: 10-20%, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.

Class D Properties:
Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”.
Tenant Default: 20-30% probability of eviction or early lease termination.

Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection.
Vacancies: 20%+, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.

Where did we get our FICO credit score information from?

Check out this chart:

FICO Score

Pct of Population

Default Probability

800 or more

13.00%

1.00%

750-799

27.00%

1.00%

700-749

18.00%

4.40%

650-699

15.00%

8.90%

600-649

12.00%

15.80%

550-599

8.00%

22.50%

500-549

5.00%

28.40%

Less than 499

2.00%

41.00%

Source: Fair Isaac Company

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

Sam McCormack · Answer

SMF will be your best bet, in the Greater Cincinnati market. And I would think all around, everywhere. But I could be wrong. Your expenses/income ratio will likely be higher in a SFH compared to a SMF (depending on utility situation). Those are my thoughts. Let me know if you have any other questions, glad to talk some more about your situation, market, etc!

James Wachob · Answer

Hello @Ravi Pamarthi,

Welcome to BP! Since you're just getting started, I want to give you some honest insight about investing in Memphis.

There aren’t a lot of good multifamily deals here, and the ones that do pop up are usually in rougher areas—places I personally wouldn’t invest in. For your first few properties, the goal should be to build a solid foundation. That means picking safe, stable investments that may not look like home runs on paper but won’t give you constant headaches with tenant turnover. Every time a tenant moves out, you’re looking at repairs and vacancy time, which can eat into your cash flow fast.

Memphis is a street-by-street kind of market. You really need someone local who knows the landscape and the nuances of each neighborhood. Otherwise, it’s easy to end up with a property that turns into a money pit.

I’ve lived here my whole life and have been helping out-of-state investors build rental portfolios in Memphis for over 20 years. If you want to chat and go over your goals, let me know—I’d be happy to help.

Looking forward to hearing more about what you’re looking for!

Jimmy Lieu · Answer

Hi Ravi, you should look into Columbus Ohio which you can buy houses for 120-180k! Much lower price point entry compared to a lot of markets. You can still buy a 3/1 single family house for $120k and get it rented for $1500/month (and be way over the 1% rule here!) - my client just did this! Additionally, there's still great cash flow and amazing appreciation here! There's tons of companies moving and developing here such as Intel, FB, Google, Amazon, Microsoft, LG, Honda, Nationwide, Ohio State, and much more! Happy to connect and answer any questions you have!

Joseph Guzzardi Jr · Answer

@Ravi Pamarthi If you are buying rentals for cashflow purposes only, particularly in NJ that's a challenge. Buy n Hold Real Estate will always have its costs and even if you are cashflowing $800/month, you are going to need to do repairs, updates, unit turnovers and this will eat at that number. Play the long game, your bigger returns will be from buying at a discount, fixing up properties and holding onto them before refi out or selling.

Which location to buy Real Estate for Investment and how much to invest

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