Best cities for cash on cash ROI on buy and hold properties

[Andy Rousch]

I currently live in NJ so it would be easiest to start investing here, though the taxes and costs are so much higher than other areas. I considered going to neighboring states like Philadelphia, Easton, or other Pennsylvania cities, or go even farther towards the Midwest however I have no connections there and would need to work on building a team in those areas. Anyway I was wondering opinions on the best areas to buy cheap fixer upper homes to turn into long term rentals starting with single or multifamily properties. Thanks for any info and area suggestions!! 

Andy Rousch (living in my first fix and flip, looking to use leverage to purchase my next rental) 

[David Ribardo]

@Andy Rousch, I recommend you look at the Philadelphia and Allentown markets if you want to be a passive investor, or stay in your local community if you want to be hands-on. 

The big advantage of Pennsylvania is that laws are more favorable towards the landlord then in NJ. Allentown and the Lehigh Valley would be convenient, allowing you to see the properties you are buying, meet your team in person, and have a lower price point then Philly. You could easily get there for a day trip if you wanted to do some work on your places as well. Philly properties are a little higher priced, but there is a ton of growth in that market.

If you want to be a more hands on investor, consider staying in your local area. You already know the in-demand areas, and there is a price point that will make (almost) any property work. Using correct vacancy rates, tax numbers, and rent projections will allow you to compare deals across markets. When comparing markets, I like to look at the ratio of average purchase price per square foot to average monthly rent per square foot and project that to see what my expected rent for a hypothetical $100k rental property will be. Comparing these will give you a good idea of how easy or difficult it will to find on-market deals. For example, in DeRidder Louisiana, I could expect to get $740 per month in rent for an average $100k home purchase... but in the West End of Allentown, there are portions where I could expect to collect over $2,000 / month rent for the same investment.