what questions do you ask/data do you analyze to select investment markets?

Question

I'm looking at investing in several out-of-state markets (potential BRRRR strategy in mind), I have a list of qualifiers that I'm sussing out to determine viable markets but would love to know: what data helps in determining a good market to invest? what questions should be asked?

TIA!

Kolby Knickerbocker · Answer

I agree with you and love your take on it. Yes, as I'm doing more research, I'm finding that I would prefer to invest in markets that I know personally, so as not to rely on external variables completely. And great insights into the "buy box". thanks again!

Jake Baker · Answer

@Kolby Knickerbocker

Every market has deals. You should invest where you feel you have a competitive advantage. I invested in Jacksonville, FL, because my old job would fly me there multiple times yearly. I learned about the city over time and began my out-of-state investing journey.

Whatever market you choose, be sure to nail down your buy box. This will allow your agents and wholesalers to assist you better.
- Property type (single-family homes, duplexes, or small multifamily)
- Min/max square footage or number of bedrooms and bathrooms
- Desired cash flow or ROI metrics to ensure profitability
- Property Condition (turnkey, light cosmetic fixes, or heavy rehab)
- Neighborhood type (A/B-class areas for appreciation vs. C-class for cash flow)

I agree with @Evan Polaski that you need to know the market inside and out before you invest. No need to hit a grand slam on your first deal. A single is find if it means less risk.

Evan Polaski · Answer

@Kolby Knickerbocker, for single family rentals, I agree Marcus: the market you know the best.  There are a lot of markets with solid job markets, strong populations, solid rent growth, but when you are talking ONE property, unless you are considering highly rural areas, it likely doesn't matter.  If you are talking 100+ unit apartment complexes, then I would change my tune a bit.

What is more important than the actual market, is the dynamics within that market?  Is this pocket a value oriented area (most sq ft per dollar of rent) or will they care more about proximity to highways, retail, walkability?

Do they value nicer finishes and design or is that additional cost lost on the typical tenant in that pocket?

Is there a difference between being on the Northside vs Southside of some major street?

And this doesn't even hit on the dealing with contractors side, which need daily oversight if you want things done correctly.

So back to my point, knowing the market inside and out.  A place that is easy (and hopefully) inexpensive for you to travel to a couple times per year to check in on things.  Beyond that, every city I have been to has rough areas where "cash flow looks great on paper" and "nice areas where appreciation should be great".

Marcus Auerbach · Answer

Accessibility and local knowledge above everything else.

It does not matter if you find the single best market in the US. What matters more is how easy can you get there, how often will you be there to learn, how good is your team. If you have every lived or have family you are visiting anywhere in the Midwest, that's where I would start.

I believe you are in OR, one of my favorite States, but a long flight from pretty much everywhere. Everything is harder when you do it remote, but you are competing with local investors. So your results will be a degree lower than local investors.

Conceptually you want to take an approach that minimizes your need to be on site - and for that reason I would advise against BRRRR. I have done BRRRRs in Milwaukee for a decade+ and if I am not on the job 2-3 times a week, things go sub-optimal. The reality is a lot harder than some books make it sound like. For example "Just get 3 estimates from general contractors.." is a lot easier written than done!!

You can take out a lot of complexity when you buy property that only needs maye paint & carpet. That is actually still challenging enough, as many clients have told us - in hindsight they were glad we talked them out of a full-blown rehab.

what questions do you ask/data do you analyze to select investment markets?

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