How do you know a location is perfect for positive cash flow?

Question

Hi everyone. Newbie to this forum! I became insanely interested in real estate a few months ago. I've been listening to the BiggerPockets podcast, videos, and reading as many forums as I can. I'm in the middle of the BRRRR book by David Greene as well. I'm hoping to start investing in the near future but I LOVE educating myself a little obsessively before any big decision.

Although there’s A LOT of general questions I have, my main one currently is how do you decide on a good neighborhood or a location that will definitely have a positive cash flow? What is it that you look for? How do you know if a neighborhood/city is on the verge of improving/upscaling?

Investing money doesn’t scare me nearly as much as being worried about not being able to find tenants or charge a monthly rental that will still make me something after expenses.

I live in Brooklyn, NY currently. My fiancé and I are interested in probably investing somewhere upstate. The five boroughs are just too expensive and we want our first place to be close enough where we can drive there every weekend if needed, so any other part of New York ideally. Any suggestions on New York areas or just tips on HOW to pick a neighborhood/city/state?

Thanks!

Aaron K. · Answer

There is no are or neighborhood that will definitely cash flow, only properties that will cash flow the way to find out is to do the math, start analyzing the things you see for sale and the more you run numbers in an area the more you'll understand what's normal, what's a great deal and what's an awful deal.

John Teachout · Answer

The primary factor in cash flow is to have a high rent and low property cost. So while cash flow is different for every property, you would want to find a region/area where housing prices are relatively low in comparison to rents. Near me there are communities where one can easily acquire an sfr for $30k but then the rents are $400 per month. 40 miles north, the same size property would rent for $800 but they cost a lot more. In some areas, there are almost no properties that are going to cash flow well because the home prices are high and the rent prices, while high, aren't high enough to make the numbers work.

Aaron Barber · Answer

There is no way of knowing a location that will definitely have a positive cash flow.Its all in the numbers. Any property can cash flow if its the right price.

Seher Taskent · Answer

@Sean Toomey thank you! Yeah we are definitely open to partnering with others when we first start out just to get a feel for things. I guess I’m just trying to figure out how to feel the most confident in a decision. Thanks again!

Seher Taskent · Answer

@Aaron Barber I guess it’s much more simple than I’m making it out to be. Well, not necessarily simple because there’s obviously a lot of analysis and math that needs to be done before a decision is made, but it seems like it is just as simple as finding a great deal and then working with those given numbers to see what the outcome will look like. My OCD and strive for perfection takes over sometimes and I know I will become super nervous about the first couple of investments because I wont know where to look or what to look for. Hoping the confidence will come over time. Thank you!!

Seher Taskent · Answer

@John Teachout Yeah I understand. It seems like everyone is in agreement that it’s just based on the deal and can only be determined when the deal is presented. Thank you!!

Nicholas Weckstein · Answer

I think you want to look for C or B class neighborhoods. Thats really where cashflow lies in multi family investing. buying A class usually is more of an appreciation play. the lower down the class of neighborhood that you go, the more positive cash flow it has. this is also similar to a cap rate which can help you to judge an area. Look for modest homes, working class and some nicer ones sprinkled in. Then its all about amenities. also if its a strong market for renters comes into play.your best bet will be to figure out what type of returns you want (risk tolerance) then start to do research on diff markets. this can all be very subjective on why YOU think its a good place to park your money. could come down to location, amenities, price point etc.

Seher Taskent · Answer

@Aaron Barber thank you so much!

Aaron Barber · Answer

I mean at least you are doing your due diligence. That is WAY better than just rushing in and making a purchase not knowing anything. Just don't let paralysis by analysis take over. Analysis paralysis (or paralysis by analysis) describes when overanalyzing or overthinking a situation can cause forward motion or decision-making to become "paralyzed", meaning that no solution or course of action is decided upon.Good luck!

Alex Olson · Answer

You have to know the market well. Location location location might be cliche and boring but sooo true.