Best State for Rental Property?

Question

Adrien C. · Answer

first, there is no best state. There are dozens of areas throughout the US that are very good rental markets.

Before you do anything, put a number to your "good cash flow."  Know exactly what returns you except to get and what purchase price you're willing to pay.

After that, it boils down to team. It doesn't matter if you're in the best state if your team sucks. Your team consists of acquisitions, rehab, and property manager. These people (could be 1 person or 3) are critical to your success as an out of state investor.

Ali Boone · Answer

Hey Luis! You aren't far from me...I'm just down the street in Venice

There are quite a few options for cash flow. Most of the midwestern cities/states, and some other sporadic ones. Keep in mind there is a difference though between growth markets and declining markets, so always be sure you understand the market fundamentals when deciding. But of good growth markets- Chicago, Kansas City, and Indianapolis are all strong right now. There is a lot of cash flow in Ohio but I'm not a fan of the fundamentals (Columbus might be an exception. Philadelphia is strong right now. Birmingham. GA/Atlanta used to be but I'm not a fan anymore (market fundamentals have changed dramatically). Same with Memphis. Texas cities were good but changed fundamentals there too.

Some of it will also depend on whether you like urban vs. suburban and SFR vs. MFR, as well as what your budget it.

Happy to chat in more detail anytime if you want to reach out!

Clayton Mobley · Answer

@Aaron Cullen  and @Luis Fernandez I'll third this point about the importance of team over market. You can have the best specs in the world on a given prop, in the hottest market, but if the people you trust to manage it drop the ball, that's a bad investment.

Especially when you're investing from out of state - you won't know the market well and you won't be able to see the property regularly - you need to know that the people you work with are incentivized (perfect word, @Jeff Wallenius) to do good work.

I understand the idea of checks and balances, but in reality it doesn't really work that way. If you use different people to find the property, rehab the property, market the property, manage the property, then each person is only incentivized to make as much money as quickly as possible before passing the prop onto the next person. The only member of that team that has a long-term need to keep you happy is the PM. An agent just needs to sell you a property, they don't need to worry about long-term rental demand or actual rehab costs. A contractor just needs to check off a list of updates, they don't need to worry about the life span of those updates or how likely different items are to need frequent repair or maintenance. It's not to say these people are unethical in any way, it's just that this model doesn't build in a need for each party to work toward your long-term satisfaction if it's going to cost them additional time and money.

A full service turnkey operator is responsible for the whole process and accountable to you for every single step. It also means they can streamline a lot of their processes and you don't waste time and money shifting gears between each stage, accommodating schedules, getting accustomed to new people and communication styles, etc. With full service turnkey, the quality of the prop vetting and rehab directly impact's their ability to easily tenant and manage the property, so they are internally incentivized to do good work in a timely manner. Likewise, their tenant selection process and maintenance operations directly impact the investor's returns and their own performance metrics, so they are incentivized to find the best tenants and handle issues efficiently. Doing good work doesn't just increase your returns, it makes their jobs easier in the long run, which saves everyone money.

In the end, turnkey is meant to be about passive, reliable income, so the best turnkey investment should make things as simple for you as possible. You still need to put in some serious legwork to vet potential providers - and I always recommend a visit to your top one or two once you've narrowed the field - but you can cut down a lot your work by focusing on full service operations.

Luckily, there are several great full service operations in various markets and you're already in the right place to find them! If you have any questions about the Birmingham, AL market, feel free to reach out any time.

Best of luck,

Clayton

Carol Otis · Answer

Hey there Luis, I hope things are going well in your neck of the woods.

I live in El Dorado, KS and the rental market around here is STRONG. My finance and I bought 2 duplexes for $110,000 last November, moved in to one and have had no trouble keeping the other three rented. After taxes, insurance, mortgage payment, and setting money aside for repairs, we cash flow around $600 a month. To us, we got a stellar deal.

My other owners, (we run a property management company, APM) have had good luck here as well. If youd like to talk more, just send me a message.

James Wise · Answer

Kansas City, Memphis & Cleveland seem to be the most popular turnkey locations here on BP. All three areas are very well represented here on BP. I recommend setting up keyword alerts for each of the areas as well as the term turnkey. After a few weeks you will become very familiar with the major players in those areas.

Clayton Mobley · Answer

@Aaron Cullen Definitely, if you like having the control over the ins and outs of each stage of your investment, then turnkey isn't the right avenue for you. Sounds like you're doing it right, especially if it's something you truly enjoy doing.

Best of luck to you!

Arthur Lyons · Answer

This is one of the questions I use to think about often and have even spent TONS of hours researching trying to find that perfect zip code that was the pot of gold. Be Careful because It is also the type question with an ever changing answer and can lead to an analysis paralysis if you are waiting to invest until you find the Perfect location.  Lastly I don't think that anyone can tell you the exact places that cashflow the best. ACTUALLY let me rephrase that, there probably is some techie type person who is feverishly working on a formula and computer algorithm that would figure this out. Even in that case Im sure there are little towns, and pockets of certain areas in cities across this country that give pot of gold type returns.  I think it is more important to decide what you want your cashflow to be and then find and create deals that meet your criteria through creative negotiating.  Create your plan and stick to it, Eventually when bought properly ALL properties cashflow great after your tenant pays down the mortgage for you! ; )

Larry Fried · Answer

@Luis Fernandez I agree with others.  Find a good team and that is more important than the particular market, although you do need to identify a market that is healthy economically with good rent to price ratios.

Tom Ott · Answer

Hi Luis,

Looking into the Midwest is a great idea right now. You can get some great ROIs here at this time. For more information, look at:

The Best Types of Markets for Profitable Turnkey Properties

Best State for Rental Property?

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