Which market to invest in? Help!

Question

Hey everyone, I'm trying to choose which market to invest in (I'll be doing long distance investing) and I've narrowed it down to a few options I think would be a good choice. I've got around $40,000 to use for a down payment. Just hoping for some insight and recommendations. Thanks! Here's what I've got.

Indianapolis, IN

Des Moines, IA

Albuquerque, NM

Tulsa, OK

Louisville, KY

Greensboro, NC.

Indianapolis, IN

Des Moines, IA

Albuquerque, NM

Tulsa, OK

Louisville, KY

Greensboro, NC.

Joshua Filkill · Answer

Hey Lewis - Looks like you're looking at a few cities in the Midwest. Have you taken a look at any cities in Ohio such as Columbus or Cleveland? Columbus has seen great appreciation that is projected to continue due to large organizations such as Intel, Honda, Nationwide Children's Hospital and Wexner Medical Center investing a lot of money to expand operations and create many new jobs in the area. Cleveland is also consistently known as a top ten market for cash flow with opportunities to get in at a low PP.

Clayton Plummer · Answer

@Lewis Jensen

I would start with where you live, unless you live in New York, NY or Newport Beach, CA (insert really expensive locals here).  If your immediate local is pricy, go to the surrounding areas, or the surrounding surrounding areas.  Boots on the ground will always be better to start.  You don't know what you don't know.

Out of state as your first investment is tough (but totally doable, its a high bar of entry).  You NEED a team (read David Greene's Long Distance Real Estate Investing) that you trust to be your boots on the ground and that have some incentive to do the dirty work for you.

Good Luck!

Patrick Drury · Answer

@Lewis JensenA $40,000 down payment is plenty in the Cleveland market and will get you a solid rental that cashflows.

Eric Fernwood · Answer

Hello @Lewis Jensen,

Rather than list potential investment locations, I will show the process I used to select a good investment location. So we are on the same page, I believe the purpose of real estate investing is to become financially independent. So you no longer have to show up for a job to survive. If this matches your goals, read on.

To narrow down the focus to a small number of potential investment locations, I used a process of elimination. The steps are listed below. I started with metro areas with a population greater than 1 million and proceeded through each step below.

• Metro area population size greater than 1M. Small towns may rely too much on a single business or market segment. Wikipedia
• Both state and metro populations are increasing. Do not buy anywhere if the state or metro populations are static or decreasing. Wikipedia
• Low crime - High crime and long-term appreciation and rent growth are mutually exclusive. Never invest in any city on Neighborhood Scout’s 100 most dangerous cities list.
• Inflation compensating - Every time you go to the store, buying the same basket of goods costs more and more dollars. To have the additional dollars you need to pay for inflated prices, rents must rise faster than inflation. Therefore, a critical location selection metric is that rents and prices are rising faster than inflation. Rents track prices, so you can use the appreciation rate if you do not have historical rental data. Zillow Research
• Rent control - Some states and metro areas have implemented various kinds of rent control. Rent control may prevent you from increasing the rent fast enough to keep pace with inflation. It may limit your property manager's ability to select the best tenant. It may make evictions of non-performing tenants difficult or impossible. Never invest in any location with rent control.
• Low disaster risk - Natural disasters such as tornadoes, hurricanes, and earthquakes destroy communities. While insurance might rebuild your property, the bigger issue is the loss of jobs, local businesses, and essential amenities. Until the community is rebuilt, you will have an empty property, but mortgage payments, taxes, insurance, and other expenses will continue, with no income to offset these costs. The cost of homeowners insurance is the best indicator of the likelihood of a natural disaster in an area.  Insurance - ValuePenguin
• Low operating cost - High operating costs can turn what appears to be a profitable property into a money pit. The three most apparent are income taxes, property taxes, and insurance. Insurance - ValuePenguin, Metro Property Taxes - LendingTree
I will expand on operating costs and their impact on cash flow and return. Below are state average property taxes and insurance costs for Texas, Florida, and Nevada. See the table below.

Metro area population size greater than 1M. Small towns may rely too much on a single business or market segment. Wikipedia

Both state and metro populations are increasing. Do not buy anywhere if the state or metro populations are static or decreasing. Wikipedia

Low crime - High crime and long-term appreciation and rent growth are mutually exclusive. Never invest in any city on Neighborhood Scout’s 100 most dangerous cities list.

Inflation compensating - Every time you go to the store, buying the same basket of goods costs more and more dollars. To have the additional dollars you need to pay for inflated prices, rents must rise faster than inflation. Therefore, a critical location selection metric is that rents and prices are rising faster than inflation. Rents track prices, so you can use the appreciation rate if you do not have historical rental data. Zillow Research

Rent control - Some states and metro areas have implemented various kinds of rent control. Rent control may prevent you from increasing the rent fast enough to keep pace with inflation. It may limit your property manager's ability to select the best tenant. It may make evictions of non-performing tenants difficult or impossible. Never invest in any location with rent control.

Low disaster risk - Natural disasters such as tornadoes, hurricanes, and earthquakes destroy communities. While insurance might rebuild your property, the bigger issue is the loss of jobs, local businesses, and essential amenities. Until the community is rebuilt, you will have an empty property, but mortgage payments, taxes, insurance, and other expenses will continue, with no income to offset these costs. The cost of homeowners insurance is the best indicator of the likelihood of a natural disaster in an area.  Insurance - ValuePenguin

Low operating cost - High operating costs can turn what appears to be a profitable property into a money pit. The three most apparent are income taxes, property taxes, and insurance. Insurance - ValuePenguin, Metro Property Taxes - LendingTree

I will expand on operating costs and their impact on cash flow and return. Below are state average property taxes and insurance costs for Texas, Florida, and Nevada. See the table below.

To show the impact of taxes and insurance, I compared overhead costs on a $400,000 property in the three states. (Remember that these are state averages, and individual cities may impose additional taxes.)

To achieve the same level of net income as a property in Nevada, you need to generate higher cash flow in Texas and Florida. This is due to their higher property taxes and insurance costs. Below is a table showing the incremental cash flow needed to generate the same net income.

Filtering locations by the above criteria will leave you with a small number of potential locations worth further investigation.

One crucial factor to consider is the presence of a local investment team.

All the information you gain from podcasts, seminars, books, and websites is general investing information. You won't be buying a general property in a general location. Instead, you'll be purchasing a specific property in a specific location and condition, subject to specific local regulations. The only source of the hyperlocal information you require is a local investment team.

Working with a local investment team costs no more than working with any other realtor, and it offers several advantages. A local team has already delivered many investment properties and has the processes, resources, and experience you need. Rather than trying to duplicate what it took a team of people years to learn, take advantage of their expertise.

Lewis, I hope this will help you select a good investment location.

Simon Ashbaugh · Answer

What's your end goal? If you want to build retirement look into Columbus OH. It's the fastest growing metro area in the midwest, and is appreciating really well! If you're looking to build passive income, check out Cleveland. It's a top 5 city for cashflow according to BP https://www.biggerpockets.com/... Regardless of where you go make sure you build your core 4!  https://www.biggerpockets.com/...

Steven Foster Wilson · Answer

This would depend on what you're after. Ohio is a landlord friendly state that's worth to invest in. Looking for cashflow? Look into Cleveland, its got good cashflow potential with appreciation happening as well. Looking for appreciation? Come to Columbus, there are still 1% deals, but the more attractive part is the population growth and other economic drivers!

Evan Lewellen · Answer

Agree with Columbus or Cincinatti. Don't know much about the Cleveland market but sure there are good cash flow opportunities.

Dayton is an interesting one- I would personally not invest there as I don't see great prospects for long term growth or appreciation. With the bigger companies like NCR packing up and leaving in recent years, it definitely seems like a city that is on the decline. Could only imagine what would happen if Wright-Patterson decided to do the same.

With that said, I have a close family member that has been investing in rentals in West Dayton. The cash on cash return he's getting is probably the highest I've personally seen. Coupled with the fact you can buy houses for as low as $20k in some areas, I can understand why the argument could be made.

Marc Rice · Answer

The midwest is a great market. In Ohio you have Columbus, Cleveland, Dayton, and Cincy to choose from. I personally like Columbus due to its growth and some surrounding suburbs have cheaper pricing, good rents, and good population growth also. You can find properties in Columbus less than $120k.

Lisa Williams · Answer

@Lewis Jensen

I agree with Clayton about the importance of a team you can trust, but wondered if you are familiar with any of your options, meaning have you spent any time there? Do you have friends or family that live near any of the locations that could advise? That can make a difference in your comfort and ability to pull the trigger, in my experience. If the answer is no, then reach out to several realtors and start there. Good luck!

Lisa Williams

Which market to invest in? Help!

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