what state is worthy investing?

[Tom Hall]

How to figure it out what state is worthy investing? i know it is a board question, what I mean is look at Brooklyn NY people bought houses 15-20 years ago dirt cheap and now they are millionerds or Jersey city NJ people used to avoid it, now the value has increased significantly. How to predict what's gonna be next Brooklyn Hoboken ...

[Eric Fernwood]

Hello @Tom Hall,

You will not buy in a state. You buy in a specific city. So you want to select the city.

Fortunately, there is a straightforward process for selecting a city that generates reliable passive income. But what exactly is a reliable passive income? A reliable passive income meets three requirements:

• Inflation compensating: Rental income increases faster than inflation, compensating for rising prices. If your rental income does not keep pace with inflation, your financial freedom will be short-lived.
• Persistent income: Your income will last, you and your spouse won't outlive it.
• Reliable income: Your income continues even in difficult economic times.

There are too many cities to evaluate so I recommend a different approach. Start with an initial set of candidate cities and then eliminate ones that fail any of the additional requirements.

• Start with metros with a population 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. Do not invest in any city on Neighborhood Scouts’ list of the 100 most dangerous US cities.

• Inflation compensating - Every time you go to the store, the same basket of goods costs more and more dollars. In order to have the additional dollars needed to pay 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 tend to lag behind prices, so you can use the appreciation rate if you do not have historical rental data. Zillow Research

• Low disaster risk - Natural disasters, such as tornadoes, can destroy entire communities, including jobs, shopping, and housing. If a tenant loses their home, they will immediately move to a new location with jobs and a place to live, instead of waiting one year or more for the property to be rebuilt. Even if your insurance covers the cost of rebuilding, it may be difficult to find new tenants because people have already moved away. Communities hit by natural disasters may take years or never fully recover. Meanwhile, your expenses, such as mortgage, taxes, insurance, and maintenance, will continue. To avoid this, choose a location with low-cost homeowners' insurance, which indicates a lower risk of natural disasters. Insurance - ValuePenguin

• 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 operating cost - It’s not how much you gross, it's how much you net. You must consider all major recurring costs when selecting an investment location. As an example, below is a comparison of operating costs in Florida, Texas, and Nevada. (Remember that these are state averages, and individual cities may impose additional taxes.)

  

Information sources:

• Insurance cost
• State Property Tax Rate

To show the impact of taxes and insurance I compared overhead costs on a $400,000 property in the three states.

What does this mean to you as an investor? A property with lower cash flow in a city with lower overhead costs may generate a higher net cash flow than a property with higher cash flow in a city with higher overhead costs.

Tom, this is your financial future. Do your own due diligence based on facts; do not bet your future on someone else's opinion.