Selecting out of state market

[Angel Lomeli]

Hi Everyone, 

I have been following BP for a few years now. I've read several books, listened to hundreds of podcast's and watched dozens of webinar and BP YouTube videos in preparation for my first investment. With that said I am financially prepared to start actively investing and wish to avoid further analysis paralysis. I've noticed the forums provide a wealth of knowledge from individuals investing in a wide variety of strategies and feel this is the best place to start. I recently have been struggling with narrowing down a market that works for my strategy and wanted to get some insight from experienced investors. 

I would like to focus on SFR/MFR in markets with appreciation potential. I am okay playing the long game and waiting for the benefits of market appreciation but in the time being would like an average CF return (not prioritizing CF). I would also like to take advantage of forced appreciation through rehabs to create equity with each purchase. Any suggestions on markets that fit this criteria?

THANKS AGAIN!

[Bradley Buxton]

@Angel Lomeli

There will be many markets that will get suggested here and it will all be the BIG it depends. How much capital, time, and energy you have to put into making a market successful. I work with out of state investors from CA in the Reno Tahoe, NV area. While there are many advantages like low property taxes, landlord friendly, strong appreciation it's not going to be as cheap as the Midwest and have the cash flow with 25% down. Those investors see the tech job growth and see value my market. It sounds like if appreciation is the main goal that will open up different markets for you that will require more capital to gain that appreciation.  Budget in some cushion for going to visit the property and worst case scenarios.  

[Samuel Diouf]

Columbus, Ohio is a great market to consider if you're leaning towards appreciation. Multiple, billion dollar companies are investing heavy in our area, such as Intel, Google, and Amazon. Which will bring plenty of other investors and general business to the area. I moved here from Florida after seeing the projected growth.

[Simon Ashbaugh]

Hey Angel, given your focus on appreciation and rehab potential, Columbus OH would be good to check out. Make sure to establish your Core 4 Real Estate team before diving in, this will be your support system throughout the process.

[Jimmy Lieu]

Quote from @Angel Lomeli:

Hi Everyone, 

I have been following BP for a few years now. I've read several books, listened to hundreds of podcast's and watched dozens of webinar and BP YouTube videos in preparation for my first investment. With that said I am financially prepared to start actively investing and wish to avoid further analysis paralysis. I've noticed the forums provide a wealth of knowledge from individuals investing in a wide variety of strategies and feel this is the best place to start. I recently have been struggling with narrowing down a market that works for my strategy and wanted to get some insight from experienced investors. 

I would like to focus on SFR/MFR in markets with appreciation potential. I am okay playing the long game and waiting for the benefits of market appreciation but in the time being would like an average CF return (not prioritizing CF). I would also like to take advantage of forced appreciation through rehabs to create equity with each purchase. Any suggestions on markets that fit this criteria?

THANKS AGAIN!

I'd recommend Columbus Ohio because I see it being one of the biggest metropolitan cities in the next 10-20 years, all signs are pointing here! Population is growing aggressively and jobs are moving here especially with major employers like Intel, Google, Amazon, Nationwide, etc. On top of that, you have one of the biggest and best universities in the world here with Ohio State University. The cost of living is extremely low compared to other cities and you can still many many positive cash flowing and 1% deals here. On top of that, you get great appreciation and very landlord friendly laws. Tons of investors are buying Columbus up! As an investor and agent here, let me know if you have any questions or want to connect

[Becca F.]

@Angel Lomeli

 My advice would be to house hack or buy within a 2 hour drive. You have a lot more control than buying in a market hundreds or thousands of miles away. If you're looking OOS, fly to the city and get to know the area. Talk to local investors (someone unbiased, not an agent or wholesaler) and experienced property management companies who will let you know rental rates for different areas, tenant base, etc. 

As far as cash flow this will be challenging with 7% interest rates. If you can value add with an ADU, add a bedroom, bathroom you could force appreciation. Good luck.

[Drew Sygit]

@Angel Lomeli in our opinion, you have this backwards.

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

PM us if you’d like to discuss this logical approach in greater detail!