All Forum Posts by: Dan Riley

Hello @Dan Riley,

Instead of relying on other people's opinions on where to invest, I recommend that you do your own due diligence based on your financial goals. If your goal is financial independence, you need a passive income that meets the following requirements:

• Reliable - Your income continues even in difficult economic times.
• Inflation-Compensating - Rental income increases faster than inflation, compensating for rising prices.
• Persistent - Your income lasts; you or your spouse won't outlive it.

Meeting these objectives depends upon the location and the tenant. In this post, I will only talk about location.

To begin my location selection process, I created a list of US cities with a population of over 1 million. Small towns may rely too heavily on a single business or market segment. Wikipedia

Next, I established additional criteria to eliminate cities that are unlikely to perform well in the long run. After all, your financial future is tied to the long-term economic viability of the city where you invest. The following are the criteria to be used.

Once you have eliminated all unlikely cities, the remaining few will be worth further investigation.

• 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 operating cost - High operating costs can turn what appears to be a profitable property into a money pit. The three most apparent costs are income taxes, property taxes, and insurance. Insurance - ValuePenguin, Metro Property Taxes - LendingTree, State Property Tax Rates - Rocket Mortgage
• Low disaster risk - When a tornado or other natural disaster strikes a city, it doesn't just obliterate individual properties. The entire community, including jobs, shopping, and retail, is destroyed. Your tenants won't wait for your property to be rebuilt in a year or two; they'll move immediately to a location where they can work and live today. Even if your insurance company rebuilds your property, there may be no one to rent it. Everyone in the community will have resettled in other locations, and there's no reason for employers, retail establishments, or people to move back. Locations hit by natural disasters may take many years or never recover. However, your mortgage, taxes, insurance, maintenance, and other expenses will continue without interruption. The cost of homeowners insurance is the best indicator of the likelihood of a natural disaster in an area. Choose a location with low-cost homeowners insurance because they have the lowest 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.

By following this process, you can significantly increase your chances of selecting an investment city that will meet your passive income requirements for years to come.

Hi Dan… I am from the Bay Area as well and invest primarily in Atlanta and Omaha, am moving into the Columbus market. Like stocks, i like to diversify in multiple markets but it comes with the overhead of management even if there is full team on the ground. 

All the strategies mentioned in this this forum or others are great, the one that is the best is the one that works for you. Real estate investment in my opinion is a very long game and will take years to build for someone which is not their primary source of income. I am in my 7th year and just getting to my 5th property due to all the other life interrupts. 

Happy to connect if you want to discuss more

Hi Dan… I am from the Bay Area as well and invest primarily in Atlanta and Omaha, am moving into the Columbus market. Like stocks, i like to diversify in multiple markets but it comes with the overhead of management even if there is full team on the ground. 

All the strategies mentioned in this this forum or others are great, the one that is the best is the one that works for you. Real estate investment in my opinion is a very long game and will take years to build for someone which is not their primary source of income. I am in my 7th year and just getting to my 5th property due to all the other life interrupts. 

Happy to connect if you want to discuss more

@Dan Riley thanks for posting.  Everyone is different, that's for sure.  Some of us feel very strongly about our "technique" because it's either made us very successful or we have seen others get burned by doing it differently.  So forgive anyone for being to "spirited" about their thoughts.

As far as buying an out of state property with just using a normal downpayment amount I feel that method is fine for some people.  It's simple, low risk, doesn't require much work, and can show 12%-18% returns just using 5% appreciation over a 5 year period of time.  So even the numbers are fine for it.  

It is true that using the BRRRR Method would grant you SIGNIFICANTLY higher returns...but then you have to spend a lot more time on it and have some "different" skills to execute.  I have been an out-of-state investor for 15+ years now.  Mainly because I lived in NYC and couldn't invest there.  So, I invested out of state.  Now that I live in a significantly more friendly area, I invest here.  Everyone is different but if you feel more comfortable with just putting a normal downpayment then let's go that route.  

Oh, and "what areas are best"?  I would highly encourage you to think about an area where you know someone.  Investing out of state has it's own challenges.  If you never see your asset....well, that's a TON of trust to put into a complete stranger.  One bad move will erase the small % difference one market is over another.  So if you can use people that you know and trust - that's the place you should invest in.  

Hope all of that makes sense.  Feel free to post anything else you need.  Thanks!

Hi Dan, Many out of state investors choose Pittsburgh PA with strong success. The buy-in is more conducive than other more saturated markets and can generate positive cash flow providing you know the area. Properties and neighborhoods change dramatically. If you're not familiar with Pittsburgh, I always suggest reaching out to someone who does. I've lived here my whole life and know the area and market very well and I'm in and out of properties every single day. I also have a property manager that clients really like. Whatever you choose to do, I wish you the best...Gary

@Dan Riley

it has to do with what David Greene calls "the velocity of money."  if you put your 70K (or most of it) into a turn-key, high quality, cash-flowing rental that doesn't need any work, and you net that $100-300 a month, that's fine.  but now your principal is "stuck," in that you have to sell or refinance to get access to it, and if you want to buy another one, you probably have to just save up another lump sum of money to pay for the down payment and closing costs.

now, if you compare this hypothetical turn-key investment to a savings account, you are getting the additional benefits of real estate if you buy the property - principal paydown, potential tax benefits from depreciation, potential appreciation over time, etc. but again, there is risk too - large capex bills that you didn't see coming, issues with tenants, a change to the market you invested in.  did i mention risk?  it's about risk.  savings accounts are very low risk, but with very low upside, and no benefits other than their stability.

back to the velocity of money - I (and others in this thread, I think) are looking for ways to invest that increases the velocity of money (like the BRRRR method.) if you BRRRR correctly, your initial capital comes back to you (although not immediately.)

my concern / point with the BRRRR method was just how hands-on I think you need to be in order to 1. be successful and 2. maximize your returns - i'm looking for deals through multiple channels, meeting sellers directly in person, calling dozens of contractors to get 2 bids, etc. if there's a low-risk way to do that remotely, great. i've just found that the highest return is found via being the most hands-on.