Looking to Invest Out-of-State? Here’s How to Pick and Analyze a City

by | BiggerPockets.com

If you live in an area like I do, an average 3-bed/2-bath house goes for $600k, and if you think that’s pricey, you can forget about getting into multifamily.

For the budding investor, seeing these prices can be extremely discouraging.

If you read my article where I discuss my goals, you’ll know I’m not one to be easily discouraged, so I began considering alternative investment paths. I decided to give “investing at a distance” a try and earlier this year, I purchased a three-unit located about 400 miles away from me.

There are endless pros and cons that can be discussed with investing at a distance, but I am going to save that discussion for next week’s article. One of the most important things I learned while buying property from a distance is that I have to take the due diligence process very seriously. Investors should always take the due diligence process seriously, but investing at a distance inherently increases risks exponentially. In my opinion, one of the best ways to mitigate risks associated with any investment property (but especially an out-of-state property) is to ensure the city you are buying in is economically thriving.

If you pick failing city, you are doomed from the start.

Picking a City and Determining the Economic Outlook

Picking a city can range from your investment strategy, a personal choice, or merely placing your finger on the map. Once you find a city that you may be interested in investing in, the analysis will always be the same. As investors, we want to know about the city’s job growth, unemployment, crime, industries, main source of income, other demographic information, and plans for the future.

We want to verify that the city is economically stable and will support our investment goals and strategies for the duration of time we invest in said city. Remember, the whole point of this is to mitigate the risk of making a bad investment decision.

While such an analysis may sound daunting, it only takes 30 minutes or so if you know what to look for.

The Comprehensive Annual Financial Report (CAFR)

A CAFR is a set of U.S. government financial statements comprising the financial report of a city (also other government entities) that adhere to the Governmental Accounting Standards Board (GASB). GASB provides standards for the content of a CAFR in its annually updated publications. A CAFR is “compiled” by the city and audited by an external accounting firm.

Let’s assume that you are a beach bum like I am (well, I want to be) and you decide Wilmington, NC would be a cool place to own investment property. Before you start wasting time looking at properties and finding a good neighborhood, you will want to determine whether or not the city as a whole is economically thriving. If the city is depressed, you won’t want to invest your hard earned capital anywhere near it, regardless of how great the deal is.

You will need to find and download the city’s CAFR. You can Google “Wilmington, NC CAFR” or you can use this one which I will be referencing throughout the rest of the article.

A CAFR is composed of three sections: Introductory, Financial, and Statistical. Each section will give you an immense amount of detail regarding the city’s operations, management, plans for improvement, demographics, and more.

If you want to take the analysis to the next level by tracing account balances year over year and learning how to comprehend fund accounting, then go for it. However I’m going to show you how you can quickly get a feel for the city as a whole.

Step 1: Read through the Introductory Section

The introductory section will provide you with high-level details (which is what we are looking for) so it’s important to give it attention.

The first thing to note is the population growth year-over-year which is summed up nicely in a graph on page xii. By calculating the growth, year-over-year, you’ll find the city grew 1.8% in 2014. This is better than the national average and also better than NC’s year-over-year growth.

On the same page, I want to point out a sentence that sticks out to me:

“Wilmington area should expect economic growth of 3.0 percent during 2014 and 3.3% in 2015. This will be the 2nd year in a row that the local economy will likely grow at the same rate as the nation, which is expected to rise by 3.0 percent.” 

Even though they are estimating, the point is that the city’s economy is growing which is important for our analysis.

On the very next page, xiii, we see that the unemployment rate has dropped rather drastically over the years. Additionally, we see that Wilmington is home to a diverse number of industries which is important as “one industry towns” expose investors to unneeded risks. Just look at how the oil towns are doing today.

We also see that Wilmington is home to two schools – UNC Wilmington and Cape Fear Community College. This means that student rentals may be a viable strategy to pursue. It also means that there will likely be a fun nightlife in the area and a good restaurant and bar scene. This is critical for the growth of the city.

The remainder of the introductory section will go into details about the top employers and various industries, talk about the city’s R&D and commercial projects, and tourism and attractions. We can also see long term financial planning and the city’s major initiatives which you will certainly want to read through.

Related: Long Distance Fixing and Flipping: How We Did It

Step 2: Analyze the Financial Section

Believe it or not, I don’t really spend a ton of time reading through the financial section. However, I do focus on specific parts to identify trends about where the city is headed.

I always read (or skim) through the first couple of pages of the Management Discussion and Analysis (MD&A). The MD&A is set up nicely by providing “Financial Highlights” allowing us to gain a high-level understanding of the city’s financials. A few pages down, the MD&A defines funds, shows us the availability of capital, and the “Net Position” of the city. Don’t worry about this information unless you want to do a deep dive and understand governmental fund accounting.

I’m more interested in seeing what the main revenue drivers of the city are, and where money is being spent. After all, I may be a future taxpayer of Wilmington, so their spending needs to align with my objectives.

Scroll to page 118 “Schedule of Revenues, Expenditures and Changes in Fund Balance; Budget to Actual for the General Fund.” The general fund is a government’s basic operating fund and accounts for everything not accounted for in another fund. For our purposes, analyzing the general fund will give us the information we need. If you want to take it a step further, you can look at special revenue funds, capital project funds, debt service funds, and proprietary funds to see how the money is spending dollars on specific projects.

Page 118 will give you a good sense of how the city earns money, how the actual numbers compare to the budget, and also last year’s numbers. Page 119 will give you information on expenditures, and it seems like the city focuses on public safety. I’d want to search the local crime and see just how effective the city’s spending has been on keeping people safe.


Related: Going the Distance: Should You Invest in Out of Town Real Estate?

Step 3: Analyze the Statistical Section

This is my favorite section to analyze because it is easy to understand, contains tons of great information, and allows one to identify trends.

I first look at page 190—changes in property tax. It seems, overall, the city did not raise property tax rates from what they were in 2013 which I find surprising.

On the next page, 191, we see the city’s top ten taxpayers. We saw this from the introductory section, but here they compare it to nine years ago. I look at this and always ask, if the number one taxpayer left, will it cause undue hardship on the city? Here the answer is likely no seeing that Corning, Inc. amounts to less than 2% of the total assessed value.

Pages 200 and 201 are my favorite pages of the entire CAFR. Page 200 shows us the demographic and economic statistics over the last ten years. We see that population has been growing steadily as well as per capita income. It’s unfortunate that we don’t have 2013 and 2014 income numbers, but sometimes that’s just the way it is. We also see the median age has stayed relatively stable, meaning there is a good amount of young who are continually drawn to the city which is important for continued growth. We also see the unemployment rate has experienced fluctuations but is currently at low levels.

Page 201 shows us the top ten employers. Similar to the top ten taxpayers, I always ask the question—if the number one employer left, would this cause undue hardship on the city? Since almost 6% of the city’s workers are employed by one employer, I might be inclined to say yes. However that employer is the county’s health network, so it’s unlikely that employer would ever “leave” which mitigates my concerns. Additionally, the top ten employer lists is made up of a diverse set of industries, so if one industry left the city, I wouldn’t be concerned in the short-run.


After analyzing Wilmington’s CAFR, I would deem it a city worthy of my investment. It has many industries, a growing population, decreasing unemployment, money being spent on public safety, education systems, health systems, and a diverse amount of tourism opportunities. This city could be ripe for different real estate strategies, such as rentals to blue collar, white collar, students, tourists, etc. which makes it a top tier location for my investment.

Now, just because I think this is a good city to invest in, doesn’t necessarily mean there are deals to be had. But the analysis we just performed validates that the city is thriving and a real estate investment in the city limits can potentially be rewarding.

[Editor’s Note: We are republishing this article to help out our newer investors.]

Do you use a method similar to this to analyze remote markets? If not, how do you perform your analysis?

Let me know with a comment!

About Author

Brandon Hall

Brandon Hall is a CPA and owner of The Real Estate CPA. Brandon assists investors with Tax Strategy through customized planning and Virtual Workshops. Brandon is an active real estate investor and a Principal at Naked Capital, a capital group investing in large multi-family projects and manufactured housing. Brandon's Big 4 and personal investing experiences allow him to provide unique advice to each of his clients.


  1. John Thedford

    Thanks for an extremely enlightening article. Before I finished, I looked over the Cape Coral CAFR. Though I have been quite bullish on the area and just bought my sixth house there, the report vindicated my thoughts on the area. Now, as an agent, I am better informed to help clients determine if this area might be right for them. Thanks again.

  2. chukwudi motanya

    Brandon this is amazing. Could you also post another article on the next steps taken after you determine the right city? This is a great article and am really curious on what steps you took diligence wise once you picked your city.

  3. Kara C.

    Great article, Brandon! I have been investing in my hometown for the past two years and I’m just starting to look into other metropolitan areas for my next investments. I had never heard of CAFRs, but thanks to you, I now have a helpful tool for analyzing other cities.

  4. Kellum Lewis

    Thanks for the informative and interesting article, Brandon. I’m from Wilmington and have been researching investments there recently. I live in LA now and so I’ll be investing as a out-of-towner although I know a lot about the area, climate, etc. If you’re actually interested in investing in Wilmington, I’d be glad to be in dialogue about what each of us sees there. Thanks again for the great article.

  5. Chris D.

    Hi Brandon. Thank you for taking time to write such a comprehensive article describing the steps an out of town investor should take when analyzing potential areas to invest. Now, if I could all find a similar resource for finding a stellar out of town property manager!!

  6. Daniel Ryu

    I had to piece together info from different sources when I invested out of ‘country’ in Jacksonville, Florida.
    Wish I had had this info to help reinforce everything else I discovered.

      • Jen Shrock

        I did a review of Jacksonville, FL for this. The city seems to be really focusing on turning itself around. What I found most interesting, though, is the top 10 tax payers now (last year’s report) and 9 years ago. Three of the top ten are Real Estate Mgmt/Development now (2, 5 and 10) and only #2 was on the list 9 years ago where it was in position 5.

        You do a wonderful job of explaining things in layman’s terms. THANK YOU. I try to read the things you post/blog on because they really do make sense to a non-accounting person. That said, this one was certainly an exercise in persistance and patience (no fault of yours) due to my brain’s attitude toward the accounting math side of things. (You give me engineering math and my brain is happy as a clam. Accounting math encites my brain to a full on revolt.) As an off topic question, do you have any suggested books, blogs, posts, etc. that could be accounting made easy for those of us that need to forcefully coax our minds into learning this side of the overall investment picture?

        • Brandon Hall

          Hey Jen – thanks for reading and the kind words. I can definitely relate to the engineering vs. accounting math as both of my parents are engineers (Go GA Tech!).

          The CAFR analysis will get easier. I’d recommend running the analysis on cities you visited or find interesting just for practice. You’ll find that the first time it may take you an hour or two but the tenth time it takes you 10 minutes because you know what to look for and where to look.

          In terms of “accounting made easy” is there anything in particular you are trying to learn about? I’d point you to Khan Academy or Accounting for Dummies, but they will take time to learn and likely be pretty dry.

        • Jen Shrock

          I think that you really did hit the nail on the head and practice will be what will transform my mind the best. Finding a good mentor that is good at teaching that can run through an example of a deal in detail where I can take plenty of notes would be what would sink in best and give me a great resource to refer back to. If this side of a prospective deal was what my mind was excited about, trust me, it would get almost obsessive about learning about it. One great thing is that I love to learn (and even push myself to stretch my boundaries to be well rounded in as many aspects of things as possible).

          I must say that you are a gifted teacher. You take time to explain things in clear, understandable detail and give great examples. (I save blogs and other information that I think will be a helpful resource to refer back to and I think that I have saved every blog of yours that I have read!)

          As I was reading this last night I had your blog open and had the report I was looking at and kept going back and forth. Maybe I should have followed along first with the Wilmington example first to get my feet firmly planted and then ventured off into other cities. It is something that I will definitely go back and do.

          I also need to get better on my acronym lingo that so many speak on Bigger Pockets (and thank you for clarifying yours at the beginning of your post). I was reading a brief post that was geared toward being educational earlier this evening and one sentence had 3 acronyms, of which I knew one. None were defined.

          Keep up the great blogs. Looking forward to learning much more (and yes, that includes even the accounting side of things.)

  7. Jonna Weber

    Thank you for sharing this! I work with out of state investors all the time…and the more equipped and educated they are, the more success they have. Also – This would be a great thing for everyone to look up for their own home town.

  8. Hi Brandon,

    Great and informative article to read. I wish I knew some of the detailed information you shared prior to buying some out of estate homes. I was fine and lucky with some properties and not so lucky with others. As you mentioned in your article, exercising due diligence is a key and examining city finances, population demography and rates of employment.


  9. Michelle Y.

    This is great Brandon, thank you! Like another poster mentioned, I had never heard of CAFRs either so this is an incredibly helpful tool. Buying out of state can be tricky and I really appreciate you sharing your wisdom!

  10. William G.

    Brandon Hall
    fantastic article for me- I have been searching for an accurate unbiased analysis of my targeted town in the mid south. I am confident the information in the current CAFR with bare-out my high hopes for this location and dispel the negative comments received from local investors.

  11. Gabriel Garces

    Brandon Hall,

    This is the most helpful article on Investing Out of State that I have come across. I’ve been interested in investing in towns in Central Florida. These CAFR’s will give me the info I need to make a solid informative decision.
    Thank you so much for sharing!!!

  12. Shailesh L.

    You wrote fantastic article !. You hit the nail on the head. I had same questions as related to out of state investing. I always wondered what are top employers in the city and if they are hiring more people or not. Thanks for great tips on how to read CAFR and what to look for. I never imagined report like this existed.

  13. Tuan L.

    Great article Brandon! I have been trying to search for reports where I can see the macroeconomics of a city and your post answers it. Does each city in the U.S have to provide a financial statement report every year or I can only find reports for major cities? Thank you.

  14. tony lee

    Excellent article! I am curious, if the city is doing poor financially and has a lot of liabilities but the businesses are thriving with assets– does that cause any concern for you? Overall the city is at a small positive growth (about .09%).

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