My Out-of-State Search, Step 4b: The Worst of the Best Markets

In the previous post, we narrowed down the 75 largest markets in the US to the 5 that most closely match my investment criteria. Or, more accurately, we eliminated the 70 markets that did not fit our investment criteria.

As we move forward in the process, we will shift from removing markets that don’t fit, to selecting a market that best meets our needs. This will change over the next few posts; as decisions become more important, decisions will also become dynamic, slow, and methodical. In short, this is where the fun begins!

The Worst of the Best

OK – so I kind of lied. With a list of five locations, the first thing that I did is re-evaluated how they compare against my criteria in the previous post. As such, this post removes some additional markets that upon further investigation, probably should have been removed by now. These are as follows.

Columbus. Columbus is a great city, though has three big concerns that combined, are show-stoppers.

1. It’s damn cold during the winter, and probably shouldn’t have passed my “weather” qualification in the previous post.

2. Although Columbus seems to have a decent growth trajectory, Ohio as a state is central rust-belt land, and has some shaky economic projections. The state is still reliant upon manufacturing, and has a few markets that are simply-put, in bad shape. Combined, I’m nervous about the future economy and taxes for Ohio.

3. At first glance, Columbus has adequate properties in my price point, and acceptable schools. But, when I looked into this further, the two are inversely related – areas where we could afford to buy had poor school systems.

As such, Columbus was removed from the list.

Memphis. Memphis simply didn’t perform as well in growth projections, property availability, economic reviews, etc. as the other 3-4 cities that made it to this point. But as I mentioned previously – Memphis has a reputation for creating outstanding cash-flow, so I was hesitant to rule it out.

So, I looked at around a dozen Memphis properties (both from turnkey and MLS listings) from across Memphis, did a basic rental market analysis and pro forma on each to see if there were any that really jumped off the page as outstanding. And while several cash flowed on paper, they looked weaker than similar houses in similar areas in other cities.

Even though I am ruling out Memphis, I want to highlight a couple thoughts regarding Memphis.

1. Memphis has good cash flow potential, but the sweet spot for those is primarily in older homes.

2. I plan to do a future post on turnkey providers, but suffice to say that one redeeming characteristic of Memphis looks to be Chris Clothier and his turnkey company (http://www.memphisinvest.com/). Based on some preliminary research, I would put his operation as one of the top two or three operations in the US. So, someone who is prioritizing working with an established/local turnkey provider should probably consider Memphis.

All told, Memphis is a good market, but simply didn’t fit our target niche as well as we had hoped. As such, we removed Memphis from our list.

New Shorter List & Next Steps

And then there were three: Atlanta, Charlotte and Nashville. Moving forward, I will do a detailed review on each of these markets.