Newbie here-please recommend market to start with

49 Replies

Hi all
I am totally new to the rental investment. I am in California and looking into purchase out-of-date SFR as rental property. Given so many markets, which markets should I focus on my research? I would appreciate to start with a short list of markets you can recommend? For start, I will mostly likely go with a turnkey provider, if you can share the ones that you have good experience with, that'd be great!

thanks a lot, I am learning each day from this forum.


Hi Tracy, welcome!  I'm a lender and investor based out of California and I invest personally in Indiana (my hometown).  Cashflow is great, prices are low compared to CA, and laws are landlord friendly. Best of luck on your journey.

@Tracy Wang

i am a fellow OC investor. try first researching Riverside and San Bernadino counties . You can get into entry level condos or townhouses and make the same kind of return locally rather than OOS. 

Please remember that OOS prices are triple of what it was 5 years ago and most of the cheap housing available to OOS investing / turnkey is what a local investor of that city is not buying..

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Originally posted by @AJ Singh:

Please remember that OOS prices are triple of what it was 5 years ago and most of the cheap housing available to OOS investing / turnkey is what a local investor of that city is not buying..

AJ, I'm not certain what you mean by OOS prices are triple. Sure markets have seen appreciation, some of them significant. But a 100k home in Memphis from 5 years ago, for example, can be had now for 120-140k. Rents in the area have skyrocketed as well, keeping your return very good. And housing for investing/turnkey isn't what local investors aren't buying. The inventory is being bought by local people, flipped, then sold. 

To the OP, Memphis, Kansas City, Indianapolis, Little Rock and some parts of Florida are great spots to start looking. 

@Adam Schroeder

I can say with certainty about Memphis market since I have been investing for 5 plus years

Houses that were at 100k five years ago are closer to $275k to 300k price point yielding 1600 to 1800 rent.

Houses that are for 120k to $140k right now were at 60k price point five years ago and we did not touch them in those neighborhoods that time

Nowadays some of those neighborhoods have gentrified so are turnkey provider favorites and most buyers are oos with limited knowledge about neighborhoods and don’t even visit the city of Memphis before investing

When the market does correct, some of these neighborhoods are going to be severely impacted.

In California , there are counties which are not under rent or eviction moratorium and rents are steadily increasing where it does not make sense to go to oos anymore.

Since the OP is California native, that’s why asked her to check locally

@AJ Singh, I have also been investing in Memphis for 5 years and can honestly say that my properties have seen good appreciation, but nowhere near 3x. What area of town are you in? Our best performing property appreciation wise is in Cooper Young and it's "only" about a 60-80% appreciation.

@Adam Schroeder

We were focused on Cordova, Bartlett, east Memphis, Southaven , olive branch

Even five years ago, turnkey providers were selling properties in above areas for $150k and above

We could not get any value deals five years ago in collierville or Germantown which are A + areas and have gained much appreciation

@AJ Singh

Interesting perspective, I’ve considered Sacramento or Central Valley. What cities/counties in California do you see as good buying conditions for investors?

@Denise Sieg

we have riverside and san bernadino counties doing very well rental yield wise .. they are a one hour away from metropolitan los angeles.. You can get in 2-4 multifamily units at a decent price and be at market rent within a year or two...

Originally posted by @AJ Singh:

@Denise Sieg

we have riverside and san bernadino counties doing very well rental yield wise .. they are a one hour away from metropolitan los angeles.. You can get in 2-4 multifamily units at a decent price and be at market rent within a year or two...

Hi there! I am also new to RE investing, based in LA/OC. Thank you for sharing your experience and insight. I feel like Riverside is becoming increasingly more expensive? Do you feel it is still a good market to buy rentals and do you have tips/contacts for finding properties there? Appreciate your advice!

Originally posted by @AJ Singh:

In California , there are counties which are not under rent or eviction moratorium and rents are steadily increasing where it does not make sense to go to oos anymore.

Problem is they are still in California, a deep-blue landlord unfriendly state. She may be smart to invest OOS.....before everyone else in Cali does too.....

Only a matter of time before even Riverside turns blue as well.....

@Bruce Woodruff

You are right in your perspective but there will be more deals for local investors as investors go the OOS route

Rents are not coming down in California In the near future

Originally posted by @AJ Singh:

@Denise Sieg

we have riverside and san bernadino counties doing very well rental yield wise .. they are a one hour away from metropolitan los angeles.. You can get in 2-4 multifamily units at a decent price and be at market rent within a year or two...

Well, to be fair, I wouldn't exactly call SB an hour away from Metro Los Angeles. And if we're talking about commuting to LA, forget it. You will have to leave around 5 AM if you want to get to the office at a decent hour. And also, the problems you mention above about how the markets might contract hard in areas like Memphis would also apply to various parts of central California also as I consider these markets overpriced. By going all the way out to SB, you almost lose the real benefit of investing in California or any other primary market. Despite the politics here, I still consider LA, SF and SD three of the best places to invest if you know what you're doing. 

To the original poster, focus on the quality of the TK provider instead of the marginal differences you will see in the various TK markets. The most important thing is to find a provider that can be trusted.... start with companies like Pinnacle Investment Properties or Rent to Retirement. These two companies have impeccable reputations here and I don't think you can go wrong with either.

Originally posted by @AJ Singh:

@Bruce Woodruff

You are right in your perspective but there will be more deals for local investors as investors go the OOS route

Rents are not coming down in California In the near future

Yes, you're right.....on both counts..... :-)

According to Elite Personal Finance, in 2021 the safest places to live in California were Clayton, Lafayette, Imperial, and Palos Verdes Estates.  Forget about Clayton, Lafayette and PVE--too expensive--but check out Imperial on realtor.com.  There are at least a dozen houses in Imperial under $300,000.

Hi there! I'm also a newbie investor. I began looking out of state (Phoenix, Houston, etc). I realized that if I bought in state, I would get a lot more tax deductions as I would be obtaining a primary residence loan. When you purchase out of state, you don't get the same sizable tax breaks. Just something to keep in mind. After speaking to a few investors themselves, they recommended I look for property in CA and then begin investing out of state. If you're able to invest in state, then I would suggest that! 

@Tracy Wang, it seems like everyone is moving to Texas. Especially when the National economy is booming and especially when the National economy is in severe recessions. Oh, and all the other time too. I’ve only been here 58 years so I haven’t seen everything but I’ve seen enough to confidently invest everything I own plus everything I can borrow into Texas real estate.

Thanks all for all kind suggestions and advice. I prefer to invest in area that is landlord friendly. Also geographical diversification is a plus for me. Therefore, I decided to go OOS. I plan to invest $200k upfront cash into differ market over time. Also I prefer a portfolio of maximum overall 4-5 properties, which means I might need to look for properties valued between around 200k-250K?   is it a reasonable price range to look for rental  with cash flow? As so far, I see some cash flow market sells below $150k generating rent a little over $1k. If not, What would be a good strategy given the constraint above? Thanks again! 

Plus I am interested in Dallas market too, but so far the one PM I talked to told me that cash return is only 1-3% with all cash offer. It is hard to even get deal with financing. Not sure if it is true.

Originally posted by @Tracy Wang:

Hi all
I am totally new to the rental investment. I am in California and looking into purchase out-of-date SFR as rental property. Given so many markets, which markets should I focus on my research? I would appreciate to start with a short list of markets you can recommend? For start, I will mostly likely go with a turnkey provider, if you can share the ones that you have good experience with, that'd be great!

thanks a lot, I am learning each day from this forum.

As a real estate broker, I agree with taking your money to a a different market. There plenty of other opportunities elsewhere, my clients are involved in institutional grade properties across the country. My recommendation is to choose cities in safe and economically diversified areas with above-average income and population growth. It can also be safer to diversify your investment properties across the country. There is still good money to be made in AZ, FL, GA, TX and other states, however, picking the right submarkets is key.

A very good source of local analysis is rereport.com

@Tracy Wang - I always first consider my LOCAL opportunities. Thinking this through - 1) you can buy and self manage a long term rental - ideally single family home with no HOA rules. 2) you can buy and manage an AIRBNB. 3) you can buy a too big house or 2-4 unit multifamily to "house hack" with roommates and tenants while getting a 3% interest 30 year fixed loan on it as your primary residence.

I always look locally first because there are many synergies with your lifestyle and local real estate. There are additional tax write offs. You also have almost 0 risk of near total loss like some have experienced investing sight unseen out of state. In my area in New Jersey, a $400,000 home has a $2200 mortgage with 75% down at 3.5% and generates $4000/mo from Airbnb equivalent type activities or corporate housing.

Alternatively, if you have cash you want to invest without putting it into the stock market, and want professional management and some cash payouts along with long term appreciation, consider investing in a passive real estate partnership / JV or syndication. These deals are currently advertising 6-10% cash dividends along with future appreciation with a goal of 14-18% ROI. In multifamily they are able to leverage 3-4% 70-75%+ loan to value large balance Fannie Mae or Freddie Mac agency loans. Now some syndications exist to make the syndicator money, and others exist as a long term cashflow investment for the owners. You vet the sponsors or partners in the deal and go forward only when you're comfortable. With accredited syndications, the legalese essentially says you agree that if you lose everything, you knew what you were doing when you reviewed the investment. So. Buyer beware. Good luck and let us know what you decide.

Hi Tracy! Welcome to BP! I'm from California too. But I started my real estate journey here in Indianapolis. Now, I have almost a hundred doors. I would love to chat you more and share my experiences if you're interested.

@Tracy Wang

The moon and Bermuda triangle, it's still cheap there and lots of value add potential.

In all seriousness it depends on what you want but I'd focus on the Midwest and cities that have allot of investment going on. College education level can be good indicator for rent growth.

Columbus

Cincinnati

Are two I'm familiar with, both are growing and getting more educated/wealthy while Columbus is a bit further along in it's urban development.