Would you recommend first rental be local?

Question

Hi all, I just joined here. My husband and I have been wanting to get into real estate for some time and started with hopes of self storage but decided after a year of trying to purchase in that market to move over to other real estate! Excited to be here.

My question is this: (and thank you for any advice you have to give me!), would you recommend your first rental property be in your local market? We are having trouble finding a "deal" in our area. Everything still seems so overpriced to make the numbers work! If not, do you have any advice on finding a market that is more doable currently? Thank you, and I apologize for sounding so amateur!

Joe Villeneuve · Answer

Ideally, but being local isn't a requirement.  Making money is.  If local doesn't make money, don't invest there...and don't rationalize a bad deal just because it might be local.

Joe Villeneuve · Answer

I'm in Michigan.  Where are you analyzing?  There are many, many areas that will CF in MI.

Also, NEVER accept negative CF in favor of appreciation.  Negative CF is an added, unnecessary cost to you.  Positive CF means the tenant is buying the property for you.  Negative CF is, and always will be, a bad deal.

Scott Mac · Answer

That is one strategy, and it MIGHT make things easier on you if you self manage, and especially if you self fix up.

Wouldn't it be nice to find the perfect place on your own street, within a couple of blocks. Some areas are like this.

Some cities offer good deals and in some cities the good deals right now are getting harder to find.

If you can find a close in deal and the numbers work and it works as far as the amount of fix up you want to do (not a burnt out hulk)--your all set.

But you won't know unless you look, and if that's not fruitful, expand your search area--but be sure you are comfortable with the renter base, because some areas with good numbers are very dangerous.

Good Luck!

Nicholas L. · Answer

@Elizabeth LeBlanc

I always recommend that if at all possible, new investors start local, not because there is anything intrinsically different about the real estate in other states, but because it's easier to build a team / network / go to REIAs / meet agents / talk to PMs / go visit properties in your own neighborhood than 2000 miles away.

And, if what you're saying is "any random property listed on the MLS doesn't work as a rental when I run the numbers conservatively" - yep, that's the case in many, many markets right now due to low inventory, increasing interest rates, investors willing to accept lower yields, etc.  You might have to change strategies, look for off-market or value add deals, look in different sub-markets 2 hours away, wait for that occasional gem to hit the MLS and move on it immediately, etc.

Hope this helps!

Justin Woodard · Answer

I think it will also depend on what your goals are. Some rental markets are better for for appreciation and some are better for cash flow. I'm not familiar with the markets in Michigan, but if they are like other areas in the Midwest, you'll likely get lower appreciation with stronger cash flow. If this fits in with your long term goals I would say you can start investing local and eventually move out of state once you have a larger network.

Drew Sygit · Answer

@Elizabeth LeBlanc recommend you find an out of state mentor, so you're not competing, to assist you with local evaluations.

Most self-storage purchases require repositioning or adding units to make them work.

Elizabeth LeBlanc · Answer

Just sent a request. Thank you so much!

Elizabeth LeBlanc · Answer

I am in grand blanc, MI. Looking all around within an hour. I’m lost on what I’m doing wrong. I do 8% vacancy, 5% maintenance, 10% cap ex, renter does utilities, 30 year loan, 7% interest (that’s what we were quoted this week). If you have any guidance please let me know.

Would you recommend first rental be local?

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