Assessing Deals - Must I go out of state?

Question

The 1% rule is old news, The average sales price in my area is $450,000 and rents top out at $2500 for higher end stuff. Does this mean my only choice is to invest in an area I don't live? Sounds scary finding another location I don't know anything about.

When evaluating a deal, are people happy just breaking even these days? What is the minimum cashflow acceptable? $100!? Also seems the only way to get a property to cash flow at all is to put down way more cash, what are the other alternatives?

I realize these are rookie questions, but I still have them! Thanks for insight.

Linda Labbe · Answer

WE GO OUT OF COUNTRY TO FIND GOOD DEALS. We invest in Detroit and toledo because there the 2 % rules still works and are more then willing to share what we do with anyone who want to chat

Sam McCormack · Answer

Investing OOS in a good start. If you are comfortable with it that is. I would recommend doing research on your cities of choice, talking to realtors there, and getting contacts from them for things like property managers (probably most important), GC, etc. and interview them. Then when you select cities/realtors you will work with, visit the cities and get to know it more. Lots of people are comfortable buying something they will never see, but of course the feeling is subjective

Simon Ashbaugh · Answer

Hey there TK, welcome to BiggerPockets! I know the idea of investing out-of-state can be a bit nerve-wracking, especially for a new investor like you. But with careful planning and the right support system, it can be an incredibly rewarding experience! Building your Core 4 is key to navigating any market with confidence. Starting small and learning the ropes with one property before expanding your portfolio is also a smart approach. Assuming that your goal is to achieve a good amount of cash flow, try to explore market in Cleveland OH. The city's strong rental market driven by a growing population, ensures a steady income stream. Additionally, with affordability and a median home price below the national average, it stands out as an attractive option for investors seeking a promising return.

Michael Smythe · Answer

1% rule doesn't work in all areas and is only for cashflowing properties.

Properties on the coasts typically won't positively cashflow for 3-5 years. Investors buy these solely for appreciation - which can be a risky bet.

The Midwest is where most investors find cashflowing properties. The challenge is understanding what you are buying, Class A, B, C or D, and the pros and cons of each.

Most of the class designation is impacted by the type of tenant, then by location, the, property condition & amenities.

Here's example of how we approach it:

Class A - FICO 680+, property in white collar area, very good condition
Class B - FICO 620-680, property in lower white/blue collar area, good condition
Class C - FICO 560-620, property in blue/no collar area, good/fair condition
Class D - FICO under 560, property in no collar / "hood" area, who cares about condition

When investing in an area you don't know, do a LOT of research, ask a TON of questions to avoid being screwed (someone leads you to believe you are buying Class B, but actually Class D).

Travis Biziorek · Answer

Hey TK, a lot of the answers to your questions are highly individual and dependent on folks' goals.

I'm going to assume you're wanting to cash flow on something and not just investing for appreciation. Even still, every investor will have a different "acceptable" return usually measured as cash-on-cash return.

For example, would you be ok breaking even on a property you were able to complete a full BRRRR on? Some would... some wouldn't. Others are ok even being slightly negative on cash flow initially if they are able to pull all of their initial capital out.

It's all highly dependent on the investor and their goals, risk tolerance, etc.

I lean toward getting as much cash out of the deal as possible. If I'm breaking even on it, that's fine. I have an asset for free that will appreciate and give other benefits from taxes to mortgage pay down.

And eventually, rents will go up and cash flow will improve.

But some folks will want $X/door/month. Again, everyone's benchmark is going to be different.

If you're looking for cash flow I highly recommend looking into the midwest. I'm partial to Detroit and it's where I invest heavily (from California). But you need to find the market you're comfortable with that also aligns with your goals.

It can be scary investing outside your local market for sure. But take it one step at a time. Find a market that speaks to you, dig in, maybe visit if you can, talk to people in that market, etc. You'll soon get comfortable enough to do your first deal.

Assessing Deals - Must I go out of state?

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