How do you decide on the location for rental investment with good cash flow?

Question

Hi All

Happy new year.

Back again with few more questions to seek experts input.I am currently looking to shortlist some locations for my first rental investment property.

When you look location what factors do you consider to pick the right location with good cash flow? For example, crime rate, population growth, employment rate, price to rent ratio etc.

Appreciate your help

Regards

Nicholas L. · Answer

@Sathya Priya Sampathkumar

hello. a few thoughts.

1. LTRs with long term conventional financing and standard management aren't really cash flowing anywhere right now. sure, there are lower cost markets that look better on paper, but there are costs associated with those supposedly cheap markets as well - deferred maintenance, more challenging tenant base, higher cost turnovers as a percentage of the rent.

2. i wouldn't pick a random market thousands of miles away based solely on statistics or numbers.  i'd pick a market close by, or that you have a personal connection to, or that you visit often.

chasing cash flow by itself can lead to negative outcomes - for example, these investors bought in supposed "cash flow" markets:

https://www.biggerpockets.com/forums/12/topics/1215726-break...

https://www.biggerpockets.com/forums/963/topics/1195280-expe...

https://www.biggerpockets.com/forums/48/topics/1137397-balti...

hope this helps.

Becca F. · Answer

I completely agree with this. I hadn't read the Baltimore story before...wow.

Hi Sathiya, some thoughts:

- attend in person meet ups in the Boston area to talk to other investors who buy locally and out of state to get their feedback and maybe consider looking within a 2 to 3 hour drive.

- cash flow is difficult now with long term rentals even if you pick markets that have lower purchase prices than Boston. The cash flow on paper is often much different than reality. I've talked to lots of California and a few NYC investors that have lost money (including myself) who bought inexpensive properties in the Midwest mostly and a few in the South (Class C is volatile).

- some strategies I've seen California investors use to lessen negative cash flow: house hacking, mid-term rentals (people temporarily displaced from home renovation or insurance reasons like fire), rent by the room, Short Term Rentals.

- The ultimate house hack, live in the small ADU unit and rent out the two levels of the main house on AirBnb in San Francisco (I would have thought STRs are oversaturated in S.F. but it worked for them and they stay fully booked). The down side is that STRs are more work, need to furnish it, pay for utilities and WiFI but in the right market (vacationers and business travelers) it could work.

- If I were looking at cash flow as a really important important metric, I'd consider starting a business. I prioritize appreciation, tax benefits (rental property expenses, depreciation), ability to use leverage, and passing on generational wealth with real estate.

Tyler Munroe · Answer

Hi @Sathya Priya Sampathkumar! If you're just getting started, stay local. I see you're in the Boston area, so if you're looking for cash flowing markets I'd recommend Lowell, Fitchburg, Leominster, just to name a few. Basically, the further you get away from the city the more potential for cashflow, but you're also dealing with a different tenant base that may be tougher to manage. I'd also suggest self-managing your first property to maximize cash flow and learn by doing for any future investments.

Min Zhang · Answer

Hey Sathya! I pay attention to local amenities like shops, parks, and restaurants, because they make the area more appealing to tenants. I also look at future development plans in the area, as new projects can increase property values and attract more renters.

Alecia Loveless · Answer

@Sathya Priya Sampathkumar I’m currently renovating 2 units that are 35 minutes away from me. It’s been a pain going there every day for the past 4 weeks and looking ahead to have to keep going there every day for the next 4 weeks.

I’d recommend a local market if at all possible.

It never occurred to me that I’d have to make the drive to this building for 2 months. I usually visit this property once a week.

If I were you I’d look for a subset of a more expensive market. It will likely be a “commuter” community and will still attract plenty of great tenants.  Ideally it should still cash flow solidly but may not appreciate quite as rapidly as the bigger market.

Bradley Buxton · Answer

@Sathya Priya Sampathkumar

Look for markets that can fit into your lifestyle and your goals. Can you travel there easily? If you need to go there in a day can you? If you want something for long term generational wealth that might be a more expensive equity growth market. Most cities have areas with lower crime and better schools. What market works for your life?

Daniel McDonald · Answer

What’s Important to me is understand the tenant pool. They’re places that rank higher on cash flow but come with a lot more headaches. I’d take a property with good tenants over more money but constant turnovers any day. Cash flow can come at a price so be cautious.

Julia Lyrberg · Answer

Happy New Year!

When choosing a location for your first rental, it’s great that you’re considering factors like crime rate, population growth, employment rate, and price-to-rent ratio—those are all key metrics. I’d also look at local amenities, school districts (if targeting families), and proximity to major employers or transportation hubs. Researching the area’s vacancy rates and future development plans can also give you insights into long-term potential. Best of luck with your search!

How do you decide on the location for rental investment with good cash flow?

Most Popular Reply