Best Plan of Attack for Choosing Location

15 Replies

Hey BP! Quick question for you guys with experience out there :)

What would you guys recommend on how to start looking for my first deal? What is a good plan of attack? I live in CA so I'm looking out of state, and am leaning towards 4-plexes. Before I start learning a specific market and analyzing deals, does it make sense to:

1) choose a location, based on my price max/downpayment choose the type of property, find deals

or 2) choose the type of property, choose my price max/downpayment amount, find a location that has good deals for that type, find deals there

or 3) choose the type of property and my price max/downpayment, find deals wherever, choose the location that has the best deals/cash flow

Cheers,

André

I think there might be a few metrics you would want to consider alongside price and property type. I’m playing catch-up on all the BP Podcasts, and several in the 225-235 range deal with assessing markets. Of the podcasts I’ve listened to, none really mention property prices, and only ‘kind of’ mention property type indirectly.

1) check affordability of living, even outside housing (though that is a huge part). What’s the employment rate? Average salary compared to national average? Also, what is the ratio of rent-to-mortgage in the target area?

2) what kind of actual employment, and what employers, are hot in the area? Make sure that no one employment sector (and no more than one employer) holds more than 15-20% of jobs in that city/region. This will help hedge you from changes in technology, employment trends, companies pulling out of an area, etc.

3) check supply versus demand. This is property type specific, to a point. Considering fourplexes, what is the inventory of that property type in the town? Do small multi-families work, or are the majority of renters/owners either in SFRs or apartments/condos? You can have the perfect fourplex in my area and still not be able to rent it at market rate because we have something like 80% home-ownership, a few small multis here and there, and maybe three apartment complexes in a county of 70,000 people. Since the fourplex isn’t popular near me, all the other economic indicators could be strong and a fourplex could still not work.

Typically, these metrics are what drive people to places like Milwaukee, Memphis, NC, Cinci, Indy, and several towns in TX and FL. High on job growth, population trends in the right direction, good supply/demand (at least up to episode 233 of the BP podcast lol), good affordability, and markets that don’t seem to have topped out on growth yet.

I hope this helps—and if I have missed any key indicators, please let me know. Good luck!

One very important thing you did not have in your requirements is choosing a solid provider to work with.  That will also have some impact on the success of your investment. 

Good luck 

@Curt Davis Thanks for mentioning that Curt. Do you mean having a solid relationship with an agent, realtor, etc in the area?

Understandably, that is important, but wouldn't I build that relationship after deciding on the location?

Cheers

From what you said @Timothy Doenges , is it better if affordability and avg salary are generally higher or generally lower?

It seems as if those two could be inverses of each other.

If you plan to buy from a turnkey provider then you need to do research on the ones in the markets you are considering. If you do not want to do business with a TK provider and go with a realtor then make sure you work with one who understands the rental market and what areas ar good for your specific criteria. 

Good luck ! 

@Curt Davis Great point - definitely find either a) professionals in the market you are targeting, or b) find a reputable TK provider in that market. If you are not wanting to use TK, then start with RE agent, and they may be able to clue you in to contractors and property managers that are having success in the business now and are reputable for OOS investors.

@Andre Crabb I agree that affordability and income could be inverse, but aren't necessarily so. Many towns in the Midwest have higher-than-average wages and lower-than-average cost of living. I'm sure there are numerous other areas in the nation that perform well on affordability and income, but the MW is most obvious to me since I have lived in several areas of the Midwest for my entire life. Many of these areas also have healthy rental markets, both in SFRs and Multis. College towns may satisfy your requirements - maybe look for towns with Big 10 schools and go from there?

Hmmm...interesting thoughts on which order to do it in. In reading them, I don't think there's necessarily a wrong one to pick. The only thing I can think of is that in your deciding all of that, you'll at some point start learning or need to learn which markets will offer what types of properties. Your processes kind of suggest that, but having an overall picture in your head of what markets offers what kind of price points / property types, then you could choose the combination you like the best. Rather than just picking one route or another.....maybe learn about the options and then decide which route/order to go in. If that makes sense?

In terms of finding locations, here's my advise on how to start in on that-

https://www.biggerpockets.com/renewsblog/out-of-st...

Hope that helps!

(also, 4-plexes are tight and tough these days. Just so you know...in case you get frustrated at finding some with good numbers)

Thanks @Ali Boone for your thoughts. I'll definitely check out that article.

About your comment on the 4-plexes, is that nation-wide? Any idea what has made them tight? Is it the same for 3s and 5s?

Originally posted by @Andre Crabb :

Thanks @Ali Boone for your thoughts. I'll definitely check out that article.

About your comment on the 4-plexes, is that nation-wide? Any idea what has made them tight? Is it the same for 3s and 5s?

I'd say it's nation-wide, yes. But certain areas will have more of them than others. I think it's because they can be such a great investment property. 3s are similar, but I saw 4s get low on inventory long before the 3s. And 5s are a completely different ballgame because then you are out of the residential classification and into commercial. Lending is different, buying and shopping are different, etc. I don't know this for sure but I'd imagine at the point you go to a 5, you might as well go even slightly bigger (6, 8, 10?). I think even-numbered unit buildings are more common than odd for commercial. I might have just made that up but I can't think of ever having seen a 5. But 2-4 units are residential MFRs and 5+ units is commercial.

Originally posted by @Andre Crabb :

@Ali Boone Investors must be waiting around for this crash to happen then

Not sure what you mean. Or, in reference to what? 

@Ali Boone I was referencing the general market crash that's bound to happen soon due to the long bull run the US has been on. No doubt more REI opportunities will open up then.

Originally posted by @Andre Crabb :

@Ali Boone I was referencing the general market crash that's bound to happen soon due to the long bull run the US has been on. No doubt more REI opportunities will open up then.

Oh they definitely will. But there's really no way to predict when that will happen.

If only we had a crystal ball 🔮

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.