Criteria for out of state investing?

Question

Hi Everyone,

I could really use your advice on a few items. I am currently looking to invest out of state as my current area in Orange County is kind of crazy to invest in. Right now I have a few different areas that I’m leaning towards I was hoping to get some feedback on what criteria that I should look at before selecting a particular market. My strategy is to buy and hold. My current criteria are as follows

1. What is the unemployment rate in the area?

2. What is the population growth over the last few years?

3. What economic sectors employ the most people? (Ideally this should be diverse)

4. What is the price to rent ratio? Ideally we will have the 1% rule apply here.

I’m currently looking at 5 different markets. They are all in landlord friendly states.

Once I find out the numbers I will then look at specific areas in the market with low crime rate.

Any thoughts or ideas? Right now I’m just getting started so I feel like there is a lot to learn. I just want to make sure I do due diligence before jumping in. Any advice or feedback would be appreciated. What else do you look at before picking an area to invest in?

Jay Hinrichs · Answer

I like to advise that when looking OOS keep in mind each of the go to cities have their plus's and minus.. at the end of the day I beleive you want to buy as close to the median price point as possible.. reason being in those areas you have homeowners buying as well.

the second you go into low end low value ( where the numbers look the best) you are now for ever in the land of investors and the exit is ONLY to an investor and the rental pool is much tougher..

the reality is inverse to what many think.. you go for high cash flow % returns you take on greater risk limit exit and take on the risk of a very bad investment over time.

you be happy with modest cash flow returns buy were homeowners are still buying with decent schools etc.. and your return although not the magic that those on bP talk about but for out of area investors much safer. thats my thought process.

RISK/REWARD is very real in the rental business.. and bottom end tenants are VERY difficult and are not changeable.. IE they will always be who they are.

John Warren · Answer

@Zubair Afzal one thing almost no one thinks about is what is the price of your rental unit versus the price of a typical home in the area. I own 13 units locally here in the Berwyn/Forest Park area where the average home is pushing 250k. I also own a 20 unit in South Bend, Indiana where you can buy a home for under 50k! The renter pool here in the Chicago suburbs is incredibly qualified in comparison to the South Bend rental pool. I regularly have been able to find tenants that meet my standards in Chicago, while in South Bend we are always scraping the bottom of the barrel.

Ali Boone · Answer

I think those are great questions to get you started. What 5 markets have those led you to so far?

Ali Boone · Answer

Hey Zubair! Sorry for the late reply. Feel free to email me at my email address below or a direct message on here.

Zubair Afzal · Answer

@Ali Boone well so far the markets I have in mind are

Oklahoma City, OK

Kansas City, MO

Columbus, OH

Indianapolis, IN

Louisville KY

I’m trying to narrow my search and see which area I’d really like to focus on. Any suggestions?

Zubair Afzal · Answer

thanks @John Warren Definitley something I did not consider. I’ll certainly think about this as well. If anyone in the forums has any other advice it would be much appreciated thanks!

Criteria for out of state investing?

Criteria for out of state investing?

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