What market do you recommend for rentals?

Question

Hi everyone, I'm new to real estate investing and doing research into which markets to start out in. I want to do rentals and am looking to purchasing properties that are around $50,000. What markets in the US do you recommend? Where do you predict a lot of growth in the coming years, especially areas that are more working class now?

Jay Hinrichs · Answer

you can buy 50k homes in Lake Co..  usually a MH on a lot... and thats only a 2.5 hour drive from you..

@Rick Pozos  Rick is correct about Texas... I have suffered the expansive soils issues first hand.. Hail damage and sky high property taxs in that state..  I think you need to live there were you pay no state income tax to offset the property tax number then be a local and understand how to work with those houses and soil conditions..

living in CA and paying some of the highest income and sales tax in the country then investing in a state that has some of the highest property tax seems like a lot of taxation and at the end of the day.. might not look that good in NOI..  Property taxs simply cant be mitigated they are what they are

Rick Pozos · Answer

I recommend buying in your hometown. Buy what you know. If you look into other areas that you are not familiar with, there are too many variables that you just dont know.

There are things that make every area unique. Texas has higher taxes. San Antonio has expansive soils that cause foundation issues, Houston is very low almost at sea level. And there are a bunch of other issues for every city.

Only you know about your area. Do most houses have a basement? Does it snow a bunch? Rain? Stick to your area. It will be hard enough to find properties that are in distress that are good deals, without having to find one in an area that you dont know.

Rick Pozos · Answer

You really dont want to own a $50,000 house. Ask me how I know. They are more hassle than you can imagine. You will NOT find a property manager who wants to deal with that ghetto home.

Go to real estate investor meetings in SF. Find out what people are doing there. Direct marketing is the greatest thing. Find some vacant homes. Code compliance issues. There are many ways to find good deals on houses, even in SF. You just have to put in plenty of WORK.

People are finding great deals in every city. People get divorced everywhere. People die everywhere. Not everything goes on the MLS. You have to create your business that finds those houses. It is not easy, because if it was, everyone in SF would do it.

There are so many California people who have bought San Antonio homes in the last few years who thought they knew the area well after doing plenty of research. Their idea of research is going on Trulia, Zillow, rentometer, MLS, making a few calls, maybe never even visiting the city.

The biggest issue is that we are at the top of the market. You should be selling the properties that you bought 5 years ago, not looking to buy.

Shital Thakkar · Answer

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Antoun Nabhan · Answer

Julia, I'm also in SF. The $50k price point is tricky pretty much everywhere in the nation. Even if you're getting $600 in rent, that's not enough to cover the management fee that you'll need to pay for something that is far away from your home. And lower-priced rentals tend to come with more vacancies, damage, and hassles.

If you can stretch to $75-100k, Fresno and Stockton are rising markets with good cap rates. Still some of the challenges associated with "Class C" neighborhoods, but there is strong capital appreciation potential due to the anticipation of the high-speed rail line. Henderson, NV (near Reno) also has some opportunities, and has a strong economy with good employment numbers (Amazon warehouse location).

I know a wholesaler in Columbus, OH that has shown me some compelling opportunities in the $75-125k range there. PM me and I can connect you.

Patti Robertson · Answer

I agree with @Rick Pozos.  I’m not sure why you are fixated on the purchase price.  Wouldn’t it be better to set a rate of return or rent to investment ratio?  In most areas just a lot is worth $50K.  Just sayin’.

Julia Hutz · Answer

Thanks everyone! I am willing to do the research, reach out to contacts, and so forth in order to learn a lot about an area. My home town is unfortunately San Francisco which I think is not a good place to find $50,000 homes! I know SF well but it's not somewhere I want to invest in.

Xiaoyu Zhang · Answer

Second to Rick. Virginia is hot. People say Hampton Roads area are good, especially Norfolk. But my personal experience is that if it's a good deal, it's gone immediately. There're several bad neighborhoods in Norfolk that could trap you.  It would be very risky if you don't have a local connection.

What market do you recommend for rentals?

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