How to Pick a Market?

5 Replies

Hi everyone, I'm new to BP. Five years ago I sat next to an older woman on a plane leaving Kauai. She owned a home there and told me how real estate allowed her to travel and live wherever she wanted. She also told me to buy three properties--that they'd come in handy when I got older. So I'm here to make it happen.

Currently I own a condo in Chicago. I plan to sell it and buy my first investment property, either a multi-family or a single-family that I can rent.

I'm looking at three markets: Detroit (I visit regularly and like the direction it's headed), Atlanta/Macon area (I grew up there and still have a network there), or staying put in Chicago. What do you look for in a market, i.e. how do you know a good market to invest in? Also, any books or podcast recommendations for getting started would be much appreciated!

Hi Janelle, welcome! I also recently joined BP and started becoming interested in real estate investing. Since I'm also currently trying to identify which areas I would like to invest in, here are some factors that I am considering:

Landlord laws - Is the state you're investing in more renter-friendly or landlord-friendly? I know Illinois is more renter-friendly compared to Indiana for example.

Population/and income growth - Is the city/county you're investing in growing? If it is, you'll have more demand and can command a higher price for rent or sale.

Tax rates - Higher taxes will lead to a lower ROI all else equal and it might be easier to find better deals in a low property tax area.

Hope this helps!

@Janelle A.

Welcome to BP!

As @Ranny Ma mentioned, you want to look for markets:

1) with population growth

2) with job growth

3) infrastructure

4) colleges

5) large employers that are there to stay and not be kicked out by the next Amazon

6) low to moderate crime

7) landlord friendly states

8) not enough supply and relatively high demand for housing (make sure it is the type of housing you're planning to buy)

Read Frank Gallinelli's book "What Every Real Estate Investor Needs to Know about Cash Flow"

Originally posted by @Janelle A. :

Hi everyone, I'm new to BP. Five years ago I sat next to an older woman on a plane leaving Kauai. She owned a home there and told me how real estate allowed her to travel and live wherever she wanted. She also told me to buy three properties--that they'd come in handy when I got older. So I'm here to make it happen. 

Currently I own a condo in Chicago. I plan to sell it and buy my first investment property, either a multi-family or a single-family that I can rent.

I'm looking at three markets: Detroit (I visit regularly and like the direction it's headed), Atlanta/Macon area (I grew up there and still have a network there), or staying put in Chicago. What do you look for in a market, i.e. how do you know a good market to invest in? Also, any books or podcast recommendations for getting started would be much appreciated!

One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

@Janelle A. I look to markets that are more recession-proof. I understand the direction you're headed in with the markets you're looking at, but something to keep in mind is that areas that appreciate a lot also tend to have big dips with there's a downturn in the market. Often this is associated with dips in your rent rates as well which can leave you with negative cash flow in a worst-case scenario.

Even if you snag a couple in those areas, I'd consider adding a market that is safe as well. That looks like consistent cash flow/rent rates and holding your value even through a downturn. 

If you're in the midwest you can get in at really approachable price points. 70k for a c class property so 14k down! Cushioning your exciting portfolio with something that's boring and safe (but with the right purchase great cash flow) could provide a lot of peace of mind.