How to pick a good location?

Question

Hey everyone,

In a few months Ill be moving back to the US and I plan on starting a career as a full time investor. Im planning to pursue a buy and hold strategy with SFRs supplemented with some rehabbing on the side. The problem is, I don't know where to start. Most of my family is in NH and MA so I'd like to stay in one of those two states. How would you recommend I go about selecting a geographical area to focus on? Right now Im looking at property values, population growth rates, income, schools, crime... Im still in China so I can't drive neighborhoods or anything yet. What else should I consider. How do you guys pick locations to invest in?

Patrick Snyder · Answer

@Cameron Berube  I have had the best luck with students, no question.  They have money and if you buy the right property, it's always full.  I have not found that college students do any more damage than anyone else, and yes, if you can always get a co-signer.  The trick is to get your leases to begin and end in the summer, preferably in August.  It's not easy filling a house in January if your target is the college kid.  Even if I have turnover every year, it still gets re-rented quickly.

@Mike Tikh  I can buy a 3/1 in a good neighborhood for $25k.  The cash flow has only gotten better over the past 5 years.  Honestly, it's gotten to the point where I can buy a house with a credit card.  Unreal

Account Closed · Answer

Yeah, I thought 5% seemed low... Ill take a look at that list. Thanks for the tip.

Bill Gulley · Answer

5% in 10 years? That's stagnet IMO! Steady growth would be about 2 1/2, 3% a year. You generally will find faster rates in areas with lower costs of living, I believe Money magazine still publishes their list of the top 100 cities/towns, check out the top 25 for example and cut the list down by looking at the stability of their economic development and how solid the main employers are. Again, I'd stay away from boom towns for a buy and hold business unless it's a bedroom community of another city with room to grow and that "anchor city" has a strong economic base.  That's my thinking.

Account Closed · Answer

Thanks for the advice Bill Gulley. I like the idea of having a parent on the lease. 
My goal is to retire by 45 (in 21 years). Id like to get started holding SFR and adding houses to my portfolio as quickly as I can. I was thinking of doing fix and flips to generate capital to reinvest. After I get a handle on that I might upgrade into larger multiunit buildings.

The problem is the town I grew up in, Berlin, NH, is totally bust due to a mill shutdown a few years back and isn't a very appealing place to live due to bad schools, crime, no jobs, no entertainment, no access to major highways etc. This sort of does away with any "home court advantage" I might have. Im sort of familiar with parts of Southern NH but I'm certainly no expert. The benefit there would be personal connections I have with people in the construction industry and a few in RE. Not many.
 
I like the idea of buying in a college town or a stable metro area. Recently, Ive been looking at Concord NH. Concord, pop aprox. 42500,  is the state capital and has a bunch of govt jobs as well as a few colleges. According to the 2010 census it grown about 5% from 2000 to 2010. Is that fairly stable growth?

Other than this I was considering the greater Boston area with no real idea of where to start.

Bill Gulley · Answer

Best way is to have daddy guarantee the lease!

As to areas, Austin and Houston Texas are hot areas, problem is they are hot areas!

What is you goal? If you have decided not to grow where you were planted and you're looking for greener pastures better think hard. There is alot to be said for being familiar with an area.

I'd suggest you look for a stable metro area that has steady growth instead of some boom town area that may not last for long term.

College towns should be good, check in areas that have regional medical centers too. You're also looking for larger corporate centers in smaller towns, like having a Kraft Foods, GE, or a defense contractor, these are not likely to go bust. Look for recreational areas near by, entertainment (?) It really needs to be a place you want to live in first, RE will follow. Just some thoughts.....geee it's starting to sound like my hometown! Good luck...

Dale Osborn · Answer

One of the main things to be considered - are there any jobs for your tenants to have so they can pay you the rent? Many areeas are shutting down the jobs so everyone needs to move away

Account Closed · Answer

Thanks for the feedback everyone,

Patrick Snyder, do you have issues with vacancy rates in college neighborhoods, or does the constant flow of students make up for the turnover rate? What about maintenance issues? I remember a lot of the apartments near universities I attended being destroyed by students. How do you mitigate that? Large security deposits? Higher rents?

Loc R. · Answer

My personal experience is this:  I am NOT a good long distance landlord.  I am a good local landlord.

That being said, Pasadena is very fair to landlords.  Los Angeles (proper), OTOH, is very tenant-friendly.  We are talking adjacent communities/cities here.

At my price point, I don't deal with crackheads or trash/scumbags/leaches.  I get working professionals looking to become homeowners one day.

My goal with this type of rental property is to find more of them at a discount.  This type of rental property retails at 4-5% cap rates, which would be fine if I was just looking to preserve wealth, but I'm still trying to build it.

Ken Latchers · Answer

My main location thing is to avoid places that are ridiculously biased towards Tenants rather than Landlords. Including liability issues such as lead paint, mold, bed bugs, etc.  Some of the things I have seen about laws being passed NJ and NYC raise the hairs on the back of my neck...

Mike Tikh · Answer

Bumping this topic, I was about to ask the same question.

Patrick, I see you're in Lansing. I'm just starting to consider Michigan because of the absurdly low property values and abundance of college towns. It's definitely possible to find some deals here. The question is whether to focus on:

Cities with very low prices and potential deals: Detroit, Miami, Phoenix, Vegas... all have significantly more foreclosures but also more risk of poor future growth. I don't see a whole lot of reason for Detroit or Vegas to ever start picking up again

or

Strong cities like most of the ones in Texas, which already carry very high prices since the market never got hit, but also continue to grow at very fast rates. Sort of the opposite for Detroit, Austin's prices are through the roof but I also can't see any reason for it to stop growing.

How would you make a decision if you're choosing from the whole US? What resources would you use to study and compare demographic information and real estate trends in different markets?