Markets for New Investors

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Markets for New Investors

Jonah Cervantes
New to Real Estate · San Juan Capistrano, CA · Member since 2020 · 14 posts · 12 votes

Hello—I am newly venturing into real estate investing after an undergraduate career in music. I have no real estate experience or contacts, and I have little cash and no job (current events).

I'm using my time to learn all I can about the business. I'm pursuing my RE license and reading everything I can. 

The more I learn, the more I see my goals coming into focus: multi-family investing (ultimate goal: 300-unit+ apartment complexes)—reposition as many properties as possible, buy-and-hold, flipping, or even assign contracts, depending on the deal). 

I'm still totally in the dark about location, though. I live in Orange County, CA and I hear cash flow is hard or impossible in this area. The closest market that seems more affordable is Riverside/San Bernardino. 

I hear that I should only consider markets I can access physically on a regular basis or can visit many times to "learn inside and out." At the same time, many successful investors I listen to seem to have deals all across the nation! Plus, I've heard great things about B or C markets in other states (Texas, Alabama, Arizona). How do I manage out-of-state investing as a new investor? Should I start local?

Could anyone tell me what markets/cities they've successfully invested in (small-to-medium multi-family buy-and-hold and repositioning, especially)?

Thank you very much for any help!

Jonah Cervantes

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Mark Kendall
Lender · St. Augustine, FL · Member since 2017 · 25 posts · 19 votes
6y

I live in Florida, but invest in Georgia and the Carolinas because I can find much better deals. I can be a bigger fish in a smaller pond investing in these states. I have my tenants manage my properties. They get a discounted rent for their work. My furthest investment is 6.5 hours away. There's always the option of hiring a management company to overlook the property...I don't know their rates, but have heard they're not as bad as I imagine. 

Is there any opportunity in Nevada or Arizona? 

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  • Abe McLaurin
    Realtor · Columbus & Cleveland, OH · Member since 2019 · 44 posts · 60 votes
    6y

    Hi Jonah, have you looked into Columbus Ohio? Great opportunity for cash flow in MF as the city is growing along with its population. If you find a good team, I don't think investing out of state would be a hassle. 

    2Reply
  • Jonah Cervantes
    OP
    New to Real Estate · San Juan Capistrano, CA · Member since 2020 · 14 posts · 12 votes
    6y
    Originally posted by @Abe McLaurin:

    Hi Jonah, have you looked into Columbus Ohio? Great opportunity for cash flow in MF as the city is growing along with its population. If you find a good team, I don't think investing out of state would be a hassle. 

    Thank you! I'll look into that market. 

    1Reply
  • Zeke Liston
    Real Estate Agent · Columbus, OH · Member since 2018 · 1k+ posts · 1k+ votes
    6y

    @Jonah Cervantes I second @Abe McLaurin, Columbus, OH would be a good market to look into! 

    2Reply
  • Mark Kendall
    Lender · St. Augustine, FL · Member since 2017 · 25 posts · 19 votes
    6y

    I live in Florida, but invest in Georgia and the Carolinas because I can find much better deals. I can be a bigger fish in a smaller pond investing in these states. I have my tenants manage my properties. They get a discounted rent for their work. My furthest investment is 6.5 hours away. There's always the option of hiring a management company to overlook the property...I don't know their rates, but have heard they're not as bad as I imagine. 

    Is there any opportunity in Nevada or Arizona? 

    3Reply
  • Caleb Brown
    Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
    6y

    Kansas City, Cleveland, and Indianapolis are the 3 main ones.

    3Reply
  • Wyatt Franta
    Real Estate Broker · Vancouver, WA · Member since 2018 · 168 posts · 120 votes
    6y

    Hey Jonah,

    I'm right next door to you in San Clemente. 

    While the others mention some great OOS markets, I wouldn't recommend investing out of state unless you absolutely know what you're doing. Most investors start local, or in areas they know like the back of their hand.

    In Orange County, investors I know are mostly flipping properties around Orange/Tustin/Anaheim or investing in the industrial asset class. In my opinion, multi-family properties out here are going to be risky for a while given COVID mixed with the already high cost of living. 

    It sounds like you're just getting started, so feel free to add me and throw questions my way whenever they come up.

    Good luck!

    2Reply
  • Kaitlyn Nesbitt
    Rental Property Investor · Los Angeles, CA · Member since 2019 · 15 posts · 15 votes
    6y

    Hey Jonah, I live nearby in Los Angeles and am starting out as well. Personally I've found the neighboring areas are definitely hard to find cash flowing rentals if that's what you're in the market for. I highly recommend reading David Greene's book "Long-Distance Real Estate Investing." Very eye opening to the out of state investment strategy! 

    2Reply
  • Gohar S.
    . · Member since 2019 · 23 posts · 26 votes
    6y

    I live in Oregon and rent out my old house and self manage in NC and it's doing very well.

    I'm looking at a few Turnkey Investment in Memphis, TN and Little Rock.

    2Reply
  • Mohammad Dawood Wajid
    Rental Property Investor · Member since 2020 · 17 posts · 4 votes
    6y

    @Wyatt Franta

    Brother, can you please shed more light on the industria asset class as to what options are there in terms of purchase price, down payment and returns?

    1Reply
  • Account Closed
    Real Estate Investor · Waldorf, MD · Member since 2014 · 592 posts · 320 votes
    6y

    @Jonah Cervantes People are answering your question as to what markets they are successfully investing, but don't get it twisted, because that's their success and you may not have the same success.  If you notice there is a pattern where people are saying they invest, they also live there.  As I mentioned, it doesn't mean you too can't be successful there but there is a small bias.

    So do your own market research, look at the actual data, market growth, population, rent control, job growth etc.  I'm not a student or paid marketer but Neal Bawa offer some great FREE advice on how to pick a market. Now, I am a paid sponsor to anything that's free.

    2Reply
  • Jonah Cervantes
    OP
    New to Real Estate · San Juan Capistrano, CA · Member since 2020 · 14 posts · 12 votes
    6y

    Thanks for the advice everybody!

    JC

    1Reply
  • Wyatt Franta
    Real Estate Broker · Vancouver, WA · Member since 2018 · 168 posts · 120 votes
    6y
    Originally posted by @Mohammad Dawood Wajid:

    @Wyatt Franta

    Brother, can you please shed more light on the industria asset class as to what options are there in terms of purchase price, down payment and returns?

    Hey Mohammad, 

    Absolutely. So, the industrial asset class is a lot more flexible in terms of tenant pool than most realize. You have your standard distribution centers, warehouses, self-storage, etc. However, you'll often find niche gyms, breweries, restaurants, and more diverse & wide-ranging tenants signing leases when standard retail/strip mall sites become too expensive. This is very common in Southern California, and developers have been pumping out new construction left & right to replace the current market that's filled with old, deteriorating buildings from the 1960s. 

    The industrial market is also the most affordable per square foot because, at its core, an industrial building is just a concrete box with a few rolling doors and windows. It's cheaper to build-out because tenants typically prefer space more than luxury amenities.

    Purchase price will vary by location, but it will typically be cheaper per square foot. Down payment is dependent on the lender and your financial status, but let's just estimate 25% to satisfy the majority of lenders. ROI is also dependent on a few things, but you'll see CAP rates starting around 4% in Orange County, whereas multi-family starts at 3%.

    2Reply
  • Allan Fisher
    Rental Property Investor · Chula Vista, CA · Member since 2016 · 17 posts · 15 votes
    6y

    I'm in San Diego county and own two investment properties in Memphis. I chose Memphis because it's a good rental market, good job market, low properties taxes, and in a landlord friendly state.  

    I did a ton of due diligence before buying the first home and have been out there a few times to check on the houses and familiarize myself with the city.  I can tell you there are areas that I absolutely would not touch. I bought in an area where rents are $1200+ per month, which has worked out pretty well for me. 

    Good luck in your search! 
     

    2Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    6y
    Originally posted by @Jonah Cervantes:

    Hello—I am newly venturing into real estate investing after an undergraduate career in music. I have no real estate experience or contacts, and I have little cash and no job (current events).

    I'm using my time to learn all I can about the business. I'm pursuing my RE license and reading everything I can. 

    The more I learn, the more I see my goals coming into focus: multi-family investing (ultimate goal: 300-unit+ apartment complexes)—reposition as many properties as possible, buy-and-hold, flipping, or even assign contracts, depending on the deal). 

    I'm still totally in the dark about location, though. I live in Orange County, CA and I hear cash flow is hard or impossible in this area. The closest market that seems more affordable is Riverside/San Bernardino. 

    I hear that I should only consider markets I can access physically on a regular basis or can visit many times to "learn inside and out." At the same time, many successful investors I listen to seem to have deals all across the nation! Plus, I've heard great things about B or C markets in other states (Texas, Alabama, Arizona). How do I manage out-of-state investing as a new investor? Should I start local?

    Could anyone tell me what markets/cities they've successfully invested in (small-to-medium multi-family buy-and-hold and repositioning, especially)?

    Thank you very much for any help!

    Jonah Cervantes

    Welcome aboard Jonah. Many markets available. Cleveland is the one I am most familiar with and it's also very popular with investors across the USA so I figured you'd get some value out of reading The Ultimate Guide to Grading Cleveland Neighborhoods. I also have similar guides that you may want to look over for Kansas City, Missouri. & Birmingham, Alabama.

    In addition there are tons of other turnkey markets out there besides those listed above. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors

    • Cincinnati, Ohio
    • Dayton, Ohio
    • Toledo, Ohio
    • Youngstown, Ohio
    • Cincinnati, Ohio
    • Memphis, Tennessee
    • Saint Louis, Missouri
    • Indianapolis, Indiana
    • Detroit, Michigan
    • Erie, Pennsylvania
    • Louisville, Kentucky
    • Milwaukee, Wisconsin
    • Jackson, Mississippi

    Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.

    One thing to note when looking at the individual markets, you can make or lose 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.
    • Google Clayton Morris scam and/or Morris Invest scam for a cautionary tale of what not to do when buying turnkey real estate
    • Understand you can not eliminate all risk, only mitigate it. If you are risk averse, real estate, (especially out of state) is not for you.
    2Reply
  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    6y

    @Jonah Cervantes Depends on your goals. Cash flow is midwest and I am partial to KC. I have personally seen the value of my properties increase by 30% in the last few years and I also have great cash flow. Every deal is different but if you look well and listen great agents in the market you can find the good deals. Beyond that, I am not sure what else to tell you?

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    6y

    @Jonah Cervantes If you lived in a market that fit your cash flow goals, it would make sense to invest locally but you don't. Investors that buy outisde of their local market do so out of necessity. You're better off investing in a market that you have a strong chance of achieving your goals than to buy in a sub optimal market just because you can drive by and see your property. Thousands of real estate investors buy outside of theri  local markets and do very well. You just need to be smart about it and do your due diligence. The reality is that there is risk anywhere. You can get a bad tenant in property a block away just as you can in one 2000 miles away. Things break and have to be replaced regardless of where the property is locate. Most of the risks of real estate investment are the same whether you are buying locally or out of state. The biggest challenge of investing out of state i an area that you don't know is buying in the wrong neighborhood. I see people make this mistake over and over, however, it can be overcome easy enough. Do your homework and invest in the market that will give you the best financial return regardless of where it is.

    0Reply
  • Noah Gregory
    Real Estate Agent · Golden, CO · Member since 2019 · 22 posts · 18 votes
    6y

    Jonah, 

    Right now you need a house hack my guy! This is FOR SURE the easiest way to ease your way into serious investing. Right now you have no job, money, etc (hate to remind you but I'm right there with you). In the near future, rent is going to eat most of your money every month. Also, the goal of investing is to make more by owning a property each month than it costs to maintain. Combine these two principles and you have house hacking. Buy a house, rent the extra rooms, have your rent (mostly or all the way) paid for by roommates. Check out the many posts on here for house hacking or my boy @Craig Curelop 's book about house hacking. Best of luck to you moving forward, feel free to message me or comment back if you need any more info. 

    1Reply
  • Craig Sloan
    Member since 2018 · 200 posts · 123 votes
    6y

    @Jonah Cervantes I'll throw out a different approach.  If you can't afford to invest in your current location, what about moving?  Don't know if this is a possibility for you but it might be a great way to set yourself up for long term success in a market that is investor friendly. 

    0Reply
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