Newbie to REI (Q #3) - how to pick your first market?

[Mason Blake]

Hi there, I am new to REI and have not yet bought any properties. I live in the San Francisco Bay Area where RE prices are INSANE. While I want to nothing more than to buy a home for my family, we just can't come to grips with buying a $2M home for what we want; - it would end up tying up so much (nearly all) of our capital.

Instead, I am getting more and more excited about REI and plan to buy my first couple properties out of state. My question is how have others picked their first locations? With so many potential markets, it's daunting to start and imagine just throwing a dart at the map to look up various areas.

I know I want: <= $175k first home and likely plan to buy and hold for some passive income on a long-term rental (probably BRRRR method). I do know how to do the research on finding properties, comparing them, understanding the rental market - but there just seem to be so many options!

Advice or pointers appreciated. 

[Lee Ripma]

@Mason Blake

I would argue there are many options that are similar, so it doesn't REALLY matter where you pick, it matters more that you pick and get going. 

BP actually has some good insights articles about this. I was just reading a magazine article about best vacancy adjusted price to rent ratio markets. Here is what the article concluded, I will remove ones with a PP over 175k: 

1. Cleveland, OH

2. Baltimore, MD

4. Memphis, TN

6. Kansas City, MO

7. Milwaukee, WI 

10. St. Louis, MO 

So you're in the Bay Area and you'll need to go to your market to check them out. So I would look up which of these cities has a direct flight from an airport you use. Cleveland and KC likely will (at least during non-Corona time). I picked my market off a list like this. I googled top 10 cash flow markets and picked KC because it's a cool city. I now enjoy going there. There is also a daily direct flight from LA to KC so it makes it easy to go. Note that when I go it's mostly to keep up relationships and buy more deals, I'm not doing anything on the properties I own. 

Other advice: 

Buy at least a duplex that meets the 1% rule with upside in rents. Make sure the market you pick has duplexes. Kansas City does, I don't know about MF in the others. 

Be a good buyer so you can scale in your chosen market. You don't need a "team" except for an agent until you are in escrow. 

Sounds like you have enough capital to get a RES loan, 25% down on 2-4 unit, 4% interest. You can also do BRRR but I don't actually recommend it, go for value add over a couple of years. BRRR props are really distressed and rehab is tough for a new investor out of state.

That is it, go do it!