Analysis Paralysis - Selecting a first long distance market

29 Replies

The California exodus to places like ID, MT, TX, etc. have generated a ton of interest in Californians investing in other markets. 

What are the best ways to make a market selection as a starting point for a new investor? 

First find out which market has doubled or tripled the last 10 years.  The rest dont even bother.

Of those that have had massive increases ask your self if you are OK breaking even after a 30% down payment.

Then roll the dice, baby needs a new pair of Air Jordans.

@Matt Carruesco make sure you find a place that has a growing population. If you’re planning to hold for the long term that’s very important!

Also, don’t get too caught up in picking the “perfect” market. People are successful in many different markets. Finding a good team is just as important as picking a great market.

@Matt Carruesco

I'm having a hard time picking a place as well. Everytime I think I'm getting close something about the area gives me doubt. I've been looking in the Midwest for cash flow and landlord friendly. Many of the places where the numbers work the crime rates seem high.

@Matt Carruesco @Erik B. The Midwest is great for cash flow and many markets within also come with a lot of appreciation. There are also a lot of markets that have no appreciation and a declining population. In strong markets such as Columbus, Ohio you’ll find deals around the 1% rule and can do closer to 1.5% rule in C class neighborhoods. In A class neighborhoods here though it’s very competitive with 5-6% cap rates.

Overall wherever you invest it’s important to have a great local team of a realtor, property manager, contractor, and lender.

Make sure you listen to BP Real Estate episode 384 where Spencer is telling a story of how he invested out of state and lost $60k because things quickly got out of hand. Before thinking which markets to invest in, you have to ask yourself if you are okay with losing money in case things don't go as planned. When you invest in a market where you don't live / don't have people that you know, the rehab process can become a complete disaster. If you are not there to monitor the work, things can quickly get out of hand like they did in Spencer's case. 

On the other hand if your job allows you to work remotely or travel often, or if you have family / friends in a certain market, investing out of state can work. 

First places that I think of where to invest are Phoenix AZ, Nashville TN, Austin TX, Miami FL, Denver CO. However, don't forget that investing in a good market doesn't guarantee that you will make money and investing in not so good of a market (LA for example) doesn't mean you won't make money. 

At the end of the day, it is all about how much risk you are willing to take and what your long-term vision is. 

Good luck! 

Originally posted by @Matt Carruesco :

The California exodus to places like ID, MT, TX, etc. have generated a ton of interest in Californians investing in other markets. 

What are the best ways to make a market selection as a starting point for a new investor? 

It does not matter where you start as long as you develop your Core 4. The core 4 is David Greene’s strategy for long-distance and made up of a realtor, contractor, property manager, and lender. Once you have this team in place, you should be able to confidently invest in any market.

As for picking a specific market - I would go after one with an increasing job and population growth. I invest and work in Columbus, Ohio.

@Matt Carruesco and @Erik B. , I had the hardest time picking as well. My wife and I went back and fourth on markets and finally decided with the help from BP. So what we did is since Matt, you are a pro member, we went to the webinar archives and watched the video "how to use BP to select your market." It showed us how to use BP insights to see everything thats going on with markets. Then we ran numbers on pop growth and job growth as well as vacancies and median house prices (had to be affordable for us). We are playing it safe and looking at Houston and Columbus where the entry point is lower so we can get into the market with far less than here in the Bay Area. Overall, it will depend as well on what your goals are. If you want just appreciation then there are markets for that, if you want straight cash flow, there are markets for that as well. You can get both too! just depends. You don't necessarily need people you know personally on the ground there (it does help tremendously though). By doing what @Remington Lyman suggested from David Greene's book, developing your Core 4 will be the money maker. If you have not read David Greene's book on out of state investing, buy it and take the time to read it! Its great and will be helpful. Lastly, reach out to people, network, and just jump in. We learn well from positive experiences but learn best for the negative ones. Make mistakes, learn from them, and never give up!

Follow the money and the job.  Austin is growing 150 people per day.  Apple, Tesla, Amazon, Oracle, and many others all spending billions of dollars here to build new facilities.  Happy to hop on a call to discuss the market.  Safest place to invest as well with the largest price drop in Austin's history was 2.9% (1.9% in housing crisis).  

Markets are constantly changing, and there isn't a perfect one. I think you should list your top 3 criteria (eg appreciation, low crime, good schools, etc) that you want in your market and your top 3 criteria (eg high crime, low returns, high property taxes etc) that you refuse to invest in. Start a spreadsheet and then look at 50 potential markets and rank them based on each of your criteria. See which markets you can narrow down through this method, weigh the pros and cons of the finalists, and then pick a winner. Commit to build your team there, invest there for at least a year, and then reassess the markets again after a year of investing there. Every investor has different criteria that will attract them or repel them from a market so really think about the criteria that is most important to you.