New Investor Trying to Find a Market

53 Replies

Hi Everyone!

I'm new to Bigger Pockets and have spent the last 6 months listening to the podcast, reading investing books and talking to friends who are all interested in the same stuff. I now am at the perfect time to start investing! I'm looking to buy a rental property for $150,000 max and my goal/priority is buying a cash flowing property. I'm young (25) and just starting out so the goal is to find financial freedom so I don't have to work my 9-5 for years on end. I'm looking to buy by the end of the year.

I currently live in LA and don't think this market is what I'm looking for. Eventually it could be the right market for long-term appreciation, but for now I'm focusing on cash flow. I grew up in New England so I am familiar with that area and think the opportunities are more or less the same as LA/California. I'm looking primarily for suggestions on markets and for people to tell their stories for where they are investing. I'd love to share our experiences on getting started, your do's/don'ts and anyone in-network they'd recommend in said market.

Thanks for your input and looking forward to networking!

Hannah Paitchel

@Hannah Paitchel Hey! Always great to connect with other investors on the pursuit of financial independence. I currently invest in Denver and it is also a very expensive market! I choose to invest here because I am familiar with the areas and believe in the future market potential. As for places to invest with 150k, many look into Midwest markets such as KC or Indianapolis. I’ve also heard good things about N. Carolina cities but definitely do your research. If you are going to invest out of state, I’d read David Greene’s book on investing out of state. You could also find an investing partner to help out and you will probably want a property manager if you plan to stay in LA. It is great that you have discovered financial independence at such a young age, continue to network and listen to podcasts and you will find your way!

Hey @Hannah Paitchel and welcome! You will find a lot of help on these forums, everyone that I have interacted with on here has been happy to help and provide good feedback and advice. I too am just getting started and have similar goals as you. My market is expensive as well (although not as bad as the LA market) and am looking to invest out of state too. I just started reading David Greene's book Long Distance Real Estate Investing, I'm about halfway through but it definitely takes some of the fear away from investing out of state.

I haven't gotten my first property yet but I have been looking in the Memphis area as the housing prices are more affordable and the rent to price ratios are good. However, I have found that Memphis is very street to street on its houses so I'm working on connecting with people who can help make sure I buy on the right street. From my understanding Columbus is also a great cash flowing area, but I haven't done any research into it to know for sure.

Good luck with everything and if you have any questions feel free to message me. Although I'm a newbie as well I"d be more than happy to help any way that I can.

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@Zack and @Hannah, I am a new out-of-state investor myself and based on my research such areas as Memphis TN, Cleveland OH, Jacksonville FL are great areas to invest if you are looking for a solid cashflow. Some are even considered to be hybrid markets that have good cash on cash returns and property appreciation. On the other hand, I think Austin, TX has not so desirable cashflow, but would be my best pick if all I care is appreciation down the road. Right now I am primary focused on Memphis. When I analyze properties, I look for decent cap rate, ConC returns and cash flow. Let me know if I can be of any help or you want to brainstorm on anything

Hi @Hannah Paitchel ,

There is a lot of good feedback here already, but I wouldn't rule out a local investment either. Having your first investment close to home or as your home can lower the barrier to entry. Of course at the $150k price point you'll be better off looking in the mid-west. Start building your team out there and using the forums to vet agents, property managers, and contractors.

In Los Angeles, a house hack might still be possible. It seems like you might be familiar, but we focus on househack/small multi-unit properties and are finding success with our clients. The barrier to entry isn't as high as it might seem. 

Hope this helps!

If you are thinking about New England we have a investor who works Mass., New Hampshire and Vermont. We also know agents in the area.  Investors in the New England area say that prices are steeply rising so you should not procrastinate if that is your target. We are based in Pennsylvania. Many investors are buying in western P.A. and Ohio. Ohio real estate was depressed for a prolonged period of time. The economy is shifting and prices are beginning to move up. Rents are lower than P.a. and California but they are commensurate with pricing. So the bar to entry is not as high. Just a thought use it or throw it out! Good luck.  

Originally posted by @Hannah Paitchel :

Hi Everyone!

I'm new to Bigger Pockets and have spent the last 6 months listening to the podcast, reading investing books and talking to friends who are all interested in the same stuff. I now am at the perfect time to start investing! I'm looking to buy a rental property for $150,000 max and my goal/priority is buying a cash flowing property. I'm young (25) and just starting out so the goal is to find financial freedom so I don't have to work my 9-5 for years on end. I'm looking to buy by the end of the year.

I currently live in LA and don't think this market is what I'm looking for. Eventually it could be the right market for long-term appreciation, but for now I'm focusing on cash flow. I grew up in New England so I am familiar with that area and think the opportunities are more or less the same as LA/California. I'm looking primarily for suggestions on markets and for people to tell their stories for where they are investing. I'd love to share our experiences on getting started, your do's/don'ts and anyone in-network they'd recommend in said market.

Thanks for your input and looking forward to networking!

Hannah Paitchel

 Welcome aboard Hannah.

@Hannah Paitchel you are on the right track, a lot of investors look to the Midwest for cash-flowing properties. If you are looking for appreciation and cash flow I would look into Ohio. though there are a lot of great cities that can meet your criteria. I would first start connecting with local realtors that can explain the areas that you were interested in. I would also check this article about putting together an out-of-state team. https://www.biggerpockets.com/...

@Hannah Paitchel One of the biggest challenges to investing out of state is finding where you have a competitive advantage. You have to remember that you're competing not only against other OOS investors, but competing against locals. They'll be able to actually drive out and see properties themselves and have likely already developed long term relationships from living there for a number of years. If you grew up in New England, do you have any other family or friends that you might be able to leverage in some of the neighboring cities or states that have more affordable housing? - states like Pennsylvania, Ohio, and the Carolinas are all popular with OOS investors. If you don't its not a deal breaker, but it'll just take a bit longer for you to build a team you can trust.

Hello @Hannah Paitchel and welcome to BiggerPockets! I am also just getting started (full-time) and have similar goals as you. I am located in the Orlando area and my market is expensive so I am learning how to expand my search criteria and look elsewhere, potentially out of state. I have a few rentals now and have a property management background so hopefully I can add a little value to any questions you may have. Looking forward to connecting and watching you grow!

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Hi @Hannah Paitchel ,

This is a great topic. I am also a newbie to investing. I discovered bigger pockets in 2020 and the idea of financial independence. I too am in a position that I have enough cash for a down payment on an investment property around 150k. I like the idea of long distance real estate investing and plan to start in the near future. Your story reminds me of mine. When I was 25 I purchased my current primary residence ( currently 29). I strongly agree with @Charles Renn . I also live in a high cost of living area in the suburbs of San Jose, CA. My primary residence was a 5 bedroom with an ADU in the back yard. I didn't know of house hacking at the time but I figured the extra income from the ADU would be really helpful. I've always rented the ADU but a few years ago my wife and I remodeled to make our old master into a private entrance, private room. Now we basically have 2 - 1 bedroom appts on our property while we utilize the 3 bedrooms. House hacking has allowed us to largely eliminate our biggest expense, build equity, get CA appreciation, and turn our primary residence into an asset vs a liability. It has also taught me how to be a landlord and given me experience that should really help with long distance investing. I'd highly suggest looking at some creative financing and look for a primary residence with an ADU, or small multi family in your area.

Good luck investing ! 

- Richie Howard 

Welcome to BP! 

I would start looking in the Midwest or I have heard some southern markets (Arkansas, Alabama, Tennessee maybe?) may be able to accommodate that price point. 

I myself invest in 2 markets in Michigan that has out of state investors that buy here: Grand Rapids & Lansing, MI. For 150k, you can probably get a on-market Single Family in Grand Rapids close to turnkey. Grand Rapids market has a better chance at appreciation but less cashflow than some other markets.  In Lansing, the price point is much lower and you can get multi units at that price point. You can certainly get a 2-4 Unit for 150k turnkey. 

A couple other michigan cities you could invest in: 
Detroit
Kalamazoo
Muskegon

Good luck!

@Hannah Paitchel Do you currently own or rent? Can you house hack a property? Turn-key properties are a joke right now. No offense to any providers in this thread. We have them in my market and the numbers barely work. The location and headaches that come with it don't help. 

I see support and responses promoting the mid west but I'm here to tell you the grass isn't always greener on the other side. Deals are hard to come by here too. I'd ask your self what's stopping you from investing locally? Not trying to steer you from other markets just stating some facts. OOS investing is not easy and diving straight into it is risky. Anything adding risk in today's market is not a smart move. I'd rather buy a bad deal down the road than across the country. At least you can get your hands on it easily, fix it, evict tenants, or sell. Just my opinion. 

I'd push hard from every angle to find a deal with less risk, and less reward. You're going have fewer headaches dealing with rehab, PM, repairs and maintenance> the stuff every investor needs to learn. This is pretty much required for buy and hold investors. If you don't agree get ready for a rollercoaster ride. Cheers. 

Look into the Greater Harrisburg, PA area, especially the west shore (Camp Hill). Prices are much more affordable than LA. 

@Sean Sloop I’m also an investor in Western Michigan. Have you seen a lot of investors buying recently? I have seen a huge increase of supply but the prices are pretty steep. How do you find your deals? Have you seen rent prices increase recently?

Originally posted by @Jeffrey Horton :

@Sean Sloop I’m also an investor in Western Michigan. Have you seen a lot of investors buying recently? I have seen a huge increase of supply but the prices are pretty steep. How do you find your deals? Have you seen rent prices increase recently?

This market remains competitive that is for sure. I have been having much more success in Lansing, both on market and off market. But I did help a buyer close on a duplex a couple weeks ago on market. It seems it does take 10-20% above list to secure a deal especially the duplexes in the 200-250 range. These fly off as they are either hitting 1% Rent to Price or very close. 

There are people that continue to find success in GR though. I would join the Metro GR Investor FB page for off market deals

I recommend all newbies start local.  I especially recommend coastal CA RE investors start local.

My recommendation is to house hack a detached duplex or a SFH with a detached ADU.

Here are some of my thoughts: 

  • Using FHA financing you can get 96.5% LTV compared with typically no higher than 80% LTV not owner occupied (i.e. OOS). Not only does this increase the cost of the property you have money for (the same down lets you purchase over 5 times the value), but it also increases the leverage. The increased leverage increases the return rate.
  • The rent from the second unit of a duplex can help your income qualification for financing.
  • Best financing terms (lowest interest, highest LTV, etc.) is typically for the owner occupied properties. You are very unlikely to get as good a loan on an OOS property.
  • There is initial cash flow and actual cashflow.  Few markets in the US have the historical long term cash flow of Los Angeles.  It is simple math that the property with the higher rate of rent increase will always eventually be the superior cash flow market.
  • Self management not only saves money, but it builds experience and skill sets.  I recommend everyone start self managing.  If it is not for you, hire a professional PM.  Local self managing is an option, OOS not much of an option (there are some who do it, but I do not know how).  Self management is work, and I am not against paying someone for their efforts/skills but especially when starting profits can be thin and the option to self manage for the money savings could be the difference between success and failure.
  • The locals have an expertise that is tough to duplicate from OOS.  Simply, the locals have a competitive advantage.
  • Building the team is not easy when done local.  Doing it for an OOS investment is full or risk and difficulties.
  • Prop 13 is a CA RE investor's often under appreciated bonus.  We have a property that we are paying almost $1.5K/month less property tax than if we purchased today.
  • Why do you think the lower cost markets cost less?  I have 2 answers that are both correct.  1) The market is efficient.  This implies that the price is based on many factors including expected return and expected risk.  They are typically cheaper because they are expected to produce a lower return 2) Very related to #1, they have less historical appreciation.  My market is in San Diego county which is similar to LA.  We have purchased with great timing and poor timing.  Our lowest appreciating property is over $1.9K/month (that is our poorly timed purchase) over our hold period.  We have 3 properties that have appreciated over $4k/month over the hold period.  We have one property that has appreciated over $6.8K/month over its hold period (21 years, do the math if you want on the appreciation on this property over our hold).
  • Case Shiller has the Los Angeles market as the #2 overall return for buy and hold properties for this century (just ahead of my San Diego market).  The reality is you live in an outstanding RE market.

OOS is more risk and historically has produced lower returns.  Consider the items above before you choose to not invest in you local market which also happens to historically be one of the best markets in the US.

Good luck

Hi @Hannah Paitchel ! Welcome to the world of REI! I help out of town investors (including several from CA) invest in the Chattanooga, TN market. In 2020 appreciation was 13% and Median Sales Price was $230,000.

Under $150k would buy you a 3/1 in a C class neighborhood here with good cash flow.  

Another good thing about this market is you don't have to deal with frozen pipes that burst, a common issue in colder markets! ;-)

Best of luck in your market search!

Metro Detroit offers many options for meeting the 1% Rule and relatively high ROI.

The two most common mistakes we see investors make, over & over again, are:

1) Not understanding and running their own ROI numbers

2) Not having a clear understanding of the type of asset a property is

In our opinion, your best team member should be your Property Management Company (PMC). They have to deal with any property you buy every month until you sell or terminate them. Everyone else on your team will be transaction-based and not really involved after a purchase.

We're in the Metro Detroit area, so you may want to follow our blog here on BP, but at least read the following posts:

Follow our "Deep Dive" series we're doing about Metro Detroit cities and City of Detroit Neighborhoods: https://www.biggerpockets.com/...

How to “Screen a PMC Better than a Tenant”: https://www.biggerpockets.com/member-blogs/3094/91877-how-to-screen-a-pmc-better-than-a-tenant-part-1-services-and-processes

In our experience you will need to:

1) Learn to "Maintain to the Neighborhood", not your personal standards

2) Tenant-Proof everything you can

  • Hard surface flooring, not carpeting (too easy to trash)
  • Same basic paint for everything
  • No garbage disposals for them to break
  • Only spring-type doorstops also with plate on the wall
  • Glue rubber mats under sinks to prevent water damage
  • Sheet aluminum on walls around stovetops, for easy grease removal
  • Towel racks - screw 1x3 to wall studs, then screw rack to that
  • Install low-profile downspout ext, not aluminum that always disappear
  • Plan on cleaning gutters and leaves up in the fall as tenants won't
  • Avoid garage door openers

3) Have a great application screening process:

  • Check credit for evictions & convictions, utility collections
  • Focus on employment/income stability
  • Require bank or debit card statement - you'll be surprised what they spend their money on!
  • Make surprise visit to their current home to see how they treat it - that's how they'll treat yours!
  • Deliberately have a few challenges in your screening process - it will weed out "entitlement mentality" problems

4) Allow payment plans, but create system to track when payments due, so they don't keep falling further behind

  • You will need to call them on due dates or they will fall further behind
  • Be prepared to give a strong NO when asked if you will change rent due dates to "make it easier" for tenants to pay rent based upon their SSI or paycheck dates. This shows total lack of budgeting and is a sign they will only fall further behind with more excuses.

5) Have a defined eviction process, but allow 3-5 days of flexibility for inevitable slow-pays.

6) Find handymen that live in an area only 1 Class higher than your property. Sending a Class A handyman to a Class C or D property will waste your money. Send Class B to C and Class C to D. They will also get along better with the tenants.

Let us know what questions we can answer for you.

Hey @Hannah Paitchel . Welcome! 

I'd encourage you to look for local meet ups in your area. You can go to meetup.com or eventbrite.com and find a local meetup. Try to find a real estate networking event to attend. There, you can meet, mastermind, and network with other real estate investors. Biggerpockets also has a forum for networking events: https://www.biggerpockets.com/...

Good luck!!