Choosing an Out-of-state Market

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Choosing an Out-of-state Market

Christian Conti
New to Real Estate · Central Vermont · Member since 2021 · 6 posts · 3 votes

I currently do not have any properties and live in central Vermont. As I have combing through potential deals and analysis, I have found that a combination of lack of cashflow, high property taxes, shrinking population and virtually nothing to attract potential tenants in much of the state is making out-of-state investing seem like a much better bet to a smaller, beginner investor looking to keep costs low and scale gradually through buy and hold. 

My question for out-of-state investors is how do you decide on a market to target? I feel like I have a good idea of what steps to take once I have decided on a particular market, but I am finding it difficult to narrow it down. Ideally I would like to have maybe 4-5 areas/markets that I can really drill down on and research, but right now I feel like I might as well close my eyes and throw a dart at a map. Can someone offer me some pointers as to where to start?

Thanks!

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Dave PoeppelmeierBusiness Member
Realtor · Maumee, OH · Member since 2015 · 491 posts · 722 votes
4y

@Christian Conti Yes, the options are endless when you're looking to start investing out of state. You can crunch the numbers until the cows come home, but eventually you have to pick a market and start to work in it. To me, what it boils down to is do you want cash flow or appreciation? If you're looking for cash flow, look at the Midwest, specifically tertiary markets. I work and invest in Toledo, OH, and this is a cash flow town. Similar towns in Ohio are Dayton, Akron, and parts of Cleveland and Cincinnati. If you're looking for appreciation, look at the high growth cities of Columbus and Indianapolis, and the hot areas of Cleveland/Cincinnati. The competition is much greater there because they're booming, but people are making out very well over the long term. 

Otherwise, you do have to look at the municipalities as well as the states in how they handle evictions. I feel Ohio leans more towards owners, but different cities handle eviction differently. Toledo is pretty much back to normal from Covid and has been since March, I can't speak for other cities. 

For your Core 4, the first thing you need to find is a Realtor and Property Manager that you feel comfortable with. With a good Realtor in hand (who should also be an Investor), they will help you find the types of properties and neighborhood classes you're looking for, and the Property Manager will run it for you. Between the two of them, they will help you find local lenders, attorneys, insurance agencies, etc that you need to invest over distances. Good luck!

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  • Joe FunariBusiness Member
    Real Estate Agent · Keller, TX · Member since 2017 · 850 posts · 825 votes
    4y

    @Christian Conti Assuming your looking for for long term rentals you should first narrow your search to states that have landlord friendly laws. This eliminates a lot of states from your search right off the bat. Once such landlord friendly states is Texas where I own rentals. Eviction laws favor the landlords for non-paying tents. Thus, eviction rates are averaging about 1%. Once a tenant gets an eviction on their record its almost impossible to them to get approved for another lease agreement. Also, in your search look for markets that have not only a strong job market but a diverse employment by employer. For example, Dallas/Ft. Worth area where I work the largest employer by industry accounts for about 13% of the jobs in the area. Other cities, even in Texas, can not make that claim in terms of job diversity. Also, look at average days on market for rentals in the areas your looking in. Here in the DFW area your looking at average 17 days on market for 3/2/2 SFR. So they move quick. Because so many people continue to move here because of the strong job market drives up the demand for rental properties. Finally, find a good investor friendly realtor once you decide on a market to invest. Their knowledge of the area, connections in terms of lenders, insurance agents, property management, and contractors will prove invaluable. Hope this helps you in your search.

    3Reply
  • Account Closed
    Member since 2021 · 217 posts · 190 votes
    4y
    One thing you need to consider is- all the rest of those out of state markets are also chock full of investors (many of them local) "combing through" every deal in the area as well. What's going to be you're edge?

    They talk about having your "core 4" on this site for long distance REI.
    2Reply
  • Christian Conti
    OP
    New to Real Estate · Central Vermont · Member since 2021 · 6 posts · 3 votes
    4y

    Joe and Dave, 

    Thanks for the input, definitely helpful advice on narrowing down markets and setting some criteria for the search process. I have looked into that data a bit but definitely not as deeply as needed to really be able to make an informed decision. Lack of Landlord-friendly laws is another big reason I have tended to avoid looking in my state and most of the surrounding areas as well and states like Texas and Florida are ones that consistently come ups as being much more friendly to landlords, but I do worry about finding deals in certain parts of states like this with more institutional investors moving into the really rapidly developing areas. In your experience in the DFW area have you experienced this much at all?

    0Reply
  • Dave PoeppelmeierBusiness Member
    Realtor · Maumee, OH · Member since 2015 · 491 posts · 722 votes
    4y

    @Christian Conti Yes, the options are endless when you're looking to start investing out of state. You can crunch the numbers until the cows come home, but eventually you have to pick a market and start to work in it. To me, what it boils down to is do you want cash flow or appreciation? If you're looking for cash flow, look at the Midwest, specifically tertiary markets. I work and invest in Toledo, OH, and this is a cash flow town. Similar towns in Ohio are Dayton, Akron, and parts of Cleveland and Cincinnati. If you're looking for appreciation, look at the high growth cities of Columbus and Indianapolis, and the hot areas of Cleveland/Cincinnati. The competition is much greater there because they're booming, but people are making out very well over the long term. 

    Otherwise, you do have to look at the municipalities as well as the states in how they handle evictions. I feel Ohio leans more towards owners, but different cities handle eviction differently. Toledo is pretty much back to normal from Covid and has been since March, I can't speak for other cities. 

    For your Core 4, the first thing you need to find is a Realtor and Property Manager that you feel comfortable with. With a good Realtor in hand (who should also be an Investor), they will help you find the types of properties and neighborhood classes you're looking for, and the Property Manager will run it for you. Between the two of them, they will help you find local lenders, attorneys, insurance agencies, etc that you need to invest over distances. Good luck!

    Podcast Guest on Show #380
    Keller Williams Citywide | Dave Poeppelmeier534 Reviews
    WebsiteView Page
    4Reply
  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    4y

    I would strongly advise against doing your first OOS investment in an area where you don't have some advantage to help you. My best advice is to make a list of every place you ever lived or went to school. Then make a second list with where you family (the ones you like and trust) and your closest friends live. When you compare those lists with appreciating markets that also interest you, you will find a market where you have boots on the ground already to assist or a competitive advantage over other OOS investors because you have lived there or spent a lot of time there.

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  • Brandon GoldsmithBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2020 · 1k+ posts · 1k+ votes
    4y

    I would suggest identifying what you are looking for in an ideal property, criteria wise and then try and pick a few markets that fit that mold. You will be able to start having conversations with people who are local. It really comes down to how good of a team you have in place to be able to be successful out of state. @Christian Conti

    [email protected]614-963-3340
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  • Joe FunariBusiness Member
    Real Estate Agent · Keller, TX · Member since 2017 · 850 posts · 825 votes
    4y
    Originally posted by @Christian Conti:

    Joe and Dave, 

    Thanks for the input, definitely helpful advice on narrowing down markets and setting some criteria for the search process. I have looked into that data a bit but definitely not as deeply as needed to really be able to make an informed decision. Lack of Landlord-friendly laws is another big reason I have tended to avoid looking in my state and most of the surrounding areas as well and states like Texas and Florida are ones that consistently come ups as being much more friendly to landlords, but I do worry about finding deals in certain parts of states like this with more institutional investors moving into the really rapidly developing areas. In your experience in the DFW area have you experienced this much at all?

    You can find the deals here in the DFW area. I just takes patience and submitting several offers before you get one accepted. But you have to play to win. So if your worried about institutional investors then you will never invest. And years from now, when property values increase, you will regret not getting into the game. @Dave Poeppelmeier mentioned getting your core 4 starting with a Realtor is key. Especially one that is a fellow investor. They will help you  with the other members of your team and help you get started on the right foot in an out-of-state market. 

    2Reply
  • Joe HammelBusiness Member
    Real Estate Agent · Metro Detroit, MI · Member since 2018 · 612 posts · 666 votes
    4y

    Metro Detroit, in my opinion is one of the best balanced markets for Price/Rent/Location. We have no problem finding cash flow and double digit ROI in locations that I would walk down the street at 9pm at night, during a time when the rest of the nation seems to be struggling to find a 1% deal.

    We have appreciated near, at, or above double digits this year (as have most markets).

    However, our advantage (because we don't have a beach, mountains, or year round warm weather) our prices stay reasonable.

    Example: $70-$120k Buys | $1000-$1500 Rent | C, B- markets | $200-$300 cash flow | 10-14% ROI | easily beating the 1% rule

    It'll be a tradeoff, if you pick higher cash flow and a slightly lower location, or a higher location and a slightly lower location.

    We have many markets that as long as beating the 1% rule decent, the taxes and such typically put a deal in the desirable range. 

    Warren, Redford, Lincoln Park, Westland, Harper Woods, Clinton Twp, Roseville, areas of Detroit, areas of Pontiac, Taylor, Dearborn, Dearborn Heights, roseville, etc. 

    All of my (and my team's) rental properties are here and fall within the examples above, and we love them. Cash flow monsters when the rest of the nation seems to be struggling to find cash flow. Once I get past 30 properties, I'll probably then look at diversifying into a different Market. For a starter or first market, it's hard to beat the balance of returns and location here to get some returns going.


    FIRE (Financial Independence Retire Early) Realty Team is always happy to chat more about the Metro Detroit market and what it has to offer.

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  • Frank Rodrigues
    Investor · Kansas City, MO · Member since 2021 · 110 posts · 65 votes
    4y

    I’ll make it easy for you Christian,

    KC, OH, MI and Indianapolis! There’s your core 4, now aim, pull the trigger and go! 

    2Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    4y

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

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

    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:

    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

    [email protected]248-209-6824
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  • Kiera Underwood
    Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes
    4y

    @Christian Conti pre corona I helped around 200 clients a year invest from out of state into Oklahoma City! Taxes are low, it's landlord friendly, there are competitive insurance providers, purchase price is super approachable (60-150k) and everything I have ever sold is cash flowing! It's for sure a market I would put on your list. 

    3Reply
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