How to you select where to invest??

20 Replies

I have been doing my homework and learning about the nuts and bolts of real estate investing and realized that I don't have a very good handle on selecting where to invest.  I've looked at several areas - both local and hours away - but unsure how others decide to pick their markets.

Does anyone have any formulaic ways they narrow down where to invest?  Does someone who's done this many time before have a series of questions that they make sure to answer to assure themselves they understand the area dynamics?

Any help on this from seasoned investors would be great...thanks!  Phil

Depends on capital.

Ownership of a house a state away is very different from owning a 100 unit apartment complex.

With scale you can be more hands off. With lower class and cheaper type rental houses far away investing is not recommended.

So this will vary depending on how active or passive you want to be, risk tolerance, and what percentage of your investment portfolio you want to dedicate to real estate.

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@Joel Owens  

- thanks for weighing on this...my question was poorly worded, I meant more how do you determine where to invest based on economic factors...for example if two houses cost the same with same economics but one is in town Y and other in town X which both may be in different states

Essentially, I have looked at a number of areas and have uncovered what I think are several decent areas to invest in should the right deal present itself, but trying to narrow down to one and focus on it...so wondering how others hone in on a place to investigate and then invest?

@Philip Tretola Not a hard question to answer. whatever the numbers tell you.  If the numbers tell you to invest accross the street, or on the opposite coast...don't argue with them.  You'll lose ever time.

Philip it depends on if you are holding for a few years for a run up in a market to exit or are you holding in a long term growth area for retirement etc.

Capital risk exposure comes into play as well.

If you own a 100k house out of your net worth of 2,000,000 and it goes belly up it likely will not have that great of an impact because if your other investments are sound you can recover that loss in a short period.

If you buy a 100k house and have 20k leftover and the deal goes bad it could take you under.

Investing is like taxes. Everyone's situation is unique in goals and timeframe to hit those marks.

For long term I like warm belt states where baby boomers are retiring in the tens of millions. That pushes those economies long term for sustainable growth. Median house income per year is about 52,000 a year. I like to see 80,000 or more minimum.

There is cash flow only, mixture of cash flow and appreciation, and areas that are hardly any cash flow to start but appreciation driven. The appreciation driven only you have to be careful because they cycle more with bubbles from time to time. 

@Philip Tretola

 I look for areas with growing employment (jobs), growing population, vital economy - and low unemployment.  Then do they have homes at good price to rent ratios with lower property taxes being a factor. New Jersey has high property taxes, but nearby Philadelphia has very low taxes with a positive economic picture (in the larger metro area) and good investment opportunities, low vacancy rates, and an appreciating market still early in the recovery cycle.

@Philip Tretola your local market is a great place to look. My wife and I are in the process of selling our current residence and Montclair is one of our top locations to buy. You are under 30 minutes car and direct line to the most influential city in the world. Taxes are high in NJ but rent demand and tenant quality for a luxury rental in your town will make an awesome ROI if done right.

No formula, just lots of homework and networking :). 

@Philip Tretola

my opinion, invest in people not places. Find someone you are comfortable with and trust and the rest should flow from there assuming they are using a strategy you are also comfortable with. Sure even a good person can't get water from a stone but the chances of you being able to discover a market that everyone else has missed is unlikely from just looking at macro factors. Some areas do have amazing potential and growth (least if you look at the past) such as Austin or Nashville but they are also priced higher because other investors found that too. 

Second, decide what you want, what you think you can feel ok with (are you ok not seeing the property, do you want quicker cash or cash over time, do you want appreciation or cash flow, etc.) and that should help define where you are investing and who you talk to. 

Good luck and feel free to PM me as I am in NYC/NJ as well and am from North NJ, right near you. Monclair is a nice town. 

@Charles Worth @Account Closed @Joel Owens @Joe Villeneuve thanks you very much fow weighing in on this and seems as though there aren't many secrets out there, but a lot of work and then jumping in 

@Larry F. I sent you a message

@Shawn M. I looked in montclair and wasnt able to find deals that carried cash positive month-to-month, so while I love my town for my primary residence, I havent found anything interesting from the investment side

Philip,

Take a look at this thread which was a similar discussion about a month ago:

http://www.biggerpockets.com/forums/311/topics/168...

In the interest of a numbers based approach, I put together a spreadsheet of population and economic data by county based upon census and BLS data.  I haven't had a chance yet to do my own analysis of the data but several people on the previous thread had expressed interest in the data, and I finally got it put together so didn't want to delay longer for my own analysis which may take me a while yet, as my time is currently in very short supply.  You can find the file here:

http://www.biggerpockets.com/forums/311/topics/168...

Interested to see what others may determine from the data.

@Philip Tretola are you purchasing Turnkey or are you willing to invest money into a property?  Turnkey units in Montclair will 99 out of 100 not cash flow. 

@Philip Tretola

Who is your target market? I am new to investing as well and I'm trying to figure out the best area to do buy and hold in North NJ as well. I was looking through properties in Montclair and was thinking of targeting students as MSU or the surrounding colleges.

Originally posted by @Philip Tretola :

I have been doing my homework and learning about the nuts and bolts of real estate investing and realized that I don't have a very good handle on selecting where to invest.  I've looked at several areas - both local and hours away - but unsure how others decide to pick their markets.

Does anyone have any formulaic ways they narrow down where to invest?  Does someone who's done this many time before have a series of questions that they make sure to answer to assure themselves they understand the area dynamics?

Any help on this from seasoned investors would be great...thanks!  Phil

Hi Philip,

Thought I would chime in with a few blogs I wrote for Bigger Pockets a while back that will compliment what @Charles Worth mentioned.

Always focus on establishing trust and relationships with key individuals before looking at the stats and demographics of a particular area.

See blog below:

http://www.biggerpockets.com/renewsblog/2014/11/15/3-types-of-risks-real-estate-investors-regularly-take/

http://www.biggerpockets.com/renewsblog/2014/07/26/sight-mind-real-estate-investing-afar/

Thanks and I hope you find them useful.

Have a great day.

@David Pickard

It depends what you are looking for. The college student approach is a good one if you can find good prices and/or source students better than others. 

For the rest of NJ it depends what you want. Areas like Newark, etc. have lower prices but would prob require a more hands on approach and a lot more time to manage. More A and B areas have higher prices but require less time and have fewer pitfalls. Deals are tough to find in those areas but they are there. 

Originally posted by @Philip Tretola :

I have been doing my homework and learning about the nuts and bolts of real estate investing and realized that I don't have a very good handle on selecting where to invest.  I've looked at several areas - both local and hours away - but unsure how others decide to pick their markets.

Does anyone have any formulaic ways they narrow down where to invest?  Does someone who's done this many time before have a series of questions that they make sure to answer to assure themselves they understand the area dynamics?

Any help on this from seasoned investors would be great...thanks!  Phil

We drive round the neighborhoods.

Literally, Friday night is a really good night to get in your car and go drive round the subdivisions you like the look of. Find the entry/exit roads and drive up and down them, have a look at what the neighbors are up to.

Friday night is when all the drug parties are in full swing. 8PM. Laughing and dancing in the street and on the sidewalk. You see a party at a house and lots of vehicles cruising by - drugs. Avoid. If those houses are on the entry/exit roads to a subdivision - then that's what your tenants will be seeing also.

Obviously have a look round during the daylight hours as well. If the trash is piled above the car, then probably a bad area. Burning oil drums on the sidewalk. Bad area. etc.

I know of other landlords, one in particular, him and his wife don't live together during the week. Several years ago they bought 12 townhouses - he has to live in one to make sure the tenants don't burn the rest down. Unsaleable.

@Charles Worth

As a new investor, should I stick to 1 group of people as my target market? For example focus on buy and holds for college students OR buy and holds for working class people? would it not be a good idea to focus on say 2 or 3 markets?

@Engelo Rumora

Great articles, thanks for sharing!

Originally posted by @David Pickard :

@Charles Worth

As a new investor, should I stick to 1 group of people as my target market? For example focus on buy and holds for college students OR buy and holds for working class people? would it not be a good idea to focus on say 2 or 3 markets?

@Engelo Rumora

Great articles, thanks for sharing!

Pleasure mate :)

Probably best to stick to what you are comfortable with and what you know well or find someone who is. For instance, in college housing you might be dealing with people who have never lived outside their home, will do things that some might consider outrageous, etc. 

For working class you might be dealing with section 8, tenants that live month to month, etc.

If you don't have property managers there are laws, regulations and strategies that work for these markets but you have to know them and be willing to put in the work. Either that or hire property management. I personally am exploring trying to get classes of tenants that are less of a hassle but in properties with slightly lower returns because I know I have less time to put in and many properties don't support property management expenses but that is my situation and I am still new at this. 

No less then 15 minutes with all red lights and heavy traffic from my house.  My time is very valuable to me. 

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