Since I'm looking across the border (from Canada) into the USA, I will need to invest in a city that I have not much information on (at least not yet). Planning on a Buy and Hold.  But how does one decide on what city/state to invest in?

What factors must I consider before focusing on a city/region?

Given - I don't have much of a network (at least not yet).

@Jessey Kwong I think I could write 4 pages just to begin answering your question but there is many more dynamic factors in place. If your looking to invest on the West Coast you'll have a difficult time finding cash flow positive properties as prices are very high compared to market rents. The Midwest US is an excellent option for buy and hold investing with the ability to find cash flowing properties. The midwest will not see much appreciation as those markets tick along at 1-4% so know that your investing for cash flow only. The key to investing out of state is your team, or company that you work with. Like any industry there are very solid, morally sound companies that do the right things and take care of their clients and there and shady companies as well. I am speaking about turnkey companies that offer rental solutions, typically to out of state investors. Job growth, geographical economic indicators, population growth, etc are all indicators of strong or stable markets as well. I could go on and on, but really it also depends on your goals, risk tolerance, level of involvement, etc on your end to continue answering questions. I'm happy to discuss further if you like or need more information.

@Jessey Kwong .  I agree with @Jeff Wallenius .  The midwest is where you're best chances of success are.  We are doing very well in Indy.  Happy to talk more about what's going here....feel free to PM me.

Cities were cashflow/appreciation make sense are Charlotte NC, Tampa FL, Dallas TX, Atlanta GA.

Midwest city indanapolis IN and Kansas City MO and Memphis TN are classic cashflow places.

I am in similar situation as you, you can PM me.

@Sebastien Hitier I tend to agree with exception of Dallas... if you live in a state were there are no income tax's then dallas maybe makes sense.. but if U live in say CA with its sky high income tax.. marry that with SKY HIGH property tax's and price's ran up because of the herd mentality.. its about whats left over.. add in ever present foundation issues and high probability of massive hail storms.. and well it can be pretty tough place to actually make any positive cash flow.

@Jessey Kwong I think what most people start by vetting multiple turnkey providers. Getting references, experiences, etc.  I would say the key to investing out of state is making sure they have in house property management - keeping skin in the game. I've seen investors get burned when this is not the case. We are in Kansas City and it is a great cash-flow city and has been appreciating for years. Job growth, population growth, technology advances, you name it. Kansas City is my home town, so I'm bias - but there's definitely something to love for anyone who lives or visits!

Check out a recent BP blog I wrote on finding emerging markets: https://www.biggerpockets.com/blogs/10145/66160-how-to-identify-emerging-markets

@Jessey Kwong - Here's what I've learned about market research:

Four things to look for in a market

1- Population over a million and good growth rate. This ensures that there are plenty of available houses (with an approximate 3% foreclosure rate, there are about 3000 houses at auction each month), renters to choose from and that the city is growing rather than stagnate or losing population. Good markets didn't drop during the 2008 crash...

2- Cheap Houses. Make sure you get at least the 1% rule meaning $1000 of rent for each $100k of purchase. This should also ensure youre getting about 8% return on your money.

3- Business Friendly and Credit worthy State. Look at how easy it is to set up an LLC, the costs of maintaining the business and the cost and timing of evicting a tenant. Also look for states, cities and municipalities that have a good credit rating which ensures that they will be pouring money into revitalization which increases jobs, growth, appreciation and rents. it also ensures that taxes won't go up in the event that a city starts going bankrupt. (http://www.zerohedge.com/news/2017-10-05/these-two-charts-depict-which-cities-will-file-bankruptcy-next) 

4- Jobs. Look for cities where there is a good mix of manufacturing, warehousing and overall good job market with low unemployment.

Hope this helps!

Hank

Originally posted by @Hank Keller :

@Jessey Kwong - Here's what I've learned about market research:

Four things to look for in a market

1- Population over a million and good growth rate. This ensures that there are plenty of available houses (with an approximate 3% foreclosure rate, there are about 3000 houses at auction each month), renters to choose from and that the city is growing rather than stagnate or losing population. Good markets didn't drop during the 2008 crash...

2- Cheap Houses. Make sure you get at least the 1% rule meaning $1000 of rent for each $100k of purchase. This should also ensure youre getting about 8% return on your money.

3- Business Friendly and Credit worthy State. Look at how easy it is to set up an LLC, the costs of maintaining the business and the cost and timing of evicting a tenant. Also look for states, cities and municipalities that have a good credit rating which ensures that they will be pouring money into revitalization which increases jobs, growth, appreciation and rents. it also ensures that taxes won't go up in the event that a city starts going bankrupt. (http://www.zerohedge.com/news/2017-10-05/these-two-charts-depict-which-cities-will-file-bankruptcy-next) 

4- Jobs. Look for cities where there is a good mix of manufacturing, warehousing and overall good job market with low unemployment.

Hope this helps!

Hank

Thank you Hank.

 All of this makes so much sense - particularly #4 and #3 stood out to me. 

Invaluable - thank you. 

Indeed @Jay Hinrichs , we should tell OOS investor that one should not compare gross yield or apply x% rule broadly across states: Florida and Texas have very high local tax and insurance cost. 

I let my budget guide me... I only had a set amount of money, but the quality of what I could buy changed dramatically depending on the market. Now with that said, you have to look past the on paper returns and find something that makes sense in real life. That will be impossible (but you could get lucky) to do with out visiting the areas you want to invest. Once you visit and find that market you need to learn it well enough you'd feel comfortable moving there and picking out a place to live. Know what each area is and isn't, who rents there, what do they do for work, this will allow you interview a PM/TK company and at least have a chance to see if their numbers are near what you've come up with.

I'm in the same boat. I live in CA and am about to close on a duplex in Kansas City, MO. The most important thing in my opinion is to get a good team in place starting with a real estate agent and property manager. Build those relationships and take time to actually fly out to the area and meet your team and drive the area to get a feel of what you are comfortable with. Good luck

@Jessey Kwong I've done webinars and given presentations on this very topic so I could go on and on, but to simplify it in a nutshell, you want a market that has a combination of good cash flow and strong economic/demographic fundamentals. There's  lot's of markets with good cash flow but have stagnant jobs and declining populations. On the other hand, markets like Dallas have booming job and population growth but low cash flow due to high property taxes and insurance rates. I suspect their insurance rates are going to get even worse after Houston. Personally, I don't think that you can beat the Midwest for cash flow and Kansas City and Indianapolis in particular. The chart below shows the key economic and demographic factors for some of the most popular markets. You need to overlay this however with the rent/price ratio's, taxes and insurance and landlord tenant laws for the markets.

@Hank Keller Solid advice, Hank! I'm making this into a t-shirt :)  "Good markets didn't drop during the 2008 crash"

@Jessey Kwong it depends on your strategy! If you're looking for stable cash flow, low entry points and decent cash flow, I'd look at the midwest! 

I've seen investors that live in exciting markets flock to Oklahoma City for 70k rentals with 700/month rent rates and the comfort of being recession proof. 

@Carl Mccrory what area of Kansas City was this duplex in if you don't mind me asking? Did it need renovation?

@Jessey Kwong when evaluating a market, the most important things to look at are 1. Population growth, Job growth and 3. Incomes. This info is all readily available on the Bureau o Labor Statistics and U.S. Census Bureau websites.

@Mike D'Arrigo , how did you conclude that those are the three most important metrics to consider?

I downloaded almost all of the Census Bureau's American Community Survey data from its first year of publication, 2005, to its most recent, 2017, and built a linear regression model to see what metrics actually correlate to rising rents.

I found the following metrics, in the following order, correlate best to rising rents:

1. Limited supply (as measured by a growing persons-per-unit ratio)
2. Median household income growth
3. Job growth
4. Population growth

My analysis suggests that your criteria are in reverse order from what they should be -- that growing incomes and job growth are more important than population growth. How'd you come to your order?

Thanks so much!

Jonathan

Originally posted by @Jonathan Schwartz:

@Mike D'Arrigo, how did you conclude that those are the three most important metrics to consider?

I downloaded almost all of the Census Bureau's American Community Survey data from its first year of publication, 2005, to its most recent, 2017, and built a linear regression model to see what metrics actually correlate to rising rents.

I found the following metrics, in the following order, correlate best to rising rents:

1. Limited supply (as measured by a growing persons-per-unit ratio)
2. Median household income growth
3. Job growth
4. Population growth

My analysis suggests that your criteria are in reverse order from what they should be -- that growing incomes and job growth are more important than population growth. How'd you come to your order?

Thanks so much!

Jonathan

 They're all important. I didn't list them in any order of importance. I disagree that population growth is less important than the others. A growing population due to positive net migration is usually a result of growing jobs and a sign of a healthy, vibrant economy which drives income growth. There isn't likely to be income growth without job and population growth. I think you're over thinking it if you're trying to rank the importance of these criteria. 

Dang @Jessey Kwong I just realized this original post is from 2 years ago. Anyways, this is still a valid and important question. Here are some of the factors that I look at when deciding on a market to invest in:

• Population growth
• Job growth with higher wages
• Business friendly
• Diverse economy
• Strong occupancy rates
• Acquisition price-to-rent ratio
• Landlord friendly
• Infrastructure development
• Lifestyle amenities
• Educational institutions

Happy to go more in-depth on these if you'd like...just shoot me a message.

-Tyler

I had the same questions and almost all were answered on this thread! Man BP is great!

R.