Where should I buy my first rental

55 Replies

Hi guys! I’d love your help! 

I’ve lived in the USA for 5.5 years in San Francisco (4yrs) and I’m  currently living in the Boston area (1.5yrs). As you know these are expensive areas to invest, so I’m looking to invest out of state. 

I’ve been researching lots of states (Texas, Nevada, Mass, Connecticut) and cities (Phoenix, Atlanta, Salt Lake City) but I feel so overwhelmed with the choices! I have $45k to use as a down payment and closing costs. Ideally I’d like a four plex. 

I have been looking at cities with a growing population, multiple industries and low unemployment.

I would appreciate any guidance you may have to help me narrow down my state and city search. Please share your insights and any articles you may suggest I read.

I am ready to invest and would love to buy my first rental property within the next 1-3 months!

Thanks in advance for your feedback.

What does Providence, Worcester, Springfield and Hartford look like? I’m suggesting metro Areas that probably don’t have the highest barriers to entry that may also find you student centers. Seek out cities with growth potential. Visit these places and find out what’s happening on the ground there. College areas always have new tenants even though you may have to replace them.

@David Weintraub - great advice! 

First its smart to decide if you want to invest in state or out of state. Then consider the cost of a property manager and make sure to add this into your numbers. You can run this between 8-12% for a pm and I would even add this in your numbers if you self manage. 

Hi @Rachel Steenland , sounds like you are on the right track with your research. There plenty of other opportunities in the states/cities you mentioned. My recommendation is to choose cities in safe and economically diversified areas with above-average income and population growth. It can also be safer to diversify your investment properties across the country. There is still good money to be made in AZ, FL, GA, TX and other states, however, picking the right submarkets is key.

A very good source of local analysis is rereport.com.

@Rachel Steenland     Denton, TX   3 universities...at least 2 of which seem to be expanding rapidly.  Nice diverse economy.  Peterbuilt manufacturing facility.  Major casino nearby with no real housing much between Denton and the casino.  Train available to downtown Dallas.  In the path of progress.   The areas just to the East and West of Denton are some of the hottest growth markets in new construction in the country.

@Rachel Steenland

We were in your same position just over a year ago.

As a result I have extensive research on the entire country.

If you know what you want I can point you in the right direction.

Are you looking for cashflow, appreciation, or a bit of both? Multi family or single? Budget?

From there I can suggest several markets for you.

@Rachel Steenland  

Good to see you getting started in REI!

I understand the pain when saying you cant find cash flowing rentals on the West coast or the Northeast. I have worked with buyers from both locations when buying rentals in San Antonio.

As far as where to invest I always tell people to follow the demographics on where people are moving and projected to move. There is a great book that I suggest reading called Upside by Kenneth W. Gronbach. Fantastic book on the shifting and shaping of the demographics of the future. He goes over multiple sectors of the economy and gives his forecast on what is going to happen. On Housing he talks that the West and the South are poised for massive growth. Especially the south because of the lower tax rates and more business-friendly economies.

I agree that getting a multi-family unit is ideal but I will tell you that 45K really isn't going to be enough for a straight 20% down purchase. Not to say that properties are not out there but you are needing something around 200K. Over the last couple of years I have seen massive upward pressure on Multi-family units by investors which has pretty much pushed returns way down. I can't speak for the entire US but here in San Antonio if you are picking up a multi-family for under 200K that can qualify for financing you are getting something in a C class neighboorhood. Nothing wrong with C class neighboorhoods but you are going to have higher maintenance costs and a higher risk of not getting much appreciation.

Over the last couple of years, we have been seeing much better returns in the Single-family space. For example, in San Antonio, I am getting rents on a 185K of 1,600 which would give $535 a month in cash flow which is a 15.4% return if it was purchased conventionally. I have not come across multi-families with that kind of return in a very long time.

@Rachel Steenland I am in central CT, you can buy a 4plex for around 200k here ( 45k , 20% down ) and it will cash flow. The only problem is population outflow and higher taxes. 

But I believe CT will always be a decent rental market due to the Insurance headquarters in Hartford and mid point between New York City and Boston. 

If you are looking in CT I would recommend New Britain, Meriden, Bristol - other towns like Hartford, New Haven, Waterbury are either very high on taxes or very low on neighborhood class.

Hey @Rachel Steenland I know some investors who do some out of state investors who are very successful, if you want to talk some more about them and what they do you can pm me and we can talk! I may be able to hook you up with something from one of the investors!

I'm in Connecticut and can tell you that you can find good properties for that 20% down and they would cash flow very well for you.   If you're paying a management coming you should be above 500 a month.  

The hardest part of investing out of state is trusting a management company.  I've had many issues with them not doing their job to find out way to late. 

As far as places to invest in Connecticut, I love new haven and Hamden area but their investment prices have gone up significantly the last couple of years.   Im and around Waterbury has great prices but high taxes so make sure you run those numbers too.   Meriden also has solid properties.

@Rachel Steenland , invest in markets where the numbers line up to your criteria. What return are you looking for?  That number will determine which market to select.

Do you have any rentals at the moment? If so, you should know what returns work for you and which do not.

Use a management company if you have to. You should be managing your cashflow, not your property!

Salt Lake City is one of the best places to invest in the United States. In October this year we were ranked #3 in the country for real estate investments. We're also the number 1 state for retention, meaning people stay here once they move here. We have one of the fastest employment growths and consistent appreciation in housing. Cap rates are high as well. Also a great thing about Utah is there is NO transfer tax, so no other taxes on top of the closing costs.

@David Weintraub Thanks for your reply! I have been looking at cities/towns with 2 hours drive from my house (Worcester, Hartford, Providence etc, like you suggested). There are definitely some options in these areas but what concerns me is the age of these properties. Most of them were built between 1890 and 1920 and I imagine will have significant ongoing maintenance. I would prefer properties that aren’t more than 50 years old. What are you thoughts on this?

Are you investing in the Philly area?

@Alex Dem Thanks for your message! Yes CT had some great options to suit my budget, but what concerns me is the population outflow, high taxes and the cost of ongoing maintenance of these properties. Most of the properties I’ve been looking at online were built between 1890 and 1920 and I imagine will have significant ongoing maintenance. I would prefer properties that aren’t more than 50 years old. What are you thoughts on this? 

Thanks for your reply @Jason Arcuri I have been spending a lot of time researching the towns between Hartford and New Haven. Definitely seems like some great options to suit my budget. Many of the homes are verrryy old. Do you find that you run into problems with excessive maintenance due to the age of properties?