Where best to invest in 2018?

38 Replies

Hi BP veterans, I’m a newbie on BP. I live in CA where I think it’s just tooooooo expensive to invest right now. I would like to know what cities you think have low prices and high rent so I can get the best return. Any insights or suggestions to websites that have this info? Thank you!!

Tina. 

I live in LA and invest out of state as well. 

I've been investing in Memphis, St. Louis, Cleveland, Akron and Birmingham for cash flow :) 

Let me know if I can help

Hi Tina,

Thanks for posting this question. I live is Phoenix and looking for multi-family. My husband is about to retire so, like you, we’re wanting good cash flow. Unfortunately we haven’t been able to find the level we want so I’ll be watching the answers too.

Birmingham is a great market. There has been a lot of development activity from out of state investors over the past few years as a result. If you are interested in multifamily or commercial property let me know. If you are only into SFR there are a lot of BP members in the area that would love to help.

Originally posted by @Tina Chen :
Hi BP veterans, I’m a newbie on BP. I live in CA where I think it’s just tooooooo expensive to invest right now. I would like to know what cities you think have low prices and high rent so I can get the best return. Any insights or suggestions to websites that have this info? Thank you!!

 It’s important not to get caught in the newbie trap of thinking that, because a market is cheaper than yours, it’s a bargain.  We’re at the tail end of a very long national bull market for property that has pushed down returns everywhere.  When looking at a market outside your own, you need to compare it to its own historical returns, not the returns in your expensive area.  If not you could be in for a nasty surprise when the inevitable correction hits, and when it hits, it will hit these “bargain” markets the hardest.  They are cheaper for a reason.  

Originally posted by @Tina Chen :
Hi BP veterans, I’m a newbie on BP. I live in CA where I think it’s just tooooooo expensive to invest right now. I would like to know what cities you think have low prices and high rent so I can get the best return. Any insights or suggestions to websites that have this info? Thank you!!

 I would say Cleveland, Ohio but seeing as I live here & sell Cleveland real estate that would be an incredibly biased opinion. It's like asking your barber if you need a haircut. However, I did an interview with Realtor.com a few months ago. They believe that Cleveland is the best metro to invest in right now.

The Best and Worst Metros to Be a Real Estate Investor

where ever U pick and you will get solicited by those in their pet cities or those that broker for turnkey outfits.

the main thing experience has taught me for OOS investors is you simply have to stay out of urban core.. if you just to look at proforma's and pick the highest return your also in most areas picking the absolute highest risk..

These markets all have their pluses and minus's  and why they are better.. simply go on the chamber of commerce website of any big city your considering there will be all the blue sky why in that area.

but at the end of the day none of it matters. what matters is tenant quality and PM .

and the obvious make sure you buy a home that is in good shape you get a good inspection. you should visit at the least the first time.. if your financing which most do.. lender will appraise  and then make sure you pick good solid reputable people to do business with and a rock solid PM.. Anyone who can fog a mirror can buy a rental.. but its what you do with it after you own it that will make or break your investment.

there are markets within 90 minutes of you that would probably work as well if you don't want to  go all across the country.

Originally posted by @Tina Chen :
Hi BP veterans, I’m a newbie on BP. I live in CA where I think it’s just tooooooo expensive to invest right now. I would like to know what cities you think have low prices and high rent so I can get the best return. Any insights or suggestions to websites that have this info? Thank you!!

 I prefer Cleveland, but that is MY main focus. You could also look into other Midwestern cities that PRE boom. You do not want to be last to the party! Try looking for a city that only some investors are talking about and not one that EVERYONE is talking about! 

Best of luck to you! :)

I suggest you take a look at Rochester, NY! we have one of the best rental markets  in the country. PM me and I'll be more than happy to send you  information.

Originally posted by @Tom Ott :
Originally posted by @Tina Chen:
Hi BP veterans, I’m a newbie on BP. I live in CA where I think it’s just tooooooo expensive to invest right now. I would like to know what cities you think have low prices and high rent so I can get the best return. Any insights or suggestions to websites that have this info? Thank you!!

 I prefer Cleveland, but that is MY main focus. You could also look into other Midwestern cities that PRE boom. You do not want to be last to the party! Try looking for a city that only some investors are talking about and not one that EVERYONE is talking about! 

Best of luck to you! :)

tom I just found one of those markets for flips.. but I cant divulge it then it would not be a secret anymore.. LOL.. finding that under the radar place is fun and rewarding if you put the time in.. Cleveland has treated us well. 

Originally posted by @Jay Hinrichs :
Originally posted by @Tom Ott:
Originally posted by @Tina Chen:
Hi BP veterans, I’m a newbie on BP. I live in CA where I think it’s just tooooooo expensive to invest right now. I would like to know what cities you think have low prices and high rent so I can get the best return. Any insights or suggestions to websites that have this info? Thank you!!

 I prefer Cleveland, but that is MY main focus. You could also look into other Midwestern cities that PRE boom. You do not want to be last to the party! Try looking for a city that only some investors are talking about and not one that EVERYONE is talking about! 

Best of luck to you! :)

tom I just found one of those markets for flips.. but I cant divulge it then it would not be a secret anymore.. LOL.. finding that under the radar place is fun and rewarding if you put the time in.. Cleveland has treated us well. 

 That is good to hear! Good luck with your secret plans. Hopefully, I can figure out where that market is located! :)

Originally posted by @Jay Hinrichs :

where ever U pick and you will get solicited by those in their pet cities or those that broker for turnkey outfits.

the main thing experience has taught me for OOS investors is you simply have to stay out of urban core.. if you just to look at proforma's and pick the highest return your also in most areas picking the absolute highest risk..

These markets all have their pluses and minus's  and why they are better.. simply go on the chamber of commerce website of any big city your considering there will be all the blue sky why in that area.

but at the end of the day none of it matters. what matters is tenant quality and PM .

and the obvious make sure you buy a home that is in good shape you get a good inspection. you should visit at the least the first time.. if your financing which most do.. lender will appraise  and then make sure you pick good solid reputable people to do business with and a rock solid PM.. Anyone who can fog a mirror can buy a rental.. but its what you do with it after you own it that will make or break your investment.

there are markets within 90 minutes of you that would probably work as well if you don't want to  go all across the country.

Jay, your comment reminds me of when I was first putting my toes into this business, and I had the brilliant idea to invest in Newburgh, New York.  If you are not from this area, Newburgh is a very rough city on the Hudson River, about halfway between New York City and Albany.  Unlike the other cities on the Hudson, it has not recovered - has not become either a commuter city or a cute antiques-and-tourism weekend travel destination.  Part of the reason is that, in the 1970s, in a fit of urban "renewal," it tore down its entire waterfront, which consisted of those 19th century warehouses and mills that now everyone is converting to condos with Hudson River views.

Anyway, I thought I had a brilliant idea - that, because every other city on the Hudson had revived, that Newburgh "had" to be next.  I started doing "research," which consisted of reading blogs about Newburgh, which were of course full of articles about how Newburgh was coming back.  I talked with brokers as well, most of whom were very bullish on how Newburgh was next to gentrify, how it was on the upswing, how "right now" was the time to buy, etc.

It was also super-cheap.  Brownstones just like the ones then selling in Brooklyn for $1.5 million and across the river in Hudson, NY for $300-400K, were selling for $150,000.  What a bargain!

So, I decided to tour some properties, and that was when I had my rude awakening.  It was rough, rough, rough - the whole city was a D area - and the signs of revival were a single cafe.  It was bad.  

I got scared, which was a good thing, because as I watched, prices continued to fall.  (This was right after the crash.)  Those $150,000 properties were soon being offered for $100,000 and then for $79,000.  Ten years later, Newburgh still is not "back," despite the incredible boom in property all around it.  All of the things that were supposed to happen - the development of the local airport, the light rail to that airport, etc. - never happened.

So, the lesson here is - there is often a reason something looks cheap.  It probably isn't because it's overlooked, especially in a very hot market.  If it's cheap and the cap rates are high, it's most likely because people who are more sophisticated than you wouldn't touch the place with a barge pole.

I'm sure all the Newburgh proponents will pile on now, and I'm happy to be corrected if I am wrong.  Nothing would be better than for that once-great city to be revived for real.  I'd love to be wrong.  But I suspect, sadly, that I am not.

I recently wrote an article on this that can be found here: 

https://www.biggerpockets.com/blogs/10145/68178-to...

Just be sure to understand that every city has a path of progress. Just because you find a city that is starting to boom, doesn't mean an investment in the wrong area of that city will be profitable. In Minneapolis, when I first started a duplex would sell for $50-$90k on east side of the river and $30-$60k on the west side (during the crash). I bought mostly on the west side of the river because it was cheaper and cash flow was better. Now today rent on the east side has nearly doubled and the duplex values are $250k-$350k vs the west side at $150k-$200k. 

@Jonathan Twombly , have you looked right across the bridge into Beacon? I live 20 minutes down i84 and have been interested in that market. I'm planning on buying something after the summer and had been interested in that area. There's an artist named Alex Grey (did the Tool album covers) and he's building a massive temple on his property called CoSM that has been attracting massive amounts of people, it's really revitalizing the area, it's a national attraction. That, on top of the fact that it's locked in on 3 sides by the Hudson River, i84, and the tip of the Taconic Ridge, steep mountains that cant be developed. I personally know a lot of people my age that have been moving there, seems to be emerging. NYC population keeps migrating north, I'm curious what you're thoughts are on Beacon or if you've looked into it at all. I appreciate your responses, they're all very informative. 

Originally posted by @George Griffeth :

@Jonathan Twombly , have you looked right across the bridge into Beacon? I live 20 minutes down i84 and have been interested in that market. I'm planning on buying something after the summer and had been interested in that area. There's an artist named Alex Grey (did the Tool album covers) and he's building a massive temple on his property called CoSM that has been attracting massive amounts of people, it's really revitalizing the area, it's a national attraction. That, on top of the fact that it's locked in on 3 sides by the Hudson River, i84, and the tip of the Taconic Ridge, steep mountains that cant be developed. I personally know a lot of people my age that have been moving there, seems to be emerging. NYC population keeps migrating north, I'm curious what you're thoughts are on Beacon or if you've looked into it at all. I appreciate your responses, they're all very informative. 

I love Beacon as a place to visit, and it might be a great place to invest - I just don't know.  My very strong caution to you is that you base investment decisions on fundamental data, rather than anecdotes about people moving in.  You can hear those stories about Newburgh, too.  That doesn't mean it's a good market.

You want to dig into the data about population growth and business growth.  See if you can figure out whether employers are moving in or moving out.  Look into whether chain stores, which do a lot of demographic research, are opening up or moving out.  (Stay away from chains that franchise - they will sell a franchise to anyone and don't care if they make money or not.  Look for chains that own their own stores.)  Stay away from speculative reasons for investing, especially stuff you "heard."  It's likely that the person you heard it from doesn't know what they are talking about.  

Dig into websites like Hometownlocator.com about the local data there.  Talk to investors who have actually purchased property there, rather than brokers or amateur investors who are just dreaming about investing somewhere, someday.  Also, in the fall there was a study published about the fastest growing counties in New York State.  I would google that article and see what it says.

You might also want to look into Albany.  That has some very boring - and very good - reasons to be a stable market:  state government, which is never going anyway; SUNY, which is never going anywhere; hospitals, which probably aren't going anywhere; and, apparently, an effort by the state to make Albany the Austin of nanotech (we'll see how that goes).  And, Albany seems to have arrested it's 50-year long population decline.  It's probably reached a stable population given the area's economic base of government, education, and healthcare.

@Jonathan Twombly   Thanks for you input.  

I recently bought a property near Atlanta doing lot of analytics and data related research myself (didn't just go with what some website told me that xyz is the hot market)  - Not sure if I am right or wrong about the market yet but the whole process of getting a tenant and PM was daunting especially since I'm out of state and BP folks have been wonderful and have learned a lot from the folks here - Thanks again to all of you)

Back to this topic:  

The idea of positive cash flow since I closed my first OOS investment property has stuck my mind and I have been following lot of topics on where to invest and sometimes artificial social proof that people say I have 10 units planning to by X more makes you believe that you have to buy more.  I'm not saying when people say they are buying x more in 2 months or 2018 is bad but we don't know their investment and exit strategy and more over their risk appetite.  Your point here is really appreciated and brings newbies like us back to reality.   Thanks again.

@Tina Chen - sounds like you're searching for cash flow instead of appreciation. That's what most people on BP seem to shoot for, and it's what I aim for as well. 

I recommend searching various locations with a primary goal of finding areas that meet your minimum cash flow requirements(whatever those may be.) Then winnow areas with declining populations or high unemployment, and bump to the top of your list areas with the opposite- increasing populations, low unemployment, and areas with a diverse set of employers and a diverse set of industries.

From the remaining areas, I'd add points for those to which you can commute easily(under 3 hours is great, over three hours is more problematic in case you need to make a few trips/year.) Then if you have a few areas which appear tied, I'd search for gentrification clues. 

I've invested in a bunch of areas- but the areas which gentrified have provided the best returns so far. By way of example, my first investment in Hudson, NY has experienced rent roll growth of over 100% in about 15 years- and it should be even more, as I've invested more slowly than I should have, so I haven't captured the arriving gentrifiers.

I've also invested in Troy, NY, which is only now starting to show signs of gentrification. If Troy goes the way of Hudson, I will be very happy(I don't think it will have the same trajectory, but I can dream.) My areas which haven't gentrified have certainly lagged in performance relative to those which have.   

Thank you everyone for the input. It's very helpful to hear veterans speaking. I feel like I should just stay in my neighborhood where I know the market best now. : ) 

Originally posted by @Evan Murnighan :

Hi Tina,

Thanks for posting this question. I live is Phoenix and looking for multi-family. My husband is about to retire so, like you, we’re wanting good cash flow. Unfortunately we haven’t been able to find the level we want so I’ll be watching the answers too.

 I've been looking in the Phoenix market for Small multi-family units as well.  Have you had any luck with finding anything that cash flows?

Originally posted by @Jonathan Twombly :
Originally posted by @Tina Chen:
Hi BP veterans, I’m a newbie on BP. I live in CA where I think it’s just tooooooo expensive to invest right now. I would like to know what cities you think have low prices and high rent so I can get the best return. Any insights or suggestions to websites that have this info? Thank you!!

 It’s important not to get caught in the newbie trap of thinking that, because a market is cheaper than yours, it’s a bargain.  We’re at the tail end of a very long national bull market for property that has pushed down returns everywhere.  When looking at a market outside your own, you need to compare it to its own historical returns, not the returns in your expensive area.  If not you could be in for a nasty surprise when the inevitable correction hits, and when it hits, it will hit these “bargain” markets the hardest.  They are cheaper for a reason.  

 Do you have any good resources for research historical returns data?

@Jerry Poon Unfortunately this information is tough to come by for free, though you might want to ask brokers you work with if they have data, including old REIS reports, which usually track about 5 years back.  

You may want to see if REIS or CoStar has this data as well.  You will have to pay for it, but their reports are less expensive than losing a lot of money. 

Originally posted by @Jonathan Twombly :

@Jerry Poon Unfortunately this information is tough to come by for free, though you might want to ask brokers you work with if they have data, including old REIS reports, which usually track about 5 years back.  

You may want to see if REIS or CoStar has this data as well.  You will have to pay for it, but their reports are less expensive than losing a lot of money. 

 That is great. Thanks.

Warren Buffet says that investing just for the price is not investing. His stock price is like 250k a share so there is that. Good luck with your search!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here