How to determine what market to buy and hold in?

5 Replies

What are the key factors that should be used when picking a market to buy and hold in... I can think of a couple right off the bat (economy, population growth), but I know there have to be a few more.

Geographic proximity would easily be my #1 factor.  

A lot of people choose to invest out of state because prices are seemingly too high in their area, and instead choose somewhere in the heartland states because they offer a lower barrier of entry with cheaper homes, and offer good cashflow.  That may work out well for some people, but ultimately you are at the mercy of your team upholding their end of the deal.  If you take the advice of a poor agent, or turnkey company, you could easily find yourself paying over market value for a home because you don't know what the real market price should be.  If you hire a bad property manager, or general contractor you could lose thousands of dollars because you are halfway across the country and don't know what is going on with your property other than what these strangers are telling you.  Even seemingly reputable people may be willing to stretch things if they spot an out of state investor as being a sucker.  Don't get me wrong, with the right team it can work, but I prefer to not leave my fortune in the hands of a stranger when I don't have proper oversight.

However, ignoring that elephant in the room, I would choose areas that people naturally want to live in.  Over the years people have been steadily migrating south into more temperate climate states, and towards the coastlines.  In  1965 only 10% of homes in the USA had air conditioning, as this number has rapidly grown, people have begun migrating south due to the better climate.  Therefore areas such as CA, AZ, FL, TX and many more will continue to be great areas to invest in because people naturally want to live there.  Ever since Manefest Destiny, people have wanted to move to CA, and as a result CA now has a higher economic output than most industrialized nations.  No offense to Wyoming, but i have never once met someone that suddenly wanted to move to WY, although people want to move to CA all the time.  

I firmly believe that major businesses will also begin slowly shifting south, A recent study conducted by Harvard with data provided from Yelp in Sept 2017, said that the top 10 cities for economic growth all come from the southern half of the USA.  

While places like Indy and cleveland may cashflow better now, looking for instantaneous returns is very short sighted unless your goal is to retire in the next few years.  If you are empire building, then you need to look to the south, as that is where the growth will be, and thus where the future economic powerhouses will be.

@Ben Zimmerman

Your response validated some of what I was thinking.. I currently own a 4-plex in Indiana and think I need to abandon ship ASAP without losing as much money as possible (I will definitely lose some money on that investment).

You also mentioned the south.. That's where I was actually looking to move. TN, FL, SC, NC. I TOTALLY agree with you about trying to invest somewhere in close proximity. Thinking about moving to attack the buy & hold strategy.

@Brian Garlington

I hear ya Brian. I invested in Indy because of the cash flow *at the time*. But long term I think Ben is probably right on this one.

Originally posted by @Kyle Krason :

What are the key factors that should be used when picking a market to buy and hold in... I can think of a couple right off the bat (economy, population growth), but I know there have to be a few more.

Affordability.

Accessibility.

Your level of knowledge on the market.

Your level of comfort on the market.

Originally posted by @Kyle Krason :

What are the key factors that should be used when picking a market to buy and hold in... I can think of a couple right off the bat (economy, population growth), but I know there have to be a few more.

 Try looking for "Pre-boom" cities. They may not hit each point right now, but it is best to be the first to the party than the last. 

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