Strategies for finding and narrowing down cities for investing

9 Replies

Hello everyone! I had a question I wanted to ask the general biggerpockets community because I felt it could not only benefit my self to know but others. When you are getting started in real estate investing or even if you have already invested in a city, what are your methods, strategies and criteria you research and look for to branch out and find new cities across the US to invest in that fit your niche? Not specifically the properties or types, but the cities or states themselves.

Do you have states in mind that you look into individually and then begin to determine potential cities?  Do  state tax rates and other local real estate laws influence where you invest?

What city characteristics do you look for or is it strictly cashflow numbers?  How else do you determine if a city or a rental will be rented out quickly?   Tons of questions I know! Just hoping to get a discussion started :)

State taxes should have a minimal effect on evaluation if you live in CA (excluding property tax) because my understanding of how the income would be taxed is (state income was generated in taxes first if it is a higher rate than CA no further tax, if it is lower rate CA takes what you paid the other state into account and taxes the rest of the way up to their normal rate)  Hopefully that made a bit of sense it is difficult to explain in text format.

For states I’d say look for landlord friendly states. Low property tax rates. Generally growing population is good, but I also don’t think minor decreasing population is that big a deal.

@Ryan McGlasson This is very complex subject and is highly dependent on investor preferences and the size of the investment. For instance, if you're only looking to invest in a few houses, you are best investing in your own market (to begin) before moving out. You might find better cash flowing deals in other markets but managing them is a major PITA. 

Many folks on these forums complain (rightly) about the sky high California prices BUT Cali also enjoys unmatched capital appreciation rates. So you have to take the good with the bad. 

If you're looking looking to invest in larger commercial properties (multifamily, offices, industrial, etc) - personally or through a partnership/syndication - then you should be more concerned with the points raised by @Caleb Heimsoth .

My article on choosing the right real estate market and avoiding the most common due diligence mistakes should help you get started. 

Originally posted by @Omar Khan :

@Ryan McGlasson This is very complex subject and is highly dependent on investor preferences and the size of the investment. For instance, if you're only looking to invest in a few houses, you are best investing in your own market (to begin) before moving out. You might find better cash flowing deals in other markets but managing them is a major PITA. 

Many folks on these forums complain (rightly) about the sky high California prices BUT Cali also enjoys unmatched capital appreciation rates. So you have to take the good with the bad. 

If you're looking looking to invest in larger commercial properties (multifamily, offices, industrial, etc) - personally or through a partnership/syndication - then you should be more concerned with the points raised by @Caleb Heimsoth .

My article on choosing the right real estate market and avoiding the most common due diligence mistakes should help you get started. 

 Thank you for the input, I am actually doing an owner occupant loan so I would be leaving california for much more affordable markets for my first property.

I will check out those articles! Thanks again.

Originally posted by @Aaron K. :

State taxes should have a minimal effect on evaluation if you live in CA (excluding property tax) because my understanding of how the income would be taxed is (state income was generated in taxes first if it is a higher rate than CA no further tax, if it is lower rate CA takes what you paid the other state into account and taxes the rest of the way up to their normal rate)  Hopefully that made a bit of sense it is difficult to explain in text format.

 I get the general idea of what you are explaining, I have seen that usually state taxes don't effect it too much but maybe it might be more of a factor with a larger investment. 

@Ryan McGlasson it shouldn't be if you live in CA let me give an example to explain better.

If your CA tax rate is 10% and let's say you bought property in CO where the tax rate is 5% and the property made $100.  CO would take 5% or $5 CA would take 10% or $10 but give you a tax credit for what you already paid to CO so $10-$5.  So you would end up paying $5 to CO and $5 to CA.

If the property were in CA you would have just paid $10 to CA.  So unless the state has higher taxes than CA (which very few do) it won't make a difference.

This is exactly the type of thing I was going to ask. My tenant just asked to buy my SFH in Oregon. I live in the Seattle area so real estate is pretty high. I had a pretty decent amount of equity and am looking for a market that will allow me to spread my risk over several units. Given duplexes around here run about 600k I'm thinking I need to look elsewhere.

@Sharon Rosendahl you are 100% correct that if your state has a lower tax rate than the state you plan on investing in it should be a concern.  However I believe the original poster lives in CA which makes it unlikely that they are looking to invest in a higher tax state.