What market are you targeting and why?

25 Replies

Hello everyone. 

Im researching out of state (CA) markets and trying to decide which market I should focus on and start a team there. Im new and Im looking for some advise on what markets people are focusing on or interested and why. I have looked at some rankings on websites and some data like that but I'm curious what actual investors are thinking and why they focus where they do. Im most interested in multifamily but like most people, Im interested in anything with a decent price point and return. 

I am focuson on Baltimore CIty. Two reasons, it is one of the best price to rent ratios in the country and it is the market I know best.  I am a firm believer that it is important to know your market.

Hello and welcome for coming Jeremy!  First of all I have not estimated and received an investment yet mainly because when I had that medical accident and I am still bedridden from some medical problems I have had them at age 54 but I'm 61 now but I am  still thinking that I will recover someday.  As you'll see I am ready to take action on something.  Since I have about 30 years of experience of construction management and I also had a real estate broker license holder in Texas for about 30 years too.

I am also a college graduate and got a business degree (with honors) that emphasized real estate.  I was born and raised in Dallas, Texas.  My father had a broker license when I graduated and mostly worked on commercial deals.  You asked a good question and this is based on my knowledge and experience and do not intend to put you down personally.

If it is totally my choice, I would try to get into apartments.  I have been invited by a fellow that is a member of Biggerpockets to be involved in buying and selling single family homes and I might go into that because of my brother who has plenty of experience and is knowledgeable in that field and he has offered to help me.

The reason I chose apartments is that I have been convinced of it ultimately because of all I have learned that it is the best way to go long term and ultimately you can hire a Property Management Company that will take care of the daily operations and that managing a property management company will not very time consuming. 

Another reason I'll be doing it that way is because of my physical condition and my brother has offered his help. The bulk of his time is being involved in construction for many years who has been both as a manager and an owner but also a little bit of real estate.

If I had to invest out of state and to hold my travel expenses down I would seriously go with an experienced Turnkey Company or invest into real estate with a man like Grant Cardone.  I hope that any of this has helped you.

Good luck to you!

Originally posted by @Michael Lee :

Hello and welcome for coming Jeremy!  First of all I have not estimated and received an investment yet mainly because when I had that medical accident and I am still bedridden from some medical problems I have had them at age 54 but I'm 61 now but I am  still thinking that I will recover someday.  As you'll see I am ready to take action on something.  Since I have about 30 years of experience of construction management and I also had a real estate broker license holder in Texas for about 30 years too.

Thanks for the input Michael. Apartments are my ultimate goal     . I’m trying to get a few multi family deals under my belt first to gain experience and get some credibility before I reach out to investors. I haven’t ruled out turn key (or anything really) but I would prefer to brrrr and keep the appreciation for myself. 

Originally posted by @Ned Carey :

I am focuson on Baltimore CIty. Two reasons, it is one of the best price to rent ratios in the country and it is the market I know best.  I am a firm believer that it is important to know your market.

Thanks Ned! I agree with your point on knowing the market. I’m trying to decide on a market and become an expert on it. What class properties are you focusing on and what are some of your criteria? 

@Jeremy Taylor

What class properties are you focusing on and what are some of your criteria? 

I focus on $100-140k properties. These are nice rental areas or lower end homeowner areas.  

What "Class" a property is in doesn't really apply well to SFH outside your own market. If I said I invest in C markets would that mean the bottom of an ABC scale or the middle of an ABCDEF scale. Or perhpas you want to judge by Baltimore citiy's scale of A - J

Originally posted by @Ned Carey :

@Jeremy Taylor

What class properties are you focusing on and what are some of your criteria? 

I focus on $100-140k properties. These are nice rental areas or lower end homeowner areas.  

What "Class" a property is in doesn't really apply well to SFH outside your own market. If I said I invest in C markets would that mean the bottom of an ABC scale or the middle of an ABCDEF scale. Or perhpas you want to judge by Baltimore citiy's scale of A - J

I love that point on “class”. I have been having a hard time figuring out what criteria each investor uses to determine a class. I usually see A-D. But as you said it’s relative based on your opinion and individual criteria. I believe (unless there is a scale others use somewhere I haven’t found). 

It sounds like you invest in what others would typically call c-d on that a-d scale, meaning lower income areas with higher crime resulting in a perceived less desirable tenant. Is that correct? I like yourself and most people am drawn to the higher cash flow for obvious reasons, however I constantly hear that c/d properties are a bad idea. What are your thoughts on that? 

I grew up in what I would a call “C” class mentality household and although we never trashed a place and in fact my mom would shampoo and repaint before we left, we typically got evicted due to late or missed payments(personally I haven’t missed a due date on a single payment since I was 18). So I can kinda see both sides and I’m torn. 

Every market has it's pros and cons.  I was in Dallas area back in 2005.  Downside there is 2.8% property taxes and hail storms.  Phoenix - obviously heat (AC units) and the prices are higher than other markets.  But property taxes are 1.1%  I personally think Phoenix has a very diverse economy.  Memphis - every tenant has a 500 credit score and works for FedEx hub.  What happen's if FedEx falters?  The lynch pin to this business is tenants paying rents which translates to your tenants having jobs so they can pay your rents.  What kind of business is in your market?  

Up north, you may have to deal with freezing pipes if your unit is vacant.

Obviously you don't want to buy where there are hurricanes.

Markets I've heard of others investing in are OKC and JAX.

Also, you want a landlord friendly state.  CA is the worst for that.

@Jeremy Taylor in the commercial world the "Class" of a property is more accepted. In the SFH world everyone seems to use their own scale.

I would say I invest in C or C+ areas on a a-d scale. But that scale is relative to Baltimore and wouldn't be near a C in say Howard county where I live.

Originally posted by @Ned Carey :

@Jeremy Taylor in the commercial world the "Class" of a property is more accepted. In the SFH world everyone seems to use their own scale.

I would say I invest in C or C+ areas on a a-d scale. But that scale is relative to Baltimore and wouldn't be near a C in say Howard county where I live.

That makes sense. Why did you choose Baltimore over where you live. Is it purely price driven or is there something about the area that appeals more to you as an investor and your tenants as renters?  

Originally posted by @Derek Janssen :

Every market has it's pros and cons.  I was in Dallas area back in 2005.  Downside there is 2.8% property taxes and hail storms.  Phoenix - obviously heat (AC units) and the prices are higher than other markets.  But property taxes are 1.1%  I personally think Phoenix has a very diverse economy.  Memphis - every tenant has a 500 credit score and works for FedEx hub.  What happen's if FedEx falters?  The lynch pin to this business is tenants paying rents which translates to your tenants having jobs so they can pay your rents.  What kind of business is in your market?  

Up north, you may have to deal with freezing pipes if your unit is vacant.

Obviously you don't want to buy where there are hurricanes.

Markets I've heard of others investing in are OKC and JAX.

Also, you want a landlord friendly state.  CA is the worst for that.

My market is so. California and I don’t have much interest in investing in this market. I may in the future but I personally don’t feel prices in this area will hold at their current value much longer. 

I’m just trying to pick a market that makes sense and once I decide I’m going to focus on that one area for a bit and see what I can learn.  I have looked at employment and growth rankings online and things like that but I also like to hear it from actual investors. 

Originally posted by @Jeremy Taylor :
Originally posted by @Derek Janssen:

Every market has it's pros and cons.  I was in Dallas area back in 2005.  Downside there is 2.8% property taxes and hail storms.  Phoenix - obviously heat (AC units) and the prices are higher than other markets.  But property taxes are 1.1%  I personally think Phoenix has a very diverse economy.  Memphis - every tenant has a 500 credit score and works for FedEx hub.  What happen's if FedEx falters?  The lynch pin to this business is tenants paying rents which translates to your tenants having jobs so they can pay your rents.  What kind of business is in your market?  

Up north, you may have to deal with freezing pipes if your unit is vacant.

Obviously you don't want to buy where there are hurricanes.

Markets I've heard of others investing in are OKC and JAX.

Also, you want a landlord friendly state.  CA is the worst for that.

My market is so. California and I don’t have much interest in investing in this market. I may in the future but I personally don’t feel prices in this area will hold at their current value much longer. 

I’m just trying to pick a market that makes sense and once I decide I’m going to focus on that one area for a bit and see what I can learn.  I have looked at employment and growth rankings online and things like that but I also like to hear it from actual investors. 

 Jason Hartman categorizes markets as Linear, Cyclical, and Hybrid.  Linear - Memphis, Cyclical - CA, Hybrid - Phoenix.

Sounds like you think (understandably) that your so cal mark is at the top of it's cycle.  Makes no sense to invest at the top of the cycle and have to wait 8-10 years to come back to the price you bought it at.

I started investing in 2005 - top of the bubble.  My friend directed me toward Dallas area (Linear at the time) and I bought a house there bc Phoenix was blown out.  In 2009 I invested in Phoenix.

@Jeremy Taylor I really like Memphis personally. If you want multifamily I would take a look at cleveland or Little Rock. Memphis isn’t great for multifamily

@Jeremy Taylor - This may help:

Linear = conservative markets where price appreciation is typically slow and steady - the up and down cycles aren't very dramatic and cash flow is great. We like these markets best because cash flow is pretty reliable. 

Cyclical = speculative markets where price appreciation is great during boom times and depreciation can be devastating in bad times. Bigger swings and poor cash flow. 

Hybrid = as the name implies, it's in between linear and cyclical.

Originally posted by @Jason Hartman :

@Jeremy Taylor - This may help:

Linear = conservative markets where price appreciation is typically slow and steady - the up and down cycles aren't very dramatic and cash flow is great. We like these markets best because cash flow is pretty reliable. 

Cyclical = speculative markets where price appreciation is great during boom times and depreciation can be devastating in bad times. Bigger swings and poor cash flow. 

Hybrid = as the name implies, it's in between linear and cyclical.

Thanks for the info Jason! Much appreciated. Do you have any suggestions for where I can research linear markets or any Areas in particular to start looking/educating myself on. 

@Jeremy Taylor

I invest my money in Memphis, TN. Its hard to beat the cash flow we have here. You will really need to get some help an advice before you invest in Memphis. It can go from "Street to Street" on where you should invest but the returns are excellent and I am having a lot of success with it. 

Good Luck!

@Jeremy Taylor In addition to researching the markets you have to decide for yourself whether you want/can be active investor or passive. Being a landlord while doable requires time and effort. Not everyone has a bandwidth to do it. When it comes to passive investing, it takes a lot less time to evaluate a deal and make a decision as to whether invest in it or not and then for the most part your work is done (depending on the investment). You can a lending route, or syndications, or TK. Ultimately you need to decide which path will work best in your case!

Originally posted by @Alina Trigub :

@Jeremy Taylor In addition to researching the markets you have to decide for yourself whether you want/can be active investor or passive. Being a landlord while doable requires time and effort. Not everyone has a bandwidth to do it. When it comes to passive investing, it takes a lot less time to evaluate a deal and make a decision as to whether invest in it or not and then for the most part your work is done (depending on the investment). You can a lending route, or syndications, or TK. Ultimately you need to decide which path will work best in your case!

Thanks for the advice. My plan is to use property management to allow me to be passive and maximize my returns. I may end up on the lending side if the returns vs. passivity make sense but I’m still researching that side of it as well. 

Originally posted by @Jeremy Taylor :
That makes sense. Why did you choose Baltimore over where you live. Is it purely price driven or is there something about the area that appeals more to you as an investor and your tenants as renters?  

 I took a class based in Baltimore and the properties were more affordable. After the first house I bought 4 more on a two block stretch. 

@Jeremy Taylor Managing property manager is an effort as as well. While it's not as time consuming as managing the property yourself, it is not fully passive. I want you to keep  that in mind when evaluating your options! 

I have seen some discussion on the Cleveland market and asset class grading in this thread. I'm not interested in engaging in a discussion on whether you should or should not choose Cleveland as a place to invest in due to the obvious conflict of interest as well as the fact that convincing people to invest in the market I operate in is not really a big profit producing activity. 

However if you do want to invest in Cleveland you should educate yourself on the different types of neighborhoods we have here. I think you need to look at A-F class on a market by market basis. B class in Cleveland is worlds apart from B class in Los Angeles.

There are some great rental neighborhoods and there are also some incredibly blighted areas. Prices will vary widely and you need to know why that is. As such I created The Ultimate Guide to Grading Cleveland Neighborhoods so out of state investors can get a firm grasp on the Cleveland market.

Knowing the pros and cons of each type of neighborhood is very important. Take a look at some photos below to see some of the things you should be prepared for if you engage in investing in these blighted areas. Note; these are all photos of properties in my company's rental portfolio. We have a portfolio of over 1,000 rentals in a wide range of neighborhoods in Cleveland.

Tenants got into a fight over a nominal sum of money. Burning one parties car was the way one of the parties involved decided to handle the situation.

Tenants got into a fight over a nominal sum of money. Burning one parties car was the way one of the parties involved decided to handle the situation.

 Best part about the car fire was one of the parties forgot which car was owned by the tenant. They just knew it was gold. So they set all of the gold cars they saw in the parking lot on fire.

Best part about the car fire was one of the parties forgot which car was owned by the tenant. They just knew it was gold. So they set all of the gold cars they saw in the parking lot on fire.

 No caption necessary for this toilet from hell.

No caption necessary for this toilet from hell.

This is what a kitchen can look like when a low income tenant moves out of it.

This is what a kitchen can look like when a low income tenant moves out of it.

This is what a backyard can look like when a low income tenant moves out of it.

This is what a backyard can look like when a low income tenant moves out of it.

If tenants in these tough neighborhoods don't have yards, don't worry they will light off their fourth of July fireworks in their bathrooms.

If tenants in these tough neighborhoods don't have yards, don't worry they will light off their fourth of July fireworks in their bathrooms.

Don't worry though. Sometimes when they move out they forget about their unregistered firearms.

Don't worry though. Sometimes when they move out they forget about their unregistered firearms.

Another point i'd like to make is you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.