Hi all!

I am just starting my real estate investment journey and am glad to have this as a resource. So here goes, I'm pretty risk adverse to an extent and I think my plan is the following: I would like to find some single family rentals that cash flow well. I don't want to leverage but buy them with cash, I figure if I have the cash saved leveraging them will just eat into my profits, I know some will think that is stupid. But to start I really want to target an area where I will have the best CAP rate, buy and hold, and in the future possibly sell once it is depreciated out and seek others if I don't want to keep a certain property. Advice on any of that is appreciated.

I do not plan to self manage, so my biggest question is, if you aren't self managing and could invest anywhere, in your opinion, where is the best place in the country for what I'm trying to do. I'm located in Texas, but things have gone up so much here, I'm thinking of looking in OK, but any advice on best areas for best CAP rate in the country are very much appreciated! Excuse my total lack of experience please! Figure asking my dumb questions here is a start!

@Amber Saulsbury the Cap rate of a property is a reflection of the risk adjusted willingness of investors to deploy capital. The higher the cap rate, the higher the risk (ie less desirable market fundamentals, less desirable property, harder to rent out and manage, etc). The lower the cap rate the lower the risk (more desirable market fundamentals, more desirable property, easier to manage, less turnovers, etc). Before you think about going OOS, I would encourage you to consider all options within a 60 mile radius of where you live. Going OOS is definitely doable, and many do it successfully, but it does increase your risk significantly. There is a reason prices are high where you live: Strong market fundamentals (ie primarily job growth and population growth) are the underlying factor which bode really well for a buy/hold investor. Many OOS markets offer little to no probability of significant longterm appreciation which has a huge impact on your IRR (your total return: cash-flow & appreciation). Many OOS markets will yield the same rents as today 10 years from now and the houses will be at the same price 10 years from now (perhaps both will slightly increase). Markets that appreciate will yield more return in the long haul due to rent/market appreciation. Just some food for thought...cheaper doesn't necessarily mean better. The real question if you are a buy/hold investor is, "will I be glad I own property in this city/location X years from now?"

@Brian Gerlach

Thank you!! I appreciate the input! I guess the only thing that makes me nervous here is the next oil down turn the housing prices will follow. That and to be in the better neighborhoods here the price of the house vs rent to actually keep someone a while don’t seem to work well. Although, I just started looking and am probably not looking in the right places for deals. Also not sure I want to stay in Midland for too long. Thank you for the input, it helps!

@Amber Saulsbury I probably wouldn't want to invest in a market that is overly tied to oil (ie boom or bust). Perhaps there are more stable, desirable markets nearby that have a more diversified economy? You have plenty of time. I think Warren Buffet said the first rule of investing is not to lose money. The second rule is see the first rule :-) 

@Amber Saulsbury Congratulations on starting your journey! I am in the same boat as you and what I did was at first just googled "best rental markets in 2019" and from there I picked 2 markets (Indianapolis and Jacksonville). You can look at the list and see what seems to click with you the best. I like the price/rent ratio and make try to see if those states are landlord friendly. I heard Texas is either one of the top state or the #1 to quickly kick out tenants if they don't abide by the rules. Texas doesn't play! Hahaha. The best of luck to you!

@Brian Gerlach

Yeah, unfortunately nothing very close by, and the more stable areas are pretty hot markets from what I know. But I’ll keep searching. Completely agree with you, that’s the biggest thing and why I’m starting to do my research and ask for advice, definitely don’t want to loose money. Thanks again!

@Thuy Twee Nguyen

Hi there! Thank you! I’ll do some more online searching too! We should connect, I would love to hear how things go as you get started as well! Yes, I would love to keep my money in my home state, just have to see if it will make sense for me. Thanks again!!

@Amber Saulsbury Whether this is a good strategy all comes down to how much cash you have available to invest. If by paying cash, it will limit you to low end asset classes, I would recommend it. I always tell my investors to buy the best class of properties they can afford. They will have less headaches and they will cash flow better. The next thing to consider is how many properties you can buy if you pay all cash. Personally, I don't think it makes sense to do invest in real estate if you're going to have only 1 or 2 properties. Any time you're dealing with rentals, you can count on some problems. You'll have vacancies at some time and things break. If you have only 1 property, you feel the pinch a lot more when those things happen. When you have a portfolio of properties, the other ones will offset the under performer. It's just like with stocks. Most people want to have a portfolio of stocks or a fund rather than just one stock so that when some shares are not doing well, the others are off setting them. Unless you need immediate cash flow, I don't see the sense of paying cash. Depending on the market, you can pay down the mortgage in 10-12 years through the cash flow and own it outright. If you pay cash, you might have a CAP rate of only 7%-7.5% which isn't bad but most stock funds can return that and be entirely passive. The beauty of real estate is that you can leverage and get cash on cash returns of 12-15%. That doesn't include the equity gain through principle reduction courtesy of your tenants.

As far as good markets for cash flow, the best will be in the Midwest and Southeast. I'm particularly fond of Indianapolis and Kansas City. We've been active in both for nearly 10 years. Feel free to reach out if either of those are on your radar. I'd be happy to help.

@Mike D'Arrigo

Thanks so much for the input, and yes I would definitely like to hear more regarding your areas of preference and reasons.

I really think how many properties I could purchase for cash would depend on the area, but I plan on more than just a few and do not wish to buy low end properties with a lot of issues.

As to leveraging instead of purchasing cash, that seems to be the advice so far. I am guessing that is for the long term, and using the tenants to pay the mortgage off and counting on property appreciation? Because otherwise isn't the interest just eating into your cash flow if you don't have to mortgage? Sorry, I guess I'm just having a hard time grasping how taking on debt if not needed will help me. I am guessing appreciation? Otherwise why would I not buy say 5 properties cash pocket the income and save for more, sorry, having a hard time wanting to take on debt 😬

@Amber Saulsbury Kansas City is a strong market, I've been investing here a little over 10 years, then we reached the tipping point and it just made sense to become a Realtor/Broker and Property Manager. There are some sketchy PM companies in town, so be careful if you decide to look into the KC area. If you need guidance into which areas to invest in or stay away from let me know.

@Loni Louise Bernard

Thank you!! I will do that. I know nothing about the area but have heard it mentioned a time or two as an area to look at. I appreciate it!

@Amber Saulsbury For sure once I start working on the first deal, I will keep you updated! 

@Amber Saulsbury first of all congrats on your first google search, it’s a great start.

I would recommend a better approach.

First you need to determine your strategy. Those two markets you mentioned are two different strategies.

What is your priority?

1. Cash flow?

2. Growth

3. Hybrid

It’s hard to cover entirely in this 1 short post. But you need to decide what’s the most important to you. Then go to the market that fits best.

Then price comes into play next for the area and type of tenants you will want. Dm me if you want to dive in and strategize more about markets.

@Melissa Nash

Thank you! I would say I’m probably most interested in cash flow. Unfortunately it doesn’t appear that anywhere within a few hours of me works well for that so I’m considering out of state options. Thank you for the input, I’ll message!

Hey @Amber Saulsbury !

I'd go Oklahoma all the way. I've seen hundreds of out of state investors come here in the last year. Price points are great, rates of return are solid. You can get a 60k house and after maintenance, taxes, insurance, property managment.. you'll easily make 400 a month! 

PM me if you'd like to jump on a call! I'm happy to answer questions about OKC, finding deals or getting started in general!

@Kiera Underwood

Thank you!! Yes I would love to connect because I have been researching OKC and Tulsa and am leaning that way!