I am in a unique situation in which I’ll be moving from Hawaii back to the mainland within a year after selling my business, and I’m trying to figure out where to move to. I will have a modest amount of cash to invest (likely 30-75k), I plan on having a W2, and I am interested in BRRRing a single or small multi-family. I have lived in Atlanta and Salt Lake City, so I am already somewhat familiar with those markets. Additionally, I know lifestyle fit will be an important factor, as I plan for my wife and I to start our family there and live there for a long time (but I don’t expect you guys to give recommendations on that, lol).
I’d like to get your perspective on what markets have comparatively more opportunity than other markets for a beginning but and hold investor. How does your market(s) look right now? Is legislation friendly for investing there? How hard is it to find good deals? Is there anywhere I should avoid? You get the picture :)
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
6y
Which ever market you choose find an REI group to help coach and guide you. I am from the Kansas City market it was been booming since 2012. Still cheaper compared to coastal and major markets. There are a lot of buy and hold opportunities and investors pouring money into the market. For finding deals there are always good deals in every market, it's about turning stones and finding the diamonds, this also depends on criteria. 1%-2% rule is standard for looking rentals. The inner city is a war zone but suburbs 10-30 min outside Kansas City is the perfect niche. Any market you choose will have it's different quirks but finding local experts is the best way to learn.
@Russell Brazil Do you see more opportunity in the suburbs of these big metros for the beginning investor? It makes sense that there will be more inventory and a large variety of investments in the big cities, and I’m sure that comes with a lot more competition as well.
@Russell Brazil Do you see more opportunity in the suburbs of these big metros for the beginning investor? It makes sense that there will be more inventory and a large variety of investments in the big cities, and I’m sure that comes with a lot more competition as well.
Whats the easiest way to make lots of money in real estate? It is owning properties where prices rise a lot. Where do prices rise the most? The high demand locations of major cities. Buy assets with the highest demand, grow rich. That simple.
@Russell Brazil Makes sense. I’m certainly still early in my investing education, and to date most of what I’ve heard is that cash flow is most important and appreciation is just a bonus. That betting on appreciation is at least partially speculation.
That is not to say that I haven’t seen plenty of examples where appreciation makes or breaks an investor’s career - I know it’s very important. I am curious - do higher prices in major metros make cash flow more difficult to achieve?
@Russell Brazil Makes sense. I’m certainly still early in my investing education, and to date most of what I’ve heard is that cash flow is most important and appreciation is just a bonus. That betting on appreciation is at least partially speculation.
That is not to say that I haven’t seen plenty of examples where appreciation makes or breaks an investor’s career - I know it’s very important. I am curious - do higher prices in major metros make cash flow more difficult to achieve?
What most people on here refer to cash flow is really a financial metric in investing that is properly referred to as Yield. In investing, in any type of investment vehicle yield is a measure of risk. Higher risk investments have higher yields, and lower risk investments have higher yields. A US Treasury bond is going to be a very low risk investment, so it has lower yields on it. The 10 year treasury for instance right now is yielding 1.7%. Now a high risk corporate junk bond will have a much higher yield, think like 4, 5, 6% etc.
This same concept is no different in real estate. Higher risk markets and assets have higher yield, or higher cash flow. Lower risk markets and assets will have lower yields. One of the main components here in the risk premiums (though not the entirety of it by any means) is the function of demand. These major metros are lower risk because that demand is higher, because what happens to both the values and rents where there is high demand, they will rise much more than where demand is lower.
People who say appreciation is speculation, simply lack a fundamental education in finance, investing and economics. And without that education, they convince themselves that the higher cash flow provides safety, when in fact that higher cash flow is the reward that the market gives you for taking on a higher risk asset. If I invest in stocks believing that the value is going to go up, based on analysis of the companys growth...is that speculation? Of course not.
There is absolutely nothing wrong with taking on higher risk, but one needs to be aware that is in fact what they are doing.
@Russell Brazil I really like the way you conceptualized that - thank you.
At this early point in my investing career, I think I am more interested in higher yield opportunities which comes with higher risk, and then transitioning to lower risk properties with a greater appreciation upside in the future.
Accountant · West Valley City, UT · Member since 2015 · 20 posts · 7 votes
6y
Salt Lake is currently overpriced and very saturated. A lot of in migration from California. Probably better opportunities in Boise, ID or Scottsdale, AZ
Rental Property Investor · NC · Member since 2018 · 776 posts · 776 votes
6y
What's your business in Hawaii? I wish I never left.
Totally agree with what @Ed Emmons said. There are places to invest in every market. If not the inner city, check the commuter towns 15-20 mins away. It's all about the lead coming in your inbox.
Anchorage, AK · Member since 2015 · 11 posts · 7 votes
6y
@Brad McBride I think Boise is actually pretty tight right now, too. There’s a serious lack of multifamily inventory and the house hacks I’ve looked into there really don’t make sense. I’m sure there are people who are still figuring it out, but from where I’m standing that market is in the peak phase and should be approached cautiously, especially for beginners (which, full disclosure, is also how I would describe myself!)
I have been talking with another BP member from Hawaii who is also planning a move to the mainland. I spoke at a Honolulu-based REI meet up in August about the Phoenix Metro market, job growth, company expansion, economic stability. He is seriously considering moving to Phoenix/Scottsdale.
There is a lot of investment opportunity here, whether for fix and flips or buy and holds. Yes, it's competitive, but that means many people see the upside of living or investing here. And, we're just a short plane ride from L.A. and Las Vegas, so you'll be able to meet up with your family on their visits to the mainland.
Even Hawaiian Airlines is establishing it's first off-island IT center in Tempe, so you can imagine the due diligence they did in choosing our area for expansion.
Just wanted to throw our hat in the ring. It really comes down to where do you WANT to live, because you can invest anywhere from here.
Happy to help in any way I can (share links to lists of major employers, etc.)
@Frank Geiger I’m sure I’ll think that when I leave - definitely got to enjoy it while I’m here. I own a food truck called Mack’s Handcrafted Soda and Pops - we make lots of tasty drinks in sort of a food truck food court. It’s been a fun business to start and run!
@Melanie Johnston Thanks for the insight Melanie! My wife and I think we’d really enjoy northern Arizona (e.g., Flagstaff), do you have an opinion on how things are up there? Of course, I’ll be looking for a good W2, which may lead me closer to Scottsdale/Phoenix - either way we love Arizona.
Also, love to see that you are from Kahaluu - I live in Kahaluu and my wife teaches at Ahuimanu!
Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes
6y
Three cities west of Boise which are all relatively connected. Specifically, Meridian, Nampa and Caldwell. Family friendly, high appreciation, landlord friendly, and targeted for significant growth. I've done very well in Meridian with SFHs. Nampa is the next area with Caldwell on its heels.
@Ed Emmons That’s the dream! Now I just have to figure out where I want to live... been working on that question for years, haha
Seriously why put off moving to where you want to live? I moved from an expensive area in Connecticut to central Maine where the towns are generally 10,000 and less. But I bought a couple hundred units and flipped nearly 100 houses in this market. Once you have the education you can work in any market and be successful. In lower income areas you don’t need the big numbers that you will in the cities it’s all relative. Generally real estate investing is a means to an end. Live the life that you want and let real estate be the engine they get you there. That way the real estate investing is not emotional it’s just a numbers game.
I loved growing up in Kahaluu and seeing all the waterfalls on the Koʻolaus after it rained. Best memories ever!
Flagstaff is a great place to live (if you like snow!) and a popular second home and vacation home destination. It might even provide an opportunity to house hack. Here is a recent article on the housing market:
Salt Lake City, UT · Member since 2018 · 219 posts · 182 votes
6y
I personally think Salt Lake is a great place to live and invest. The market continues to rise and I expect population and property values to double in the next 15-20 years. There may be a small superficial correction in 2-4 years but that certainly doesn’t stop me. Long term I think it’s one of the most amazing places to live and raise a family and a great place to invest as well.
I would approach the western states with caution. We are in southern Utah and (same as SLC) seeing tremendous growth and appreciation due to an influx from CA. No other desert community uses more water and charges as little for it as does greater St. George. I have also read about the drain on water resources in ID due to drought and an increased population. Due to the water situation and an overpriced market we are getting out of UT - just one more property to sell - and going to NC. The Triad area is worth a look IMO.
A lot of people recommend specific locations. I will take a different approach and recommend a method for selecting a good investment location. I apologize for the length of this post, I could not make it shorter.
So we are on the same page, I believe that any good investment location/property must meet three criteria.
Sustained profitability - The property must generate a positive cash flow today and into the foreseeable future.
Currently and likely to continue appreciating for the foreseeable future at or above the rate of inflation - Properties appreciate in locations that have strong demand, which is the key driver for sustained profitability.
In a location where you can make money and you control your property as opposed to the government dictating what you can do.
While the above may seem simplistic, a lot of things must be right in order to achieve all three goals. Before I get into my selection criteria, I will cover some important concepts.
ROI Is for Today Only
Returns (ROI, cash flow) are only a snapshot in time. These calculations only predict what the property is likely to do today; it does not tell you how the property is likely to perform in the future. Take a look at the diagram below.
The red line represents a declining market (rents and prices are flat or declining) and the green line represents an appreciating market (rents and prices are increasing). Both have the same ROI today but will perform very differently in 10 years. You need to carefully consider how the location is likely to perform in the future.
Initial Return or Long Term Return
There are excellent studies that show a strong correlation between property prices and rents, such as this Federal Reserve Study. According to studies, rents typically lag property prices by two to ten years. So, the trend you see in property prices over the last few years is what will likely happen to rents in the future. What this means is that in declining (or static) markets, rents reflect property prices from 2 to 10 years ago. Thus rents appear to be higher than appreciating markets. In appreciating markets, rents also lag prices by 2 to 10 years so rents appear to be lower than static or declining markets.
See the image below.
You will need to choose between initial return and long term return. I have never heard of a location where you can get both high return today (indicating a declining market) and long term appreciation at or above inflation (indicating an appreciating market). You cannot have both.
Appreciation Is Critical
One of the easiest metrics for determining market health is appreciation. If property prices (thus rents) are not increasing at or above the rate of inflation, rent is actually declining in real dollars. For example, according to this government CPI calculator, in order to receive the same (buying power) today of a $1,000/Mo. of rent in 2010, the rent today must be $1,174. The government CPI calculator is based on the government's measurement of inflation, which does not include food or energy. A more realistic inflation rate is closer to 5%. At 5%, the rent would need to be $1,550 today to have the same buying power as $1,000 in 2010. Flat rents are not flat, they are declining at or above the rate of inflation.
A Location Where You Can Make Money
What matters is not how much money you gross, it is how much money you net. In some places it is very hard to make money due to the cost of doing business. Such costs include taxes, regulations such as rent control, eviction laws, code requirements, as well as insurance costs. All of these costs are a direct hit on the bottom line. As an example, we own properties in both Las Vegas and Austin. Below is a comparison of sample cost differences:
You need to consider all the major cost factors when considering an investment location. These direct and indirect costs might make a location that appears to be profitable in reality a money sink. Look at the bigger picture, ROI alone is a poor metric.
Location Selection Criteria
With all the above said, below are my criteria for selecting an investment location:
Appreciation - I covered the importance of appreciation due to inflation and as a health barometer. Make sure to check the property price trends for the location.
Population size - I would focus on cities with a population of 1M or more. Small cities tend to be reliant upon a single industry, which makes them vulnerable to economic changes.
Population growth - If people are moving into a location, it is probably a good location for jobs and a desirable place to live. If people are moving away, demand will drop and prices will be static or declining.
Major employers are doing well and in market segments expected to grow. This indicates that your target tenant pool size will likely increase and will likely remain employed. No jobs, no rent.
New companies setting up operations in the area. Contributes to job growth and population growth. Chamber of commerce is the place to check.
Urban sprawl - Not talked about much but you have only to look at any major city and you will see locations that were once the best in town and are now distressed. This is usually the result of urban sprawl. You need to be very aware of which way the city is expanding and buy in newer areas. See this site for time lapses. Try: Memphis, Atlanta, Austin and Las Vegas. Note that Las Vegas is surrounded by federal land so there is little room remaining for expansion or urban sprawl.
Crime - High crime areas and long term profitability do not go together. I would not consider any city on the top 100 most dangerous cities list. You might know one of these cities well and know that there is a great area near the city. The problem is that companies looking to open new locations will not choose high crime cities.
Climate - Properties in areas with hard freezes and excessive moisture will tend to require more maintenance than in milder and dryer climates.
Age of properties - The older the property, the more maintenance it will require, unless all the major systems and components have been updated recently.
Property cost - There is a tendency for new investors to choose locations with very inexpensive properties. Remember that price is a function of demand. No demand, low price. High demand, high price. Of course, you need to hit a balance. If your budget allows a maximum of $250,000, do not consider coastal California.
Taxes - Both income tax and property taxes are a direct hit on profitability. Look carefully.
Insurance cost - Insurance cost is a good barometer of the likelihood of damage, usually due to climatic or seismic events. Be certain to take the cost of landlord insurance into account when comparing locations.
Landlord-friendly property laws and regulations. No rent control, efficient and low cost evictions.
Summary
If I had limited funds, I would not consider high risk (declining) locations. A lot of people have lost their hard earned savings by buying in declining markets because properties were cheap. Be careful where you invest.
