What are the best markets in REI that few know about?

37 Replies

I'm a relatively new investor, and in my market research I've found a lot of the same popular answers for good markets for OOS investors; Columbus, Indianapolis, Kansas City, Birmingham, Boise, etc. What are some of the less known markets that people are finding good ROI and cash flow? Have the popular OOS investor markets hit a tipping point now where it's hard to find a good deal?

Any and all response are greatly appreciated. Thank you!

The folks who know aren't going to put it out there :)

Really the key is to pick a market and stick with it. Don't spread yourself too thin, get to know specific places very well. Some OOS investors like to start by setting the criteria that their market must be within a 2-hour flight from their home city.

@John Dahl , there are reasons people are talking about Columbus, Indianapolis, Kansas City, Birmingham, Boise, etc. People are finding great deals in those places, I am local to Columbus, and I'm finding all sorts of deals.  You just need the right realtor that is OOS investor-friendly to bring you those deals in those hot markets. 

Originally posted by @John Dahl :

I'm a relatively new investor, and in my market research I've found a lot of the same popular answers for good markets for OOS investors; Columbus, Indianapolis, Kansas City, Birmingham, Boise, etc. What are some of the less known markets that people are finding good ROI and cash flow? Have the popular OOS investor markets hit a tipping point now where it's hard to find a good deal?

Any and all response are greatly appreciated. Thank you!

 Any smaller town just outside of Columbus, Ohio is good too!

@Taylor L.
That was the answer that I expected, but it never hurts to ask the question!

Thanks for the advice! I'm going to be focusing on a specific market very soon. I've heard from other out of state investors, and even David Greene say that with today's technology it was no longer needed to visit the location of your investments if you have solid connections there. I can see both sides.

Originally posted by @Blake Park :

@John Dahl, there are reasons people are talking about Columbus, Indianapolis, Kansas City, Birmingham, Boise, etc. People are finding great deals in those places, I am local to Columbus, and I'm finding all sorts of deals.  You just need the right realtor that is OOS investor-friendly to bring you those deals in those hot markets. 

Good to know, thanks! But isn't finding deals markets that aren't so hot a lot easier?

Originally posted by @Remington Lyman :
Originally posted by @John Dahl:

I'm a relatively new investor, and in my market research I've found a lot of the same popular answers for good markets for OOS investors; Columbus, Indianapolis, Kansas City, Birmingham, Boise, etc. What are some of the less known markets that people are finding good ROI and cash flow? Have the popular OOS investor markets hit a tipping point now where it's hard to find a good deal?

Any and all response are greatly appreciated. Thank you!

 Any smaller town just outside of Columbus, Ohio is good too!

That's good to know too, thanks!

Originally posted by @John Dahl :

@Taylor L.
That was the answer that I expected, but it never hurts to ask the question!

Thanks for the advice! I'm going to be focusing on a specific market very soon. I've heard from other out of state investors, and even David Greene say that with today's technology it was no longer needed to visit the location of your investments if you have solid connections there. I can see both sides.

The flight thing is just a way to narrow the search a bit. I do think going to the market and studying it well is critical, but it's not like you necessarily need to travel there all the time. Understanding the market helps you develop judgment about deals so you do not have to exclusively rely on the opinions of others. 

Hey John! Toledo is a great market for OOS investors that isn't as common due to it's size. We have one of the best hospitals in the country and several fortune 500 companies. The price to rent ratio is great. Check it out when you get the chance. I'd be happy to help!

Originally posted by @Jonathan Greene :

I don't know how sneaky anyone thinks Lakeland, FL is, but I like that area a lot because of the Amazon involvement and quality of life.

 Shhhhhhhhhh! Don't tell everyone about Lakeland. It is my most current hunting ground and have found a few good deals in the last 6 months. 

@John Dahl

Metro Detroit.

I feel METRO Detroit is an unknown gold mine because everyone flags all of Michigan as War zone because some greedy people come in thinking they will buy $15,000 Detroit houses and become millionaires then when it doesn’t work label all of Michigan as “bad”

The highest probability of success isn’t buying $15,000 houses. Metro Detroit and areas around Detroit have some of the best price/rent/location ratios found in the country..

$60-$120k, 1-1.5% deals, good markets.

Many areas with double digit appreciation as well.

The most important thing when considering the market is the property per unit price, the rental income and the cost for repairs including the cost to clean and make repairs when tenants move out. I've owned properties in Boise and Meridian Idaho for the past 15 years and the problems is the rents are low, the property taxes are high and their are so many homes being build, because there is a billion acres of land and the property appreciation barely keeps up with inflation.

I owned properties in Las Vegas for the past 12 years and just sold most of them and I made a lot of money because I purchased the properties for 30 cents on the dollar, but the problem with Las Vegas is the rents are low and the cost to clean every house when tenants moved was $6,000 to $12,000. For most of the homes the carpets alone were $3200 to $4900 plus two coats of paint on every wall and ceiling, replacing broken bathroom sinks, kitchen sinks, faucets, repairing air conditioners, replacing cracked times on roof 36 feet high, bringing in 4 to 8 tons of rocks to make the yards look nice, trimming trees, repairing sprinkler systems and the piping, replacing refrigerators, stoves, washing machines clothes dryers, water heaters, painting garage floors ceilings and walls, bringing in 20-yard trash bins to remove all the carpets, trees trimmings and trash left by tenants, replacing all the window blinds, door knobs that are broken and locks for the main door and locks for the garage door so the keys match, repairing garage door openers that are broke, repairing the garage door rollers and seals, painting the trim outside the house, replacing facia boards that are 36 feet high, replacing window screens and the screens on sliding doors, replacing entire windows just because tenants broke the window locks and they cannot be repaired, replacing kitchen counter tops that are destroyed, replacing all the kitchen doors and drawers because tenants destroyer the cabinets by hanging their wet laundry in the kitchen cabinet doors to dry. replacing garbage disposers, dishwashers and the list goes on and on. Still want to own single-family properties with low rents in out-of-state locations and do you see why some rental properties cost $12,000 to clean and bring up to snuff. 

One property in Idaho cost me $18,000 to put together and I personally did all the work with one employee. All three bathroom sinks were cracked and I had to do everything on this list at just one house. I had already gifted the house to my son a few years before I did all this work and I gave my son a legitimate bill for $32,000 for the work performed and when he sold the house he used the $32,000 bill to reduce his capital gains taxes and the escrow company sent my company the $32,000. The company the escrow company sent the money to loses about $100,000 every year so there was no worry about owing taxes for the $14,000 difference and I did have to pay legitimate taxes for my employee who worked for 11 days at the property.

I sold almost all my homes because the cost to bring an apartment up to snuff when tenants move out is usually less than $2,000 and the work is always completed in 3 to 5 days, but homes require everything in the list above.

My son is starting Ohio State University (I think that is the name. I get confused) tomorrow and I was looking at apartment buildings in the area and they are fairly inexpensive compared to California, but the rents are also low. The rents to live on campus for a studio-style unit was about $1,000 and my son thought it was much better to have a 1-bedroom apartment off campus. So, he rented a unit just outside the gate of the college for $850 per month and the entire building he will live in consists of only college students.

Overall, so far, it appears that you can purchase rental units fairly cheap and maybe in the future rents will skyrocket, but it rents remain low for several years then it is difficult to generate great profits and don't forget about the list of repairs in the above paragraph.

Since you say you are a relatively new investor I am going to give you one more tip. You inherit major losses when you purchase out-of-your-area properties because property management companies tell you they will manage your properties for 6% to 8% of the gross rental income and that is a huge loss of your profit, but management companies have huge additional charges you have to pay e.g. re-renting apartments and some management companies charge a percent for handling contactors and repairs. Then, management companies don't always used the best contractors and you get hit with absurd bills for repairs e.g. in Boise Idaho a contractor wanted $6500 to replace a furnace and when I told the management company I was a HVAC contractor and would drive to Idaho to repair the furnace the management company called me 20 minutes later and said the furnace was repaired, working and the cost was only $350 and I was still ripped off for about $200.

Yes, you can make millions of dollars buying out-of-state properties had you purchased apartment units in Arizona about 3 to 4 years ago when 40-units buildings were selling for $40,000 to $50,000 per unit and today (only 3 years later) those units are now selling for $200,000 to $250,000 per unit. If you are looking for out-of-state properties you need to find units that will appreciate, or when buying only for rental income the management fees, repairs and inefficiencies will result in close to breaking even or maybe below if you cannot increase rents, significantly.

Originally posted by @Jack Orthman :

The most important thing when considering the market is the property per unit price, the rental income and the cost for repairs including the cost to clean and make repairs when tenants move out. I've owned properties in Boise and Meridian Idaho for the past 15 years and the problems is the rents are low, the property taxes are high and their are so many homes being build, because there is a billion acres of land and the property appreciation barely keeps up with inflation.

I owned properties in Las Vegas for the past 12 years and just sold most of them and I made a lot of money because I purchased the properties for 30 cents on the dollar, but the problem with Las Vegas is the rents are low and the cost to clean every house when tenants moved was $6,000 to $12,000. For most of the homes the carpets alone were $3200 to $4900 plus two coats of paint on every wall and ceiling, replacing broken bathroom sinks, kitchen sinks, faucets, repairing air conditioners, replacing cracked times on roof 36 feet high, bringing in 4 to 8 tons of rocks to make the yards look nice, trimming trees, repairing sprinkler systems and the piping, replacing refrigerators, stoves, washing machines clothes dryers, water heaters, painting garage floors ceilings and walls, bringing in 20-yard trash bins to remove all the carpets, trees trimmings and trash left by tenants, replacing all the window blinds, door knobs that are broken and locks for the main door and locks for the garage door so the keys match, repairing garage door openers that are broke, repairing the garage door rollers and seals, painting the trim outside the house, replacing facia boards that are 36 feet high, replacing window screens and the screens on sliding doors, replacing entire windows just because tenants broke the window locks and they cannot be repaired, replacing kitchen counter tops that are destroyed, replacing all the kitchen doors and drawers because tenants destroyer the cabinets by hanging their wet laundry in the kitchen cabinet doors to dry. replacing garbage disposers, dishwashers and the list goes on and on. Still want to own single-family properties with low rents in out-of-state locations and do you see why some rental properties cost $12,000 to clean and bring up to snuff. 

One property in Idaho cost me $18,000 to put together and I personally did all the work with one employee. All three bathroom sinks were cracked and I had to do everything on this list at just one house. I had already gifted the house to my son a few years before I did all this work and I gave my son a legitimate bill for $32,000 for the work performed and when he sold the house he used the $32,000 bill to reduce his capital gains taxes and the escrow company sent my company the $32,000. The company the escrow company sent the money to loses about $100,000 every year so there was no worry about owing taxes for the $14,000 difference and I did have to pay legitimate taxes for my employee who worked for 11 days at the property.

I sold almost all my homes because the cost to bring an apartment up to snuff when tenants move out is usually less than $2,000 and the work is always completed in 3 to 5 days, but homes require everything in the list above.

My son is starting Ohio State University (I think that is the name. I get confused) tomorrow and I was looking at apartment buildings in the area and they are fairly inexpensive compared to California, but the rents are also low. The rents to live on campus for a studio-style unit was about $1,000 and my son thought it was much better to have a 1-bedroom apartment off campus. So, he rented a unit just outside the gate of the college for $850 per month and the entire building he will live in consists of only college students.

Overall, so far, it appears that you can purchase rental units fairly cheap and maybe in the future rents will skyrocket, but it rents remain low for several years then it is difficult to generate great profits and don't forget about the list of repairs in the above paragraph.

Since you say you are a relatively new investor I am going to give you one more tip. You inherit major losses when you purchase out-of-your-area properties because property management companies tell you they will manage your properties for 6% to 8% of the gross rental income and that is a huge loss of your profit, but management companies have huge additional charges you have to pay e.g. re-renting apartments and some management companies charge a percent for handling contactors and repairs. Then, management companies don't always used the best contractors and you get hit with absurd bills for repairs e.g. in Boise Idaho a contractor wanted $6500 to replace a furnace and when I told the management company I was a HVAC contractor and would drive to Idaho to repair the furnace the management company called me 20 minutes later and said the furnace was repaired, working and the cost was only $350 and I was still ripped off for about $200.

Yes, you can make millions of dollars buying out-of-state properties had you purchased apartment units in Arizona about 3 to 4 years ago when 40-units buildings were selling for $40,000 to $50,000 per unit and today (only 3 years later) those units are now selling for $200,000 to $250,000 per unit. If you are looking for out-of-state properties you need to find units that will appreciate, or when buying only for rental income the management fees, repairs and inefficiencies will result in close to breaking even or maybe below if you cannot increase rents, significantly.

 This is why I recommend people to invest in the good parts of Toledo... rents are high, prices are low, and if you stay within the good school districts you will have appreciation. Our city is also growing outwards so there's plenty of opportunity.

Metro Detroit offers many options for meeting the 1% Rule and relatively high ROI.

We're in the Metro Detroit area, so you may want to follow our blog here on BP, but at least read the following posts:

Follow our "Deep Dive" series we're doing about Metro Detroit cities and City of Detroit Neighborhoods: https://www.biggerpockets.com/...

Originally posted by @Jack Orthman :

Thank you. Even though I preach that newbies should stay away from long-distance investing I will visit Toledo in the next few weeks. 

Thank you very much.

 No problem Jack!

Originally posted by @John Dahl :
Originally posted by @Blake Park:

@John Dahl, there are reasons people are talking about Columbus, Indianapolis, Kansas City, Birmingham, Boise, etc. People are finding great deals in those places, I am local to Columbus, and I'm finding all sorts of deals.  You just need the right realtor that is OOS investor-friendly to bring you those deals in those hot markets. 

Good to know, thanks! But isn't finding deals markets that aren't so hot a lot easier?

Sure finding them may be easier, but you most likely won't get the same cash flow and appreciation as ones in those hot markets. 

Originally posted by @Delbert Standifer :

@John Dahl

Jackson Mississippi. Cash flow only no appreciation.

I was interested in Jackson before. Being out of state I had some concerns about boots on the ground. The size of the loans was also an issue being some of them was smaller than what most asset-based lenders wanted to loan on. Did you have a work around?