Derry, NH · Member since 2014 · 35 posts · 8 votes
Hey BP!
I know one of the first major steps when getting into investing for buy and hold is to determine which market to invest in. How are people figuring out a solid market to invest in? What type of research or methods are they using? Please be specific if possible because this topic seems to stump me every time.
There are several different important aspects to the where question. Here are three approaches I like, look for the convergence of the three:
Numbers) Using Census data, RealtyTrac data, and a variety of other sources (example), you can paint fairly accurate pictures of the purchase price / rent ratios in any area of the country. Match that with fundamentals like job/industry presence, taxation, and intrinsic value of the area (San Diego = Nice Weather). Most importantly, after doing this analysis, you will know what areas are very hard for ROI.*
Relationships) You'll need a team on the ground wherever you go. You can work on building those after you run the numbers, but good relationships take years, not days. Instead, it's good to do a quick analysis of all the existing relationships you have that can help you with investment. Friends & family are the usual targets. However, former work colleagues or people at church can be great seeds. For instance: In college, I worked on a project with a guy who is now a contractor in Atlanta. He was high on my list of 'must contact' people.
Buzz/Advice) Popularity can work for and against you. There are some 'hott' REI towns that folks all over the forums and the podcasts talk about like crazy. It may be true that there is very little value in something that 'everyone knows'. Regardless, it's helpful to realize that very few investors have made good returns or had good experiences in Detroit... that's a nice warning, especially for a small-fish, starting investor. I wouldn't want to be in a town that no investor is in, but I also wouldn't want to be in one that every investor can't wait to get to.
Look for the convergence of these three that makes sense to you. I never thought that Paterson, NJ would be a place I would look. #2 and then #1 have validated our search there.
* If you can, go with a slight bias to anything local or within 2 hours drive.