What makes a great investment market?

BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes

There is a lot of debate about staying local vs. investing out of town. What factors do you consider when deciding what market to invest in? What do you think makes a great market?

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Che Chiu Wong
Jersey City, NJ · Member since 2015 · 280 posts · 98 votes
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Originally posted by @Charles Worth:

@Che Chiu Wong
While I generally agree with your statement, I would add that many A class tenants have good reasons they do not buy and may never buy. Such as:
1) Their job is in flux much of the time. I once got an offer I thought was a good offer but I pushed for more because I would have had to sell my place that I just bought to move. The lack of flexibility was a real problem and is for many people who value a flexible lifestyle as many millennials increasing do.
2) They got burned by the crash and now view real estate as a bad investment.
3) RE generally is a bad investment for many people who don't buy right in markets that are not zooming up and I know a number of ppl who think this way.
4) They are older and do not want to deal with a house.
Agree with you greatly. Look at where we live (New York / Jersey City Waterfront area) have lots of examples of such A-class tenants who fits your criterion #1 who don't seem to like to settle down and rent. =)
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Charles Worth
Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes
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@Che Chiu Wong
If I hadn't learned about RE investing I would def be one of them until I bought a house as an expense rather than an asset.
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Mark Shaffar
Real Estate Agent · Madison, WI · Member since 2015 · 328 posts · 88 votes
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@David O.
All part of the picture, but even a great PM will have trouble renting a house to great renters if it's in a rough neighborhood.
@Josh EitingonI agree with the idea of going to where the deals make sense
@Christopher GoodsonI'm intrigued with the thought of wanting low comps to secure a short sale but also wanting demand in the same are to get that exit strategy. How does that work?
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Ryan Christoff
Canonsburg, PA · Member since 2015 · 1 post · 0 votes
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I think you need to do your due diligence for a lot of factors, but to make it simple: Always invest for positive CASHFLOW.
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Jason Miller
Investor · Aurora, CO · Member since 2009 · 200 posts · 74 votes
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I have properties in 4 states and 6 cities. From Ferguson MO (yes that ferguson) to Denver CO
Here are some things i see as important based on my successes and more often mistakes:
-More important then just about any other criteria, who you have in place in those cities. I have lost money in good rental markets with bad PM's. I have done well in bad areas with decent PM's. (Get mad at me all you want, but I have yet to find a Pm I would rate higher then a 7/10 )Good and bad Realtors make a huge difference as well. I have a rental on good corner in a small market, had I purchased across the street, I would have blacklisted my home from good tenants. Only locals know good areas from bad. Prices/crime/schools don't always tell the whole story.
-Do you want appreciation or cashflow. That changes where you invest. Sometimes if your good or lucky enough you can get both. I got lucky investing where I do in Denver/Aurora.
-How is it to work with those areas. St Louis and its suburbs are terrible to work with, but having good folks there helps. Housing inspection delays, building inspection delays, constant citations on trivial items. Ever want to have an inspector want to count drywall screws, wait 3 weeks to have him check the mud? Go to St. Louis. I could go on a long rant on the mini fiefdoms in St Louis.
-Growing market or declining market? I have rentals in Superior WI that do fine. I can move at a snails pace to pick them up, but I know even my best properties can sit vacant for months. I know I won't see appreciation, but that is not my play there (frankly my rents could not support the increase in taxes).
Now if your done reading all that, realize this, you can make money in any market in the country. You just have to adjust your game plan to that market. There are millionaires on this board who have done extraordinarily well in Cleveland, Gary, Detroit, and Buffalo. There are many folks here that do fantastic in the small markets of Sheridan, St Mary's, or Manhattan (KS). Wherever people want to live, you can make money on residential real estate.
My suggestion is this to anyone wanting to find "The Best Market". Go over a few of the items discussed in detail on this board(P/R, schools, crime, populations trends, how much time you have to deal local or at a distance, etc etc). Decide what is most important items to you and select a market based on that. Rather then worrying if your in the best market, pick an area and be the best in that market.
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Brian Hamrick
Rental Property Investor · Grand Rapids, MI · Member since 2014 · 12 posts · 4 votes
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Great answers to this post.
In addition to the items already mentioned, I would add the following:
local population over 100,000
MSA (metropolitan statistical area) population close to, or above, 1 million
International airport
zoo
public transportation
These are some of the things I like to see. The zoo & airport are indicators that the community is drawing in visitors & residents from outside the area.
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Thomas Mark
Columbia, SC · Member since 2015 · 33 posts · 6 votes
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How much are the Property Taxes in my local area in comparison to the remote area?
Do I have a good property manager in the remote location?
Listen to your gut instinct.
Then just run the numbers and ensure they meet your financial goals.
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Frankie Woods
Investor · Arlington, VA · Member since 2012 · 1k+ posts · 491 votes
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This is a wonderful thread. I would tend to agree with @Jason Miller that you can make money in any market. However, some markets will cause more heartache than others. I'm experiencing some of that pain with my experience in STL, but I still really enjoy the market. You just have to really understand your market and have a decent team in place to make it work.
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Sid Franklin
Investor · Chicago, IL · Member since 2015 · 123 posts · 19 votes
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Do any of you look at property taxes and/or the potential of property tax increases (because of past due municipal debt for pensions, etc.) before investing or can you pass along a property taxes hike to a renter?
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Marlena Cooper
Investor · Ann Arbor, MI · Member since 2015 · 14 posts · 5 votes
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great post!
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Andre Key
Investor · Austin, TX · Member since 2011 · 155 posts · 23 votes
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BP,
I have a question say there is a town that is a big factory town that employees like 80% of the population in that city. The town is also neighbors to a major college town. Lets say that this factory closed down and now many are without a job.
There is an area like that I am looking into, to me that is prime for buy and hold. I happen to live in a town where property values are raising extremely high, here the right deals are flipping for high returns. I try to keep it simple but every deal, no matter the environment has to be reviewed for the best strategy.
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James Bradley
Investor · San Diego, CA · Member since 2015 · 2 posts · 3 votes
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Hey guys, I'm new to the forum and excited to be on here helping out.
Some excellent comments on this thread. @Jason Miller and @David O. Totally agree with your comment on PM.
@Mindy Jensen My business currently sells over 400 homes a year across 8 different markets exclusivly to investors, AND my team deals with the customer service ongoing, so I have seen every nightmare imaginable. So getting your market right is definitly important, but whats also as important, is a very solid PM. You can be in the best investment market in the country and have terrbile results with an average PM.
To pick your market, you need to know what risk you want to take on. I see too many people buy based on returns OR because its in the local area, and they never really give the strategy deep thought. Do you want cash-flow? are you super conservative? Is this a long term play, or are you just looking to flip? Once you know this, you can decide if you want an A, B or C type market. Then you need to look at the macro and micro aspects of the market.
From the macro of a market, Personally I like to look to see if they have at least 2-3 ressesion proof industries. Make sure the town isnt held up by one big company. I look at job growth, population growth, rental culture etc. I liked @Laura Janosko research on this too. Aswell as the points @Brie Schmidt made. I agree 100% with all of that.
From the micro of a market, I like to look at school ratings, vacancy rates and crime to name just a few, but obviously look at a lot more.
But again, none of this works without a solid PM unfortunatly. So figure out what your risk tollerance is and what your investment goal is (long term hold, fix and flip, cash-flow etc). Then find a market that ticks the box's, and lastly only pull the trigger if you know for sure you have a rocksolid PM in that town (super important for long term success). Of course this doesnt take into the account, picking the home and making sure the numbers stack up with comps to support your decision.
Hope this helps a little bit... having done over 1,000's of flips, and dealing with the issues when things dont go as we all hope, it's advice I wish someone gave to me starting out (even though its pretty basic advice).
@Mindy Jensen
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James Bradley
Investor · San Diego, CA · Member since 2015 · 2 posts · 3 votes
11y
Lol,
Just re-read your post @Mindy Jensen, and wasnt paying attention that you were actually a pro and apart of BP, and didnt need my advice... Whoops, my apologies
To contribute to what you actually posted...
To me what makes a great investment market is strong rental demand, high population and job growth, low property prices with higher rents (not San Diego where I live :-). Recession proof industries and of course a strong property manager. There is a bunch more and it depends on the type of property... I could say to look at greatschools.org and only move forward if the local schools are a 4 or above (4-7 deemed average), but if your strategy is just cashflow, this wont always fly... So what makes a great investment market all depends on your strategy and goals.. To some people NYC is the best market.. For what i'm looking for its the worst...
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Jason Bible
Rental Property Investor · Houston, TX · Member since 2015 · 75 posts · 66 votes
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Account Closed
Investor · San Francisco, CA · Member since 2014 · 577 posts · 203 votes
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First of all, it depends on your goals. Are you looking to generate cash flow, appreciation/capital gains or both?
If both, my response is as follows:
In order of priority:
1. Population Growth (determines appreciation potential)
2. Job Growth (determines appreciation potential)
(1 and 2 work together)
3. Price to Rent Ratios (determines cash flow potential)
4. Property tax rates (high taxes will lower your cash flow rendering the market unattractive)
5. Unique culture (determines appreciation potential)
Other considerations:
At the city level...
Quality of Masterplan (determines quality of development/walkability/quality of life)
Crime rates
Path of Growth
Neighborhood quality (Are there Starbucks and nail salons or Mexican Grocery markets? What kind of cars do neighbors drive? Where do they work?)
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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@Account Closed
not sure about the cars.... many folks living in the hood drive Cadillacs and Mercedes.
When I lived in Palo Alto those folks drove used Camry's and maybe up graded to Subaru's
And we know Palo Alto is no slum ( E PA) is rougher but ... cars I don't think is a great indicator of RE values.... :)
Most big money in the RE bizz is buying the in the path of progress... of course land in the path of progress has no cash flow... but once they cook off there can be some pretty huge upside.... learned that one from experience
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Ben Leybovich
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
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Haha - an investment that doesn't loose money :)
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Account Closed
Investor · San Francisco, CA · Member since 2014 · 577 posts · 203 votes
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@Jay Hinrichs
I generally look for working class neighborhoods. My preference is to be in middle and upper middle class neighborhoods where families with kids live. If I see foreign family vans that's a good sign! But you're right people in lower class neighborhoods often invest money in the wrong assets (vehicles not real estate).
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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@Account Closed
it is amazing that people will rent a house for 700 a month when they could just buy it for 5 to 10k. Maybe the government should disband section 8 and use those funds to match these folks up to home ownership... save them a heck of a lot of money and bring pride of ownership back into areas that desperately need it... you could give them a voucher for tax payments so they don't lose the house... but keep them responsible for the asset through its life.. with a 10 year no sell clause or if its sold proceeds pay Section 8 first.
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Account Closed
Investor · San Francisco, CA · Member since 2014 · 577 posts · 203 votes
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Yes @Jay Hinrichs
I agree 100%. Section 8 doesn't help anybody. It just encourages the living poor.
It's better off to do away with such a program and raise the minimum wage, so these folks can make enough to pay rent without gov't assistance. That way the government won't be inefficiently administering the program.
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Account Closed
Investor · San Francisco, CA · Member since 2014 · 577 posts · 203 votes
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I'd like to add to my list...a city with a diverse job base with a large percentage of jobs in services, particularly technology.
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Account Closed
Investor · San Francisco, CA · Member since 2014 · 577 posts · 203 votes
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Here's a revision...any market evaluation should include an examination of market cycle analysis.
First of all, it depends on your goals. Are you looking to generate cash flow, appreciation/capital gains or both? If both, my response is as follows:
In order of priority:
1. Population Growth (determines appreciation potential)
2. Job Growth (determines appreciation potential)
(1 and 2 work together)
3. Price to Rent Ratios (determines cash flow potential)
4. Property tax rates (high taxes will lower your cash flow rendering the market unattractive)
5. Market is in EXPANSION Phase of the market cycle
6. Unique culture (determines appreciation potential)
Other considerations:
At the city level...
Quality of Masterplan (determines quality of development/walkability/quality of life)
Crime rates
Path of Growth
Neighborhood quality (Are there Starbucks and nail salons or Mexican Grocery markets? What kind of cars do neighbors drive? Where do they work?)
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Vincent Crane
Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
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One of the biggest indicators is new construction. If there's tons of new companies moving into the area, that means new jobs, more money, higher demand, rising rents and home prices. Just something I've noticed among a few large but growing southeastern cities in particular.
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James B.Pro Member
Investor · Monterey Area, CA · Member since 2011 · 150 posts · 81 votes
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@Vincent Crane
Which S.E. Markets (cities) do you see the growth happening in?
I've heard: B-ham, Little Rock, Memphis, Hotlanta...
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Vincent Crane
Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
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James,
Definitely Atlanta, Birmingham, and Raleigh. The amount of construction going on is absolutely mind blowing. New apartments are going up everywhere particularly. Prices are also almost as high as they've ever been. These cities weren't ever meant to be as big as they're getting so the traffic is getting really bad, it's not set up on grids like NYC, LA or Chicago. But there's definitely a ton of growth going on, people congregating from smaller towns to these bigger cities or graduating from college and moving there in big numbers I've noticed. For example, RTP in Raleigh, it's drawn soo many companies and so much traffic. It's just cheaper so companies are moving there and creating new jobs. Not as much as Texas of course, but it's still very notable the growth that's occurring. Traffic in Atlanta has become twice as bad over the last decade alone.
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What makes a great investment market?

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