Better to target properties or markets for purchase?

8 Replies

Hello,

We are looking to purchase an out-of-state, 4-to-6-unit building (the numbers don't work in my local area) and have been reviewing all of the usual outlets to locate those. However, I am wondering if more experienced, out-of-state investors consider it a better use of time to start not with searching for properties but by analyzing target markets and then searching within those markets exclusively. Simply pinging from individual property analysis to individual property analysis, allowing the availability of the property rather than the location to drive the search seems somewhat less strategic. Would love to hear the thoughts of experienced out-of-state investors.

Thanks!

My order would be 1) Market, 2) PM & agent/broker.  A solid PM in a good market will be the keys no matter what you buy. A good agent will help you source/find the asset and keep you in a good/growing neighborhood.  

I wouldn't completely dismiss your own market @Patrick Gilsenan . A solid asset in a growing market has appreciation potential. I have found (even in a small market from nowhere like mine) at the end of the day when you exit, your IRR will largely hinge on price growth. @Russell Brazil is an outstanding agent in your market and @Ned Carey a pro investor in Baltimore may have ideas for you to stay more local.

For market analysis - @Joe Villeneuve .  He consistently recommends analyzing markets first and foremost.  Maybe he'll have a minute to chime in.  

Im a big believer in investing in your own market in general.  Most people who do invest in real estate are going to buy 1 to maybe 3 or 4 properties. So for your smaller mom and pop investors, you really bring down your risk level by being able to go to your property, fix things, deal eith tenants in person.

Now if you are someone who owns 100 units, then market, combined with your goals may be more important than easy access to properties.

Thanks @Steve Vaughan   Yes, Market Analysis is everything.  In fact, for those that favor the theory of "invest in your own market first", I give you this thought.  What if your market suc..s?

The reasoning for investing in your own market is usually based on the belief that if you know a market well, you will invest well.

That's only half true.  What if that knowledge of your market is screaming at you, "don't invest here...it's a lousy place to invest"?  

Yes, in order to invest in a market you must know it well, but that doesn't mean all markets you know well are good markets to invest in.  A square is always a rectangle, but all rectangles are NOT squares.

What you should be doing is find a Market that is good for investing...and know it better than you know your own.

@Patrick Gilsenan you also have to consider why the numbers don't work in your market versus another market. It is supply and demand. More people want to invest in your market versus the other market. It could be better location, higher wages, less crime, better schools, less buildable land, etc. Also put the cash flow in context of the market. Maybe the cash flow is great by DC standards, but bad by market standards. That is not a good deal. 

I see this all the time, where an investor from one of the coasts, goes to middle America to buy a turn key. The return look great, until they see the property quality and tenant class are killing their investment. They are stuck hundreds of miles away, so when problems occur, they are relying on remote people to help them. For this reason, usually your local market it the best market.

You can be successful in any market, but the key it knowing the market. In my own city, I know where the future construction is heading, where the crime is, where the good schools are. I have driven down most every street and I can tell you which neighborhoods are improving versus those that are getting run down. I know the property values and rent values. 

If you are going to invest in remote markets, go all-in learning the market. Subscribe to local business journals and E-newspapers. Visit the area and drive around. Network with local investors. 

If you are expert in any market, you can succeed. It is just harder to do it remotely. 

@Patrick Gilsenan you are in one of the best markets in the country. There will virtually always be growth in DC.  During downturns DC often gets hit less than other areas.  Being in DC also puts you withing easy driving distance of many less expensive areas to get started. 

That said if you do want to go elsewhere follow @Steve Vaughan and others advice here.

Originally posted by @Russell Brazil :

Im a big believer in investing in your own market in general.  Most people who do invest in real estate are going to buy 1 to maybe 3 or 4 properties. So for your smaller mom and pop investors, you really bring down your risk level by being able to go to your property, fix things, deal eith tenants in person.

Now if you are someone who owns 100 units, then market, combined with your goals may be more important than easy access to properties.

 This is %100 correct.

Hello and thanks for everyone who responded. For those who responded that it is better to invest in one’s own market - that is very much of a valid, ongoing debate. But I did want to respond concerning my local market, which is DC. While it is true that DC has a built-in economy and nearly guaranteed appreciation, it’s not possible to purchase cash flow properties. There is very little “middle“ in DC. You can buy a one bedroom in a Premier neighborhood for $550,000 and rent it out for $1650. Or you can buy in a “developing” neighborhood For about $350,000 and rent it out for about $1,400. That is not to say there or not invest with models that do pencil in DC. Many investors are making significant returns buying row houses and splitting them into two or three condominium units for resale. There is also significant development in the construction of 10+ buildings in developing neighborhoods. But for the small investor seeking to buy and hold rental properties, the prices and accompanying mortgages far exceed rents.

This is why we are seeking markets with profitable purchase price to rent ratios.

Would love to hear additional thoughts. Thanks!

Follow the numbers with "$$$" in front.  They will lead you to the correct numbers with "street names" behind.

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