Feedback on first out of state market to invest in

18 Replies

Hello! 

My wife and I are ready to start our real estate investment journey and are looking for some feedback on what market to start in. First, a bit of context: we recently moved to Vancouver, WA have found it very challenging to find rental properties that could satisfy the 1% rule - especially since neither of us have the expertise, time, or interest to try and rehab a property for our first investment. After doing some research on BP and reading David Greene's book on out of state investing, we're feeling confident we can make out of state investing work. 

Someone posted an article on BP a while back that gave (what I thought at least) was a really comprehensive analysis of growing markets (https://wallethub.com/edu/fastest-growing-cities/7...). I did some quick searches for many of these markets on realtor.com to get a ballpark idea of what properties were selling for and what rents were being charged for comparable properties. Based on that research, I narrowed the list of potential markets down to these three:

1) Columbus, OH - I really like the stability provided by major employers in the area combined with its modest growth prospects

2) Chattanooga, TN - my wife and I lived there for about 1.5 years so I'm somewhat familiar with the area and felt like it was heading in the right direction; additional research I've done seems to support that as well 

3) Indianapolis, IN - I've done the least research on this market so far, but it seems similar to Columbus in that there is likely to be continued modest growth there 

Our strategy is to pursue buy and hold rental properties, primarily for cash flow but with some potential for appreciation, and are interested in B/B+ multifamily properties (4 units or less) that can produce a 12% ROI with at least $100 of cash flow per door per month.

We have $35,000 cash and plan to put down 20% on a conventional mortgage, so right now our target price ranges is $175,000 or less. Once we pick the market to pursue we'll focus on building our our key local team (e.g. realtor, property manager, lender, and contractor).

Looking forward to hearing what the BP community has to say about these markets given our investment strategy. Thank you in advance!

I'm biased (own a Tk company) but I think you should  start  with a couple of TurnKey Properties.. while David's book is full of great information...sourcing, rehabbing, renting and managing properties from a distance is an extremely risky venture.

Hi @Daniel Soovajian ,

I’m biased to live in the Columbus and can’t speak to the other two.  Keep in mind that Cbus and most major markets have seen a ton of price surge.  The small, multi-family properties that I target have been getting gobbled up with full cash offers right away.  The market still works- just need to open your find what’s works for you.  

Also, regarding $35k cash, just about every property will need some work.  Give yourself more wiggle room with a lower purchase price to account for any surprises.

If you head out here, let me know!

Good luck!

I'm biased towards turnkeys too, but I agree with @Jeff Schechter in that doing all the more advanced stuff from afar can increase your risk ten-fold. 

Indy and Columbus are cool, but I don't think you'll be finding cash flow in Chattanooga anytime soon.

@Ali Boone Are you saying cash flow properties in Chattanooga are hard to come by or that the market doesn't support strong cash flowing rentals? 

I invest out of my home town (Nashville) in Chattanooga. I've seen success in value add properties there. The rental market has also been strong for me. 

Originally posted by @Daniel Soovajian :

Hello! 

My wife and I are ready to start our real estate investment journey and are looking for some feedback on what market to start in. First, a bit of context: we recently moved to Vancouver, WA have found it very challenging to find rental properties that could satisfy the 1% rule - especially since neither of us have the expertise, time, or interest to try and rehab a property for our first investment. After doing some research on BP and reading David Greene's book on out of state investing, we're feeling confident we can make out of state investing work. 

Someone posted an article on BP a while back that gave (what I thought at least) was a really comprehensive analysis of growing markets (https://wallethub.com/edu/fastest-growing-cities/7...). I did some quick searches for many of these markets on realtor.com to get a ballpark idea of what properties were selling for and what rents were being charged for comparable properties. Based on that research, I narrowed the list of potential markets down to these three:

1) Columbus, OH - I really like the stability provided by major employers in the area combined with its modest growth prospects

2) Chattanooga, TN - my wife and I lived there for about 1.5 years so I'm somewhat familiar with the area and felt like it was heading in the right direction; additional research I've done seems to support that as well 

3) Indianapolis, IN - I've done the least research on this market so far, but it seems similar to Columbus in that there is likely to be continued modest growth there 

Our strategy is to pursue buy and hold rental properties, primarily for cash flow but with some potential for appreciation, and are interested in B/B+ multifamily properties (4 units or less) that can produce a 12% ROI with at least $100 of cash flow per door per month.

We have $35,000 cash and plan to put down 20% on a conventional mortgage, so right now our target price ranges is $175,000 or less. Once we pick the market to pursue we'll focus on building our our key local team (e.g. realtor, property manager, lender, and contractor).

Looking forward to hearing what the BP community has to say about these markets given our investment strategy. Thank you in advance!

 I am sure those are all decent places to invest although your local area might be as good or better so there is that. Even a nearby condo in the right location might be superior long run. That way you keep all the advantages of being more local, the list is long. 

Originally posted by @Ryan Stahr :

@Ali Boone Are you saying cash flow properties in Chattanooga are hard to come by or that the market doesn't support strong cash flowing rentals? 

I invest out of my home town (Nashville) in Chattanooga. I've seen success in value add properties there. The rental market has also been strong for me. 

That it doesn't support strong cash flow. The prices in Chattanooga got high quite a few years ago when the market suddenly started getting really popular. What kind of cap rates are you able to find on rental properties there right now?

It depends on the area of town - in the C and D class neighborhoods, I'm getting 12-14%.  but even if I calculated Cap Rate on our B class neighborhood rentals, I don't think it'd ever be less than 8-10%. 

That's strong enough cash flow for my business. But I don't buy turnkey - I exclusively buy distressed and clean them up. I also work with the Chattanooga Housing Authority and government agencies there very closely so I can get better stabilized tenants and returns. 

@Daniel Soovajian I won’t speak to the markets you mentioned specifically but I have done out of state rentals, both turnkey and non turnkey in Cleveland and Memphis.

In my experience so far, I would start with turnkey but then branch out. I don’t regret buying my turnkey but I like also having the increased cash flow I get from non turnkey.

I also think it’s good to have a mix because it lowers the chances of say two furnaces going out at the same time, seeing at the turnkey properties are essentially brand new while the non turnkey always has some deferred maintenance.

Really appreciate everyone sharing the helpful feedback - thank you!

A few folks have suggested turnkey to start out with, but I have two concerns with that approach:

1) Lower returns - if I'm willing to accept less than 10% ROI with turnkey, why not just invest in REITs for truly passive income?

2) Don't see turnkey as an effective way to learn about investing - right now, I see my lack of experience as the most critical gap I need to close in order to successfully expand my investment portfolio long term. Because turnkey seems so hands off, I feel like I'd handicap this learning process, not to mention the trial and error I'll likely need to go through before establishing my "go to" out of state team (e.g. realtor, PM, etc.) in a given market. 

If I'm willing to accept some headache and/or losses early on to get that hands on education, does my approach still make sense? Or is there something about turnkey I'm missing? 

@Daniel Soovajian

So to your first point, why not just buy a reit? Well reits traditionally return 6 percent per year if you’re lucky.

Now you can do some crowdfunding real estate if you want and probably make 8-11 percent which is conservatively where I put turnkey today.

Now what you’ll miss out on with a reit is control, the higher returns and learning experiences.

If you want to achieve financial freedom it will be much harder to do with a reit.

Look at it this way, if you want to buy out of state non turnkey (and I’ve done this), you need to vet a realtor, a PM, a lender and a contractor (depending on what you want to do), then you have to hope it all goes smoothly and no one of those people screw you.

If you start with turnkey you vet one company at a time. Then find one that works for you and they’ll have all those team players.

At this point in my investing journey if I want to buy something, I find some properties, get an idea for rent and price, then email my PM, who gives me feedback on the area.

If he says it’s good to go, and the rent range he gives me works for my numbers I move ahead and buy it. Inspector/and or agent gives me photos or video. If it’s leased I get a copy of that too.

My PM also has in house renovation or maintenance staff, so they can handle minor rehab stuff too if need be.

I think it is important to see the markets you are interested in firsthand, and see the neighborhoods where the deals are, and meet realtors or wholesalers or REIA groups in the markets.

Columbus and Indianapolis aren't too far from each other, so you can easily see both in a 2-day trip.  In fact, when we visit Indy to see my investments, we often drive from New York and spend the night in Columbus. Since you are already familiar with Chattanooga, it is less important to visit there.

Then based on how you feel about seeing the markets, and the contacts you've connected with, make your market decision.  I'm sure you can find good deals in any of those markets, and also make bad purchasing decisions.  More important than which market, is finding a partner you can trust.

Whichever market you settle on, know that more important than picking the right market is working with a trustworthy and reliable team.  As others have suggested a visit to the market and the teams you are considering are really valuable.  

Love the initial research and all the feedback. Following this thread.. 

I too have been looking for the "up-and-coming" markets to tap into. 


I feel there is a pull back coming, the talking heads say 2020 recesion, I believe we will see it by Q2 of 2019.

By 2020 it will be full blown. At that time I want to have my target markets locked in and start pulling the trigger for the bounce back.  

@William Doom your last name is good to have when talking about a recession lol.

It’s hard to Time the market but yes from my research as well I see it happening around middle of 2020. Just hard to know how extreme it would be and for how long

Originally posted by @Daniel Soovajian :

Hello! 

My wife and I are ready to start our real estate investment journey and are looking for some feedback on what market to start in. First, a bit of context: we recently moved to Vancouver, WA have found it very challenging to find rental properties that could satisfy the 1% rule - especially since neither of us have the expertise, time, or interest to try and rehab a property for our first investment. After doing some research on BP and reading David Greene's book on out of state investing, we're feeling confident we can make out of state investing work. 

Someone posted an article on BP a while back that gave (what I thought at least) was a really comprehensive analysis of growing markets (https://wallethub.com/edu/fastest-growing-cities/7...). I did some quick searches for many of these markets on realtor.com to get a ballpark idea of what properties were selling for and what rents were being charged for comparable properties. Based on that research, I narrowed the list of potential markets down to these three:

1) Columbus, OH - I really like the stability provided by major employers in the area combined with its modest growth prospects

2) Chattanooga, TN - my wife and I lived there for about 1.5 years so I'm somewhat familiar with the area and felt like it was heading in the right direction; additional research I've done seems to support that as well 

3) Indianapolis, IN - I've done the least research on this market so far, but it seems similar to Columbus in that there is likely to be continued modest growth there 

Our strategy is to pursue buy and hold rental properties, primarily for cash flow but with some potential for appreciation, and are interested in B/B+ multifamily properties (4 units or less) that can produce a 12% ROI with at least $100 of cash flow per door per month.

We have $35,000 cash and plan to put down 20% on a conventional mortgage, so right now our target price ranges is $175,000 or less. Once we pick the market to pursue we'll focus on building our our key local team (e.g. realtor, property manager, lender, and contractor).

Looking forward to hearing what the BP community has to say about these markets given our investment strategy. Thank you in advance!

 My opinion the differences in money one with your amount of cash on hand would make in choosing one market over the other is splitting hairs. If I were you I would pick Chattanooga because you have a competitive advantage there that you have in no other market. You live there. You are familiar with it. You have networked there. All of that is more important than the housing market differences of one market or the other. If there was one market that was just better than all of the other markets everyone would just invest there and nowhere else....Ironically this would drive up the prices thus removing it from the top of the list as best markets to invest in, lol. 

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