What metrics do you use to determine which city to invest in?

Question

I’ve decided to start my real estate investment out of state. Wanted to see what you guys look at to determine what city you’ll be buying investments in?

James Galla · Answer

I would spend some time on macro considerations. One publication I enjoy reading is Emerging Real Estate Trends 2019, published by Urban Land Institute and PricewaterhouseCoopers. Since you're from California, I'd say there is a fair chance you're going to find yourself attracted to somewhere in the rust belt after reading some nice pro formas. So, I'll comment on those here.

The biggest issues you are probably going to face are going to originate from your management company and the location of the property. Effectively, these two areas of issue feed each other and can easily kill your cash flow. For instance, you may not do enough due diligence on what neighborhood you ought to invest in. So, you may purchase in an area that is not as good as you thought, and the consequence is a poor quality tenant pool. The next thing you know, your property manager is drawing unexpected fees from all the maintenance calls, lawyer's fees from evictions, instances of tenant placement, etc. Perhaps the area is not as good as you thought, and that your local property manager understands this, so they just jam whoever they can get into the property because it doesn't make a difference to them since you're out of state.

So, although the properties out there that go for $40k may seem attractive, it is critical that you give them a great amount of skepticism. If you're looking in the rust belt, you're going to want to take the more stable asset in the better neighborhood class so you don't have to deal with a full yearly rehab of your entire property.

Joe Villeneuve · Answer

I analyze the market areas to see what the potential profit and/or cash flow would be.  Then I match the market's financial profile (cost to get in = 4sale properties, exit = profit/cash flow) with the criteria generated by my REI Pan...at the current timeline of my plan.

Another way of saying this it, Profit and/or cash flow.

Jimmy Hung · Answer

@Joe Villeneuve

I plan to do that to, but they say real estate is location location location, so what do you use to help decide that before your search for properties ?

Jimmy Hung · Answer

@Tommy Daggett

Thanks, I’ll check out the blogs!

Jimmy Hung · Answer

@James Galla

Thanks. I just got the best performing cities by milken institute. I fully agree with what you said and found properties at low prices but these require a full rehab  and I don’t want my first property to be a full rehab, probably just minor things. Also looking for something in a class b-c neighborhood. I’ll look into that report for emerging markets. Thanks!

Tommy Daggett · Answer

I am in the same boat you are in my friend. What has helped me is going to the "Blogs" section and scrolling through all the  very informative articles until i find one that fits my current situation. This has helped me build my criteria that i am using to currently decide upon an out-of-state market. I study up on the article as much as possible and while i'm doing so try to find anything that sticks out---highlighted words or phrases--- to point me in the the next direction if my question is still not answered. Hope that helps a bit.

Joe Villeneuve · Answer

Profit and/or cash flow.

What metrics do you use to determine which city to invest in?

Most Popular Reply