How To Pick OOS Market

24 Replies

Hello! I'm new to REI and have decided I want to invest OOS for cash flow rentals. I have only lived in the Bay Area my entire life so have very little knowledge of other markets. I've been doing research for awhile now on different markets and have narrowed it down a bit, however I wanted to get the opinion of others! What key factors do you investors look for when picking a market to enter for cash flow (besides living in that market for a period of time)? Any and all advice welcome. Thank you!

Hi @Alexander Canha ! Here are some of my general thoughts regarding out of state investing:

Rely heavily on referrals, whenever you can. I personally advise against buying a property sight unseen and recommend that clients come out to Connecticut to see the property once it is under contract, and scheduled for an inspection. Don't buy something based just off of photos. Ask your agent to do a video walk through.

Don't get caught up on how far it is if you're already looking at markets that require plane flights. Seriously. The mindset that "I can get there that much quicker if it's in X market vs Y market is flawed." There will not be emergency plane flights for you, your PM should be there for emergencies. 

To me, the most critical part of your OOS strategy will be a great property manager. A great PM will make or break your investment in my opinion. Choose wisely.

Lastly, work with someone who has the heart of a teacher, not that of a salesman. It's important that you learn through the process and develop skills that will make you a better investor, as opposed to just going through the steps but not learning anything!

Talk soon,

Filipe

Start by reading "Long Distance Real Estate Investing" by David Greene. It will answer a lot of your questions.

Look for a market with strong projections, even if the market tanks. It should have good schools, a good government that protects private property rights, and a legal system that treats Landlords fairly.

@Alexander Canha The key, I think, is finding the right agent in a particular market to help you find and locate the deals you need - whether on market or off market. Most agents don't pay much attention to buyers until they actually buy but there are a select few who do focus on deal locators and buyers to help get deals done. Hope this helps and happy to chat!

@Alexander Canha A lot of people talk about building their team in OOS markets. I'd work with a provider that already has that team built for you. If you work with someone that is established and has tried and true vendors then you don't have to reinvent the wheel. If a contractor has worked with a provider on over 200 deals, the chances that they'll do a great job on your property as well is higher.. just as long as it's a trustworthy provider. Vet providers by reading reviews and talking to clients the provider has worked with in the past. 

You can find great deals in many markets. The team you work with will make you or break you! I'm OKC biased because I work, live and invest here but I also see hundreds of OOS investors a year come her due to the stability, approachable price point, solid returns and landlord-friendly laws. 

Happy to answer any questions. Good luck!!

Originally posted by @Kiera Underwood :

@Alexander Canha A lot of people talk about building their team in OOS markets. I'd work with a provider that already has that team built for you. If you work with someone that is established and has tried and true vendors then you don't have to reinvent the wheel. If a contractor has worked with a provider on over 200 deals, the chances that they'll do a great job on your property as well is higher.. just as long as it's a trustworthy provider. Vet providers by reading reviews and talking to clients the provider has worked with in the past. 

You can find great deals in many markets. The team you work with will make you or break you! I'm OKC biased because I work, live and invest here but I also see hundreds of OOS investors a year come her due to the stability, approachable price point, solid returns and landlord-friendly laws. 

Happy to answer any questions. Good luck!!

 Thank you for the reply! 

Originally posted by @Filipe Pereira :

Hi @Alexander Canha! Here are some of my general thoughts regarding out of state investing:

Rely heavily on referrals, whenever you can. I personally advise against buying a property sight unseen and recommend that clients come out to Connecticut to see the property once it is under contract, and scheduled for an inspection. Don't buy something based just off of photos. Ask your agent to do a video walk through.

Don't get caught up on how far it is if you're already looking at markets that require plane flights. Seriously. The mindset that "I can get there that much quicker if it's in X market vs Y market is flawed." There will not be emergency plane flights for you, your PM should be there for emergencies. 

To me, the most critical part of your OOS strategy will be a great property manager. A great PM will make or break your investment in my opinion. Choose wisely.

Lastly, work with someone who has the heart of a teacher, not that of a salesman. It's important that you learn through the process and develop skills that will make you a better investor, as opposed to just going through the steps but not learning anything!

Talk soon,

Filipe

 Thank you Filipe! Yes, from what i've read, a team is everything, especially a good property manager. As a PM yourself, do you have any advice on certain things I should look for in a OOS PM?

Originally posted by @Storm S. :

@Alexander Canha green street advisors has the best recommendations but it’s not cheap.

 Hi Storm, thank you for the reply! I've never heard of them before. I'm going to look them up. Do you have experience with their service? 

Originally posted by @Kiera Underwood :

@Alexander Canha of course! What markets are on your radar so far? 

 I'm stuck in a sort of analysis paralysis of analyzing different markets right now. It almost feels like I might be overthinking it. But i'm looking at Kansas City, Cleveland, Orlando, and some small neighborhoods around Miami. Kansas City has been the most intriguing so far.

@Alexander Canha

I’d say you’re overthinking the MSA and not focused on the submarkets within the MSAs. There are probably great submarkets in all of those MSAs. I talk about on my podcast how I just picked Kansas City. You want a market with JOBS, population growth, and diverse employment. A job is what allows most people to pay rent. Jobs means that people move to that area, have kids, grow the population. There are some metrics you can really drill down into - but that’s what is going to mater. Now jobs coupled with lack of inventory and restrictions on building-that IS why SF prices are so high.

Make sure the market you pick has the asset you want. If you want small MF buildings vs SFH how does that change your selection criteria? Which market has what you want in terms of assets and returns.

Originally posted by @Lee Ripma :

@Alexander Canha

I’d say you’re overthinking the MSA and not focused on the submarkets within the MSAs. There are probably great submarkets in all of those MSAs. I talk about on my podcast how I just picked Kansas City. You want a market with JOBS, population growth, and diverse employment. A job is what allows most people to pay rent. Jobs means that people move to that area, have kids, grow the population. There are some metrics you can really drill down into - but that’s what is going to mater. Now jobs coupled with lack of inventory and restrictions on building-that IS why SF prices are so high.

Make sure the market you pick has the asset you want. If you want small MF buildings vs SFH how does that change your selection criteria? Which market has what you want in terms of assets and returns.

 Thank you for the reply! I have begun to dig a little deeper into the sub markets around KS. I definitely listened to your ep on the podcast but I'm going to go back and listen to it again.

@Alexander Canha there are a lot of good cash flow markets--most in the Midwest and Southeast. Not all are equal though. Some of the popular markets have either declining or stagnant populations and jobs with old rust belt industries and infrastructure. If you're planning to hold long term, you should look not just for cash flow but also strong economic/demographic trends, modern/diverse industries and low property tax rates. This is important to long term asset value. I would take a close look at Indianapolis and Kansas City. We've been active in both for several years. Feel free to contact me if you want some insight or help.

Originally posted by @Alexander Canha :

Hello! I'm new to REI and have decided I want to invest OOS for cash flow rentals. I have only lived in the Bay Area my entire life so have very little knowledge of other markets. I've been doing research for awhile now on different markets and have narrowed it down a bit, however I wanted to get the opinion of others! What key factors do you investors look for when picking a market to enter for cash flow (besides living in that market for a period of time)? Any and all advice welcome. Thank you!

Welcome aboard Alex. Many markets available. Cleveland is the one I am most familiar with and it's also very popular with investors across the USA so I figured you'd get some value out of reading The Ultimate Guide to Grading Cleveland Neighborhoods. I also have similar guides that you may want to look over for Kansas City, Missouri. & Birmingham, Alabama.

In addition there are tons of other turnkey markets out there besides those listed above. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors

  • Cincinnati, Ohio
  • Dayton, Ohio
  • Toledo, Ohio
  • Youngstown, Ohio
  • Cincinnati, Ohio
  • Memphis, Tennessee
  • Saint Louis, Missouri
  • Indianapolis, Indiana
  • Detroit, Michigan
  • Erie, Pennsylvania
  • Louisville, Kentucky
  • Milwaukee, Wisconsin
  • Jackson, Mississippi

Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.

One thing to note when looking at the individual markets, you can make or lose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Google Clayton Morris scam and/or Morris Invest scam for a cautionary tale of what not to do when buying turnkey real estate
  • Understand you can not eliminate all risk, only mitigate it. If you are risk averse, real estate, (especially out of state) is not for you.
Originally posted by @Kiera Underwood :

@Alexander Canha exciting!! What are deals looking like? I like cash flowing stuff that hasn't been fully flipped. I'm curious if it's all turnkey stuff or more existing rentals? 

The few I did run didn't meet my criteria but they were definitely not turnkey so there was room for forced appreciate. 

But I have actually put my OOS investing search on pause for now, as I've begun looking at some local properties as I think now might be a good time to tap into the Bay Area market.

 

@Alexander Canha oh nice! Man that's a market shift!! Keep us updated. If you shift back to OOS don't hesitate to reach out for support. I'm only in OKC but have helped so many OOS investors through the process and am happy to answer non-market-specific questions for you! 

Originally posted by @Kiera Underwood :

@Alexander Canha oh nice! Man that's a market shift!! Keep us updated. If you shift back to OOS don't hesitate to reach out for support. I'm only in OKC but have helped so many OOS investors through the process and am happy to answer non-market-specific questions for you! 

 Will do and thank you! I appreciate it. I'll definitely be back on the OOS hunt in the future.

@Alexander Canha Look for markets that have strong economic and demographic fundamentals with vibrant, modern economies. You want to see growing populations, growing jobs and a diverse employment base. There are a l of of markets that will cash flow but if you are looking at a long term buy and hold, a healthy and growing economy is important to future asset values. Some of today's popular cash flow markets have declining populations and stagnant jobs. That doesn't bode well for future home prices. I like Indianapolis and Kansas City. Feel free to contact me if you want some more insight.