What is the best city to invest in for passive income?

50 Replies

Birmingham, Atlanta, Indianapolis, St Louis, Kansas City, Memphis, Little Rock, Indianapolis, Greenville, Jacksonville, Tampa, Houston, San Antonio, Little Rock, Milwaukee, Cincinnati, Dayton, Cleveland, Ohio. 😁

Invest where you have family, have lived in the past and or have easy access. There is no single best place, but your local knowledge and connects help

Hey @Melinda A. Harleaux , I tend to agree with @Marcus Auerbach on this topic. You can rent a property in any big city in this vast country of ours and make passive income. The opportunities are endless and the decision comes down to what you want to do. You'll always do best in an area you are most familiar with. That being said there is something to be said about doing the research and finding that niche market you can corner from the ground up. Personally, I'm biased towards southeast Pennsylvania as it is my market and is growing quite rapidly. All the best in your investing journey!

If you want truly passive income, then I suggest you find a trustworthy deal sponsor and invest in syndications. This will enable you to invest in any markets those deal sponsors are targetting. If you want to buy and hold your own properties, then you need to be prepared to build an equally trustworthy team on the ground in your target market(s). There is no "best" city. There are certainly cities that will be better aligned to your goals, but at the end of the day target areas of economic growth and you will be enabled to be successful.

Originally posted by @Kris Wong :

If you want truly passive income, then I suggest you find a trustworthy deal sponsor and invest in syndications. This will enable you to invest in any markets those deal sponsors are targetting. If you want to buy and hold your own properties, then you need to be prepared to build an equally trustworthy team on the ground in your target market(s). There is no "best" city. There are certainly cities that will be better aligned to your goals, but at the end of the day target areas of economic growth and you will be enabled to be successful.

 Well put. There are a lot of good cities to invest in across the country. The passivity comes down to the investment vehicle you choose, rather than the city itself.

@Melinda A. Harleaux - I'm in LA as well and have chosen Indianapolis as well - feel free to reach out to me if you want to discuss more in detail.

In a nutshell:
- Look for markets you either know, have a great team, want to move to yourself one day, AND are solid markets (cities which are not dying, which cash flow, which are known to be stable even during recessions, good landlord laws and will appreciate somewhat). Let's keep it simple and say Atlanta, Dallas, Indianapolis, Tampa.

- What's more important now is the sub-markets within there. How do you pick? Learn from existing investors there and from both of your most important team members (Broker AND Property Manager). The property manager will tell you what rents easy, what are 'good neighborhoods' where you won't have constant eviction problems (even if purchase price is a bit higher), and what 'type' of rentals work best in those areas. A 1br/1bth condo at a great price looks tempting for a rental? Not if someone's moving in and out every year and you have to turn it over.

- Look up property managers here on BP. Ask for suggestions when you narrow down to one market. Find out how the property manager works with repairs/contractors - do they up charge you? How much?

Your team you need before purchasing:
- Lender
- Agent/Broker
- Property Manager

I like syndications as well, and for someone who doesn't understand or want to understand making repairs long distance, minimize risk (i.e. new roof needed in a few years) directly, it could work, just a different real estate investing strategy.

Good luck!

I think understanding how you plan to manage from out of state is more important than the location itself. If you can't manage a property in a good location, then it can still end up being a bad investment. What type of property are you looking for? Are you planning on managing yourself, or are you going to go 3rd party? Are you going to partner with boots on the ground? 

@Melinda A. Harleaux there are a lot of markets that will cash flow in the short term but if you are doing a long term buy and hold, you have to consider your future asset value. Look for markets that not only cash flow well but also have strong economic and demographic trends with diverse, modern economies. The most important factors to look for are growing populations, jobs and incomes. There are several popular cash markets that have declining populations and stagnant job growth. Personally, I find that Indianapolis and Kansas City has a good combination of solid cash flow and strong economic/demographic fundamentals. We've been involved in both markets for 10 years. Feel free to reach out if you'd like some insight or help.

@Melinda A. Harleaux everyone will have a different opinion here. Personally I like larger markets with a strong diversified employment base. Too many people chase highest cash flow markets. Unfortunately these tend to be in areas with lower incomes and very limited in employment base. In 2010, I had my lunch eaten by investing in high cash flow low income markets. For me, I'm sticking to large markets that can take a COVID hit and keep on ticking. You may want to look a what areas have done better the  last few months. Check out report from Mortgage Servicers to get an idea on who is getting hit hardest. As a Dallas Fort Worth investor and manager I can say this COVID-19 has almost been a non-event for rent collection.

@Kyle Mccaw That's a great observation. I've been targeting the low-income markets and cash flow is great but I've been doing short term rentals and long term rentals are my exit strategy. I'll definitely be considering your experience moving forward.

Originally posted by @Melinda A. Harleaux :

I live I Los Angeles, so prices are too high for rental properties. Looking to invest out of state for passive income. Any suggestion for the best cities?

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 and/or Morris Invest 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 @Doug Pintarch :

Excellent post as usual, @James Wise    Printed and kept, and the bottom half at least should be a sticky in here!

 lol thanks. I do what I can.

Originally posted by @Doug Pintarch :

@James Wise   And on a semi-related side note...

I saw on YouTube that Mr Morris has changed his RE Investment advice channel to "Morning Invest".

Clever...but just stop it man, really!  

Yea basically he's back to doing political news really. Content on the stimulus, COVID and things of that nature. I don't follow it too closely but it looks like he's out of the real estate space for the most part. I could be wrong though? Anyone else have insight into this?

It's funny though, dude can't white wash his past. Take a look at his Wikipedia page one day. He'll never run away from the damage he's done no matter what continent he moves to or what he changes his show name to.

 

Originally posted by @James Wise :
Originally posted by @Doug Pintarch:

@James Wise   And on a semi-related side note...

I saw on YouTube that Mr Morris has changed his RE Investment advice channel to "Morning Invest".

Clever...but just stop it man, really!  

Yea basically he's back to doing political news really. Content on the stimulus, COVID and things of that nature. I don't follow it too closely but it looks like he's out of the real estate space for the most part. I could be wrong though? Anyone else have insight into this?

It's funny though, dude can't white wash his past. Take a look at his Wikipedia page one day. He'll never run away from the damage he's done no matter what continent he moves to or what he changes his show name to.

 

I'll check his Wiki page today, probably an interesting read!     I saw his content after I closed my mouth (Jaw dropped when I saw what he did to try to evade notice) and figured he'll stick with current events for a while so new viewers don't really have anything to dig into, then after a while he'll start to mention real estate, then a bit later it will turn into "You folks know, I have some experience in this arena" and he'll reel more fish in.    Shame, but it may work.

 

I definitely recommend checking into the Memphis market! Great place to get your feet wet, and great value add opportunities. A lot of revitalization happening in the town. Would love to connect!