Which market to invest in, if you could choose from entire country?

29 Replies

As the title and category of the forum suggests, i am foreigner investor who is going to invest living in another country and while this may sounds challenging to some, i personally feel i am more than ready. I am 28 years old, have experience investing in real estate in my country (India) and have some finance to give myself a head start. Now, here is the real question:

I have a partner from another business who lives in Stockton, CA area. He is been my partner for last 9 years and we have enjoyed working with each other very much, and there is nothing we can complaint about in our business relation. The ideal situation for me is to start in his market because that's an area i visit anyway few times a year and starting with a multi family apartment complex there won't be that bad. He is also interested in real estate investing and knows most of the local big players. So the benefits of starting out in the area are obvious. The biggest one for me is "foot on the ground". But, as alot of people would agree, stockton isn't the best market for real estate investing. The city itself was bankrupt couple of years ago, it was the hardest hit market by the crash in 2008, not enough jobs, etc etc.

On the flip side, if i want to go out of Stockton, San francisco & Chicago are pretty much same to me, well they are both about 24 hours plane ride away. The partner friend of mine wont' really like to drive by my property even if its 2 hours away, so i am pretty much own my own if its not in Stockton, Tracy, Lodi, manteca, Sacramento area.

Please comment and advice on what do you think about the situation and how would you approach it?

Mohit,

I am in a similar position in regards to being outside of the country.

I have chosen areas close to Universities as a revenue generator and an exit strategy.

Even if the city or town once had financial difficulties, that is the not necessarily the case for your business as you decide which market demographic to chase.

A city that has gone financially bad may be good business as they may try to get rid of their inventory of social housing.

Look deeper into your business plan for what you want to get into and what you want to get out and what is your exit strategy.

Best of luck

Antonio,

I plan on holding these deals for a long time and definitely not looking into flips, so stable rental market is the key for me.

On your situation, just curious

  • Are you able to find any lender that would lend to overseas investors?
  • Do you worry about the Student loan bubble at all, when investing in these college cities?

Thanks & Good luck with your investments.

@mohit 

@Mohit Madaan Be careful with the taxes....there are federal taxes and state taxes.  There are only a handful of States that do not have income taxes and there can be quite large difference (i.e. NY and California are very high when compared to Florida, Tex and Nevada, which have none).  It is likely that you will receive some credit back home for the taxes paid abroad, but many countries don't collect on international earnings, so the State taxes you pay come right out of your bottom line.  

sounds like you have permanent residence in the US - so you actually will be treated like an USAmerican by the Feds - you might want to know if you have any obligations to your home country on CG asn/or rental income, and all the local laws - but as a permanent resident you are not really the same as a true foreign investor, and you have a lot more flexibility but will also be taxed accordingly - so that would need to be clarified.

Eric - you are quite right and in states like NY there are additional differences for income derived from real estate and whether you are classed as an active or passive RE investor.

for an Ami investing abroad there are also advantages of getting to take a working business trip annually to check on your investment property and write it off as a necessary expense if it meets criteria - other countries have similar - dont know the details though.

Mohit-

Picking ONE City… So many factors to consider.

What are Your GOALS..

  • Cash Flow
  • Market Value Stability
  • Appreciation
  • A Combination of these
  • oCash Flow and Appreciation have an inverse effect
  • oMarket Stability will provide Predictable Results, but Values & Rents remain flat.

A few Questions to consider:

  • Is your evaluation standard Repeatable (i.e. 10-12% CAP Rate: Can you continue to find properties which meet this criteria?)
  • Is this a short-term or long-term strategy?
  • Can you Find a Team in the City YOU Trust?

My city, St Louis, MO is a city many feel to be an ideal place for Out-Of-Area Investors.

  • Steady Rental Rates
  • Fair Appreciation Rates (Don’t go up fast, Don’t go down fast)
  • Good Mix of Business Industries (Financial, Defense, Service Industry
  • Good Consistent CAP Rates

A lot of foreign investors like Chicago, for the following reasons:

+ both cash flow and appreciation, lots of direct international flights, an affordable "world city"

- the state of Illinois is in debt, taxes are high, building boom could dent cash flow + appreciation

I can also recommend Salt Lake City:
+ solid universities, great vacation rental market, great potential for growth, not as crazy as Denver,

- weak cash flow, competitive RE market

@Mohit Madaan there are lots of unknowns in your scenario to be able to give a definitive answer but the basic fundamentals of property investing might help get you started. When selecting a market to invest in I personally want to be in a market that is at or near to the bottom of its cycle in terms of prices. Buying in markets that are "hot" or near the top of the cycle is risking a loss in the short term. It is important to understand that ALL investment markets are cyclical and go up and down over time.

Based on the concept of markets being cyclical I would suggest researching the markets that appear attractive to you based on your investment capital and looking for ones that are at the low end of their cycle. Once you have identified these markets then I would suggest you look for property where you can add value immediately. That is to say that you want to know that you can improve the value of the property by your own efforts and not simply rely on the market to improve to increase your asset value. This will give you increased value in the short term with the potential for future capital growth as the market improves.

Like you I am also a foreign investor so I will assume that you have already investigated the taxation and legal issues relating to foreign investors. If not, then you definitely should seek quality legal and taxation advice before investing a single dollar. Understanding the international treatment of taxation can be the difference to making money or losing it to government regulators either in the USA or in your home country.

In regards to feet on the ground I would suggest that once you have identified your market that you seek referrals from the many highly experienced and supportive members that operate on BP. I have no doubt that you will be able to find all the help you need right here on BP once you know where you want to operate and what you want to invest in. The first step however is for you to understand your investment objectives and to do your own homework about what investment will suit you. If, on the other hand, this is all too difficult or time consuming and you want an easy way to invest then seek out quality partnerships or joint ventures with people right here on BP. 

There are a number of highly experienced investors that I am sure would welcome your interest in their projects. Sometimes the best returns are made when you employ the skills of experts and reduce the risk component of property investing. Many inexperienced operators discover the cost of risk is a lot higher than they might think but only after they have lost their money. One way to reduce this risk is to partner up with people who know what they are doing. It is also a good way to learn about the markets in the USA in real time by following their footsteps.

Hope this helps.

Happy investing!

Mohit,

I like Chicago for fix-n-flip and short term appreciation plays (rent to own). However, as @Aaron Knoll said, the downside of Chicago is its high property taxes which will put a dent on cashflow. That's why I do NOT like Chicago for buy-and-hold.

As far as fix-n-flip and rent to own, Chicago is very good. Why? Here are 5 pieces of information you should look for when looking at which markets to invest in:

1) Sales volume

Chicago's sales volume is increasing recently.

2) Inventory levels

Supply has gone down simultaneous with increase in sales volume. This puts UPWARD pressure ON the price

3) New foreclosure filings

As you can see - the new foreclosure filings is down considerably (-40%). New foreclosure filings is a LEADING INDICATOR of price movement. If new foreclosure filings is INCREASING for 3-4 consecutive quarters, price will likely go down because distressed inventory will push prices downwards.

4) Job Growth

You need job growth - without it, the increase in real estate prices is NOT sustainable LONG TERM.

and lastly, talking about long term...

5) Case Schiller Index

As you can see, the upward movement in price short term is consistent with reversion to the long term trend line. This means, price of real estate in Chicago is BOUND TO GO UP. Based on the above graph, it could go up 15% over the next 2 years or so. Hence, short term appreciation plays make a lot of sense.

Makes sense?

Wendall - great points - but I must disagree with the last-

As you can see, the upward movement in price short term is consistent with reversion to the long term trend line. This means, price of real estate in Chicago is BOUND TO GO UP. Based on the above graph, it could go up 15% over the next 2 years or so. Hence, short term appreciation plays make a lot of sense.

Makes sense?

reversion to the mean is a good basis but it doesnt always happen - and of course on the longer scale the mean is a lot lower than that recent trend line. good luck!

@Mohit Madaan

The title of your post sounds exactly like the thought going through my head in 2014 before I bought my first investment house in Jacksonville, Florida. 

I ended up successfully investing with some partners, but before I started calling people or agents, I wanted to do a lot of my own independent research. I wasn't sure how much faith I could put in someone's opinion if they were motivated to 'sell' me something.

Anyways, I ended up writing a +3,000 Word post here on BiggerPockets going through my entire process, from surveying the whole country to narrowing down to a city, a subdivision, and finally even streets to avoid in a small 15 block radius.

It took a while and I'm pretty detail oriented but if you're interested in reading about my process:

Investing from Overseas

I also run a meetup here in Korea (+300 members) and our members are focused on overseas investing as well as Korea investing. Anyone in the thread, feel free to hit me up if you ever want to talk strategies.

Hands down, Scranton PA.  30-35 k / unit finished (rental) cost (bought, fixed, rented, managed, done.)

rents 600-800/mo

taxes under 2k/yr for a 2 unit

after 30% maint/vacancy/management pad, I still make 15-22% cap rate

Rent to own tenants will pay 12% interest no problem

refinance will often return 25-30k per unit, meaning it's basically free.

Originally posted by @David Nolan :

@Mohit Madaan there are lots of unknowns in your scenario to be able to give a definitive answer but the basic fundamentals of property investing might help get you started. When selecting a market to invest in I personally want to be in a market that is at or near to the bottom of its cycle in terms of prices. Buying in markets that are "hot" or near the top of the cycle is risking a loss in the short term. It is important to understand that ALL investment markets are cyclical and go up and down over time.

Based on the concept of markets being cyclical I would suggest researching the markets that appear attractive to you based on your investment capital and looking for ones that are at the low end of their cycle. Once you have identified these markets then I would suggest you look for property where you can add value immediately. That is to say that you want to know that you can improve the value of the property by your own efforts and not simply rely on the market to improve to increase your asset value. This will give you increased value in the short term with the potential for future capital growth as the market improves.

Like you I am also a foreign investor so I will assume that you have already investigated the taxation and legal issues relating to foreign investors. If not, then you definitely should seek quality legal and taxation advice before investing a single dollar. Understanding the international treatment of taxation can be the difference to making money or losing it to government regulators either in the USA or in your home country.

In regards to feet on the ground I would suggest that once you have identified your market that you seek referrals from the many highly experienced and supportive members that operate on BP. I have no doubt that you will be able to find all the help you need right here on BP once you know where you want to operate and what you want to invest in. The first step however is for you to understand your investment objectives and to do your own homework about what investment will suit you. If, on the other hand, this is all too difficult or time consuming and you want an easy way to invest then seek out quality partnerships or joint ventures with people right here on BP. 

There are a number of highly experienced investors that I am sure would welcome your interest in their projects. Sometimes the best returns are made when you employ the skills of experts and reduce the risk component of property investing. Many inexperienced operators discover the cost of risk is a lot higher than they might think but only after they have lost their money. One way to reduce this risk is to partner up with people who know what they are doing. It is also a good way to learn about the markets in the USA in real time by following their footsteps.

Hope this helps.

Happy investing!

David

Really good point, I am just adding in why folks should not buy lower end deals in the USA. Regardless if you are from the USA, or International investor

This was a post about Charlotte but speaks volumes for most USA markets

The problem with the lower end assets, they are such a more hands on investments , just more of a headache. Which I'm about to tell you why. Yes, on paper the entry price point looks great. So folks are only seeing one side of things. Lower end properties tend to be higher maintenance, higher expenses, and much higher turn over rate. Another factor is the rental prices aren't making sense, while still continuing to rise. We owned 37 of these exact type of homes (lower end in RH SC during the timeframe of 2004 -2009). So I'm speaking from experience, these type of assets tend to burn holes through investors pockets. Most folks start here, (1) Because they do not know any better and (2) The price point is much more attractive. These are what I like to call recycled product ( Quote by "Jay Hinrichs") , which usually has a 5 - 8 year shelf life. Or in better terms " the game of hot potatoes"- who or which investor is getting stuck holding the bag. Easy way to look at things are any institutional, or Hedge funds buying in this asset class. Now they are mostly buying A - B assets. Their is a reason Wall Street, and most private money are parking their funds into higher class assets. Most times this is why newer investors, jump in because its all that is left on the table for them ( lower end )or what the Gurus are selling.

The information above from Cindy is great. I've spoken with Cindy here on BP a few times. I told most folks here on BP ,and in many seminars, that if I sit at computer long enough I can dig a lot of great information up to prove what a great city Charlotte is. We are Atlanta's little teenage brother growing up (fast) We are all lucky to be in a booming city basically still many years of growth left

I have to disagree on this being a good buy and hold market on most markets. From 2009-2013 this was one of the best buy ,and hold markets. Today we are facing an over priced market, rental returns are much less. I have some left over stock still holding from 2009. I was buying from $40k to $50k range. Same house now priced in $100k - $120k pre-rehab price range. I was also buying in 4 states; NC, SC, Georgia, & Florida. With that being said, "one man's junk is another man's treasure." So for out-of-state folks with (ex: California or NY) they tend to have much higher entry points. So buying a house here from $100k $150k with 1% rental rule. Still makes this a very attractive market for out-of-state or international folks. This does not mean we have a great buy and hold. For me personally, it says we are lucky that we still have a lower entry point then most folks markets.

If we jump in and really become bit more analytical. It is cheaper to build than buy today. We will be building new construction rentals for a few years. I am seeing this as similar to the 2000-2004 market. So the box Vinyl Village type homes is the current build (mixed in with townhomes, duplexes, quads). That mixed with real estate cycles , which very folks even discuss or understand.

Now back to the 10% Cap rate this is why most international folks are going to get burnt, and USA folks will as well. When investing in these lower end asset classes, Folks brought in cities like Detroit and Michigan. Promised a 20% return on the properties. I challenged folks to show me that over 5 years period (I am sure those returns are a lot less). Keep in mind this has nothing to do with the homes. It has everything to do with our economy, salaries for the lower income bracket, and a renters mentality. No security in those type of jobs with very little insurance benefits so job changing is common among lower end renters. It is very hard for someone paying 35 to 45% of their income to pay rent. I know here comes that chatter, well property management will handle that, right? We owned a management company from 2009 -2013. We lost our asses with that side of the company. I did it mostly for our turnkey clients. Good Rule of Thumb for any management folks who want to get in the business. Get 300 homes plus or get out of the business. Not profitable with out the inventory.

Now back to low end assets, very rare you are every going to sell, and get retail prices in these areas. How many USA folks move to rental areas? Once a area is over 50 % or more rentals, values will eventually drop as will the area. We have artificially inflated prices, in most of the areas with cash sales to out-of-state folks, or local cash buyers( who just don't know any better). Basically most people are showing up to the table, and all we have are scraps left! This is not just here; Kansas City, Indianapolis as most markets to just a name a few are going through same thing. I still jump on 3 to 5 webinars month with out-of-state folks seeing what they are selling. So limited sales potential down the road for every one.

I was working with as well as being one of these turnkey groups for a few years. We all setup table and booths in LA, San Fran, and other markets. Selling our cities, and our turnkey deals. Me and a few of the guys we got smart, and jumped into the international markets. I still play there my self and see a strong demand for the turnkey product (just not worth it for me). Folks if someone was to start a local solid turnkey business here in Charlotte NC (5/month ) there is a good demand out there for this product.

Now for the lack of inventory. We had a few smaller hedge funds here in 2011-12 buying before most folks realized. They were already here buying smaller up to 100 homes.. Then the big boys like invitation homes (Blackstone which is a large wall street fund for folks who don't know ) came in purchased 7000 plus homes in little under a year. Most of the vinyl villages, anything built 2000 above; 3bed 2 bath or larger was their focus. Banks are realizing they can go into the property now . Taking a lipstick approach to rehabbing. Sell it them selves as well. So that's a few reason for the lack of inventory.

Just my two cents,

-- Alex

@Mohit Madaan one of the biggest mistakes I see people starting off make is choosing a market because they like to visit the area or have family or friends that live there. You wouldn't buy stock in a company just because you like to visit the city where their headquarters are located. Treat real estate as any other asset class and buy where you can get the best financial return. I don't like to generalize about any cities because most cities have their good areas and bad areas but Stockton in general is a very depressed city riddled with gangs and crime and that's where most unsuspecting people end up buying in Stockton. If you didn't have a friend who lives there, would Stockton even be on your radar?

Of the 2 cities you mentioned, San Francisco Area is tough to invest in unless you have a lot of capital. I've heard great things about not only Chicago, but the suburbs of Chicago, from a cash flow perspective. Based on my research, it seems like the Midwest is a good place to invest, Particularly for buy and holds which is what it sounds like you're interested in. Places like Milwaukee, Kansas City, and St Louis, and parts of Michigan and Ohio would be worth doing more research on.

Originally posted by @Mike D'Arrigo :

@Mohit Madaan one of the biggest mistakes I see people starting off make is choosing a market because they like to visit the area or have family or friends that live there. You wouldn't buy stock in a company just because you like to visit the city where their headquarters are located. Treat real estate as any other asset class and buy where you can get the best financial return. I don't like to generalize about any cities because most cities have their good areas and bad areas but Stockton in general is a very depressed city riddled with gangs and crime and that's where most unsuspecting people end up buying in Stockton. If you didn't have a friend who lives there, would Stockton even be on your radar?

 I think i will respectfully have to disagree with you analogy about buying stock vs buying real estate in area where you visit/have friends or family. Real estate investment can require once in a while a trip from some one you trust which can come very handy if you have some one in the area.

You are right about Stockton, i would have never even thought about it but again having boots on the ground is equally important as finding good market.

@Mohit Madaan my point is that you invest in markets based on their economic and demographic fundamentals and financial returns, not who you know that lives there. You can overcome not having family or friends in an area by having a strong property manager that you can trust and rely on. You cannot overcome investing in highly depressed, crime ridden areas by having a friend that can go look at your property. We have very successful investors who own real estate in several markets in the country that don't ever see their properties. I might understand if you wanted to invest in Stockton because YOU lived there but not just because your friend does. You're already dealing with the additional challenges of investing out of state. If you're going to do that, you have a choice of any market in the country. Choose one with strong population growth, job growth and a vibrant economy. That's certainly NOT Stockton!

I think that the middle Georgia area is a great place to invest (mainly the Houston county area). You can get property for fairly cheap with a high return on rent. In my opinion it would be worth looking into. If you have any further questions or you might be interested in more information on this area feel free to contact me.

Thank you,

Courtney Spiers

Lots of people with lots of (long) answers.

My $.02, Houston, TX.   I've bought about 1000 units there (more, but I've sold some to fund growth.  That's what I currently have).  It's one of the counties largest cities.  Tons of people moving to the area, schools, trade, economy, etc.  All great.  Even with oil being low.

So yeah.  I live in San Diego but happily buy in Houston.

Originally posted by @Kara Haney :

sounds like you have permanent residence in the US - so you actually will be treated like an USAmerican by the Feds - you might want to know if you have any obligations to your home country on CG asn/or rental income, and all the local laws - but as a permanent resident you are not really the same as a true foreign investor, and you have a lot more flexibility but will also be taxed accordingly - so that would need to be clarified.

 I do not have permanent residence. I travel to US on business visas whenever i have to for my business.

  @Courtney Spiers Hi I am interested in the Houston county area, please send me info.

Thank you

Javier

Originally posted by @Courtney Spiers:

I think that the middle Georgia area is a great place to invest (mainly the Houston county area). You can get property for fairly cheap with a high return on rent. In my opinion it would be worth looking into. If you have any further questions or you might be interested in more information on this area feel free to contact me.

Thank you,

Courtney Spiers

If you can choose to invest in income properties anywhere in the US I would say that almost every state is large enough and diversified enough to be able to find properties to meet what ever criteria you choose to target.

We are discussing a people reliant business that is 100% dependant on the individual state Landlord Tenant regulations.

If I could buy anywhere I would choose to buy in the state that would be most welcoming to my investment money. That would therefor be the state with the most Landlord friendly Regulations. 

You can make money anywhere so why not do it where it is the easyist.  

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