Decision on where to invest as a beginner!

[Kristina Xie]

HI Everyone! I am a beginner although I've watched my dad invest in a few properties in NYC. I am looking to venture out and purchase my first rental. I am unsure if I should invest locally (within NYC) given that it is super competitive and overpriced. Now that I work fully remote, I was thinking about investing in NJ/upstate NYC or even Connecticut. The other option was to invest as a Limited Partner in a real estate syndication. Given the options, what would you suggest? My goal is to build my rental portfolio so that I can build up my passive income. Thanks in advanced for everyone's advice and help!!

[Zachary Cummings]

Hey @Kristina Xie!

I think narrowing down your market is going to be your first hurdle. You want to find out what is going to be best for you in the long run and how you are going to manage it/them. It is going to come down to the numbers that work for you, and the best management you can attain before you do anything. In regards to which type of investing to go into first is all up to you as your comfort level will be different than others. Personally, I wanted the experience so Ive invested on my own before looking into syndications and will gradually grow and stack my properties as time goes on so I can gain the experience and knowledge needed to invest in larger projects.

I hope this helps a bit!

[Patrick Drury]

@Kristina Xie
It depends on what you are looking for as an investor. If you want cash flow, the Midwest is the best place to start looking. I would recommend looking in Columbus OH. It's a nice hybrid of both, so you get solid cash flow and solid appreciation. As for Syndications, it also depends on your time commitment and what you are looking to get out of investing. If you want something completely hands-off and don't want to spend any time on it a syndication or REIT might be a good idea for you. Owning a rental personally or with a partner will build experience and knowledge.

[Craig Clinton]

It may be tough to invest out of state on your first investment.  Not impossible, but tough.  You should look where you may have an advantage over other investors.  If you live in NYC, you probably know certain areas really well and have people in your network that may know of deals.  That's an advantage.  If you're going to invest out of state, do you know or are related to anyone in NJ or CT that can help you find deals and the right people (contractors, agents) in those states?  

If you decide to go out of state, google Neil Bawa.  He has good procedures for vetting which cities are the best to invest in for multifamily.

Good luck! 

[Colton Hahn]

Quote from @Kristina Xie:

HI Everyone! I am a beginner although I've watched my dad invest in a few properties in NYC. I am looking to venture out and purchase my first rental. I am unsure if I should invest locally (within NYC) given that it is super competitive and overpriced. Now that I work fully remote, I was thinking about investing in NJ/upstate NYC or even Connecticut. The other option was to invest as a Limited Partner in a real estate syndication. Given the options, what would you suggest? My goal is to build my rental portfolio so that I can build up my passive income. Thanks in advanced for everyone's advice and help!!

 Hey Kristina, 

Investing in a syndication is an option that is becoming more and more common. As someone who works in that field, my calendar is filling up faster and faster with people vetting it out. I definitely think it could be something worth exploring depending on your goals. 

Have your core concerns ready to go, with specific questions for them and find a company that fits with your goals and enjoy your free time :)

[Brock Mogensen]

I think it really depends on what your long-term REI goal is. Do you want to be a fully passive investor? Do you want to be an active investor and be involved in decision making? Do you want to learn the ropes of running your own syndication deals one day? If your goal is to be fully passive over the long term, investing in a syndication as an LP is a good idea. Also if you want to learn how to syndicate your own deals, investing as an LP in a syndication will teach you a ton about the process. On the other hand, if you want to actively involved in building your portfolio and have all decision making authority, you will need to layout a more extensive plan. Deciding which market you want to invest in is a big decision. Investing local is always the easiest but as you mentioned sometimes it doesn't make sense. If you decide to choose an out of state market you will want to line up a solid property manager and build your broker/agent connections in that market. One thing to remember, is even if you find the best property management company in the world, you will still need to be involved in the asset management..it is not a 100% passive vehicle as many people think.

[Mohammed Rahman]

Hey @Kristina Xie, congratulations on making the decision to become a real estate investor! I know at times it may seems overwhelming because of all the information overload out there. The best thing that's worked for me is to take things one step at a time. 

From your post, it seems like you're at a crossroads of deciding how much you want to get involved in your first investment. A syndication/fund is a solid approach for professionals such as yourself who want exposure to a real estate asset class, but don't want to be involved in the day-to-day decision making. You cut a check, and wait for the return. 

The other route is to be actively involved in your first investment (finding properties, deciding on a market, getting a mortgage, etc.) and enjoy the returns all to yourself. This is what your father is most likely doing in NYC. 

My recommendation to help you figure out what your first step is: figure out your budget (which is usually your down-payment budget x 5). Once you have this figure, you'll know what your approximate budget is if you were to invest and find your first deal yourself. Also helps to figure out what markets make most sense for you since you'll have a quantifiable metric to search against. This is the same way I started. 

There is a lot of information out there, and often the analysis paralysis is the biggest drawback to it. Give me a shout via DM if you want to chat further, happy to talk about my journey if it helps you avoid similar mistakes. 

[Drew Sygit]

@Kristina Xie

We think the Midwest is a GREAT place for OOS investors to consider!

YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods: https://www.biggerpockets.com/...

Your biggest question shouldn't be WHERE to invest, but HOW you will invest!

Many OOS investors set themselves up for failure because they don't truly take the time to understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

Good luck with whatever you decide😊

[Lane Kawaoka]

@Kristina Xie

New Your is an example of a primary market which are NOT ideal for cashflow investing.

Sophisticated investors look at the Rent-to-Value Ratio and look for at least 1% or more to be able to cashflow after expenses. You find the Rent-to-Value Ratio by taking the monthly rent dividing by the purchase price. For example a $100,000 home that rents for 1,000 a month would have a Rent-to-Value Ratio of 1%. Most people I work with live in primary markets (as opposed to Birmingham, Atlanta, Indianapolis, Kansas City, Memphis, Little Rock, Jacksonville, Ohio, or other secondary or tertiary markets) where the Rent-to-Value Ratios are under 1%. Plus we invest in red states so we have good landlord laws on our side too.

[Milton Chamberlain]

If you can work remote, I think going to a less expensive area like you mentioned (CT, NJ, upstate) and house hacking into a duplex is a great idea! 

Get your foot in the 'investing' door without a TON of upfront cash. Then after reassessing your finances after the duplex purchase, maybe look for an out of state turnkey fitting whatever your budget is?

[Joe Miller]

I LOVE Columbus, Ohio. It is a strong market to invest in for both SFH and MFH and has a great balance of cashflow and appreciation. With so much growth over the past several years making it the fastest growing city in Ohio. It is the home of The Ohio State university bringing in over 60,000+ students yearly which is a strong backbone to the rental market. Columbus has the perfect mix of talented individuals, groundwork, and infrastructure that has been attracting big corporations from the west coast. Intel has just announced a 20+ Billion dollar investment being the largest private sector investment in Ohio's history creating roughly 10,000 jobs.

Here is the article on the investment

[Nicholas L.]

@Kristina Xie 

I like finding a market within 2-3 hours of NYC that will cash flow - somewhere in PA, NY, or NJ.  Of course you can invest in Ohio or anywhere else in the US... it's just harder to touch, see and feel the RE there, and much easier to get a team set up / get started by driving somewhere on the weekends, meeting agents, touring properties, networking, etc.

Also... buying properties directly and investing in syndications are very different.  Like others in this thread have said, it depends on what you want.

[Tony Kim]

Quote from @Kristina Xie:

HI Everyone! I am a beginner although I've watched my dad invest in a few properties in NYC. I am looking to venture out and purchase my first rental. I am unsure if I should invest locally (within NYC) given that it is super competitive and overpriced. Now that I work fully remote, I was thinking about investing in NJ/upstate NYC or even Connecticut. The other option was to invest as a Limited Partner in a real estate syndication. Given the options, what would you suggest? My goal is to build my rental portfolio so that I can build up my passive income. Thanks in advanced for everyone's advice and help!!

Here's my honest take. Everyone wants to invest in RE now but it has become super expensive and we've had an incredible run-up in prices that has lasted a very long time. It's not exactly the same thing but it kind of reminds me of someone who wants to get in on the bitcoin money train now, or buy Tesla now. The ship has sailed... even I have pretty much decided that acquiring new directly owned properties is no longer for me...at least for the time being. I'm satisfied with what I have now because I'm pretty heavily weighted in directly owned properties. Of course, holding the property for 20 years will make any investment look good, but you'll be bleeding cash for the first couple of years or longer. That's something I'm not interested in when there are so many other opportunities out there.

In this environment where every mom and pop investor has run up the prices of everything out there, if you are dead set on investing in RE, I would look toward syndications, especially if you are an accredited investor. The margins are tight in this arena also, but at least you won't be cash-flow negative.

Due diligence is key... you will probably want to spend some time learning how to vet sponsors and how to perform stress tests, etc. The website below isn't a bad place to start. 

https://www.therealestatecrowdfundingreview.com/

[Kristina Xie]

Quote from @Zachary Cummings:

Hey @Kristina Xie!

Personally, I wanted the experience so Ive invested on my own before looking into syndications and will gradually grow and stack my properties as time goes on so I can gain the experience and knowledge needed to invest in larger projects.

Thank you! Super helpful! I have a similar mindset of getting my hands wet and learning before scaling into syndications!

[Seth Young]

@Kristina Xie I would suggest checking out the turnkey real estate investment model. Turnkey allows you to purchase a fully renovated property that is set up ideally for the the longterm buy and hold. You will have the tax benefits of owning the property outright. In the southern/midwest markets, price points will be much less the NY or Connecticut. Equally as important as the market you select is finding a team to work with. You want to work with an established team to mitigate your investment risks. Best of luck with all your investing! 

[Joe Hammel]

@Kristina Xie

Metro Detroit

(my rental portfolio is here)

Purchase: $80k-$130k

Rent: $1200-$1450

ROI: Double Digit

Cash flow: $200-$350/month

Appreciation: Double digit (for past 10 years, will gladly send data)

Location: C, B- (suburbs and certain markets)

We have over a dozen Fortune 500 companies just in Metro Detroit with huge Healthcare and Auto industries.

The bad reputation comes from OOS investors wanting $20k D market properties.

Educated Investors retire (FIRE) in a few years off these.

[Mike D'Arrigo]

@Kristina Xie if you're goal is building cash flow, you couldn't pick any worse markets than the 3 you mentioned. All 3 have very high property taxes and are pretty hostile to landlords. I recommend starting by looking at states with low to moderate property taxes that are landlord friendly. Then look for markets within those states that have affordable home prices with good rent, have growing populations, growing jobs and modern/diverse economies and industries. The 3 markets that I like and am involved in are Indianapolis, Kansas City and the Quad Cities (Davenport, IA).

[Bruce D. Kowal]

You might take a look at the returns of REIT ETF's. They have done rather well, and there is more liquidity than with bricks and mortar. It is passive, that's for sure. I wonder how they compare with being a Member of a syndicated LLC.

Best REIT ETF's for Q2 2022

[Kurt Weber]

Quote from @Drew Sygit:

@Kristina Xie

We think the Midwest is a GREAT place for OOS investors to consider!

YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods: https://www.biggerpockets.com/...

Your biggest question shouldn't be WHERE to invest, but HOW you will invest!

Many OOS investors set themselves up for failure because they don't truly take the time to understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

Good luck with whatever you decide😊

Hi Drew,
Thanks for this breakdown in property class. I have seen them used a lot and inferred an idea of their meaning but this explanation helps. How are these grades determined and by whom? Is this the stakeholder that claims the grade so a combination of objective and subjective reasons?

 Thanks.

[Michael Deering]

It's an election year and riot season is coming up so look at multi family 60-90 mins from big cities.

[James Wise]

Quote from @Drew Sygit:

@Kristina Xie

We think the Midwest is a GREAT place for OOS investors to consider!

YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods: https://www.biggerpockets.com/...

Your biggest question shouldn't be WHERE to invest, but HOW you will invest!

Many OOS investors set themselves up for failure because they don't truly take the time to understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

Good luck with whatever you decide😊

Fo sho playa.....What you buy in a market is a lot more important than which market you buy in. Most people on BP are buying a handful of homes or less. It's splitting hairs thinking Indy vs Cleveland vs KC is going to move the needle on that small of a scale. It won't folks. Understand your risk tolerance and buy a property that fits within it. Then hire yourself a good PM. If you end up not liking your PM hire a different one. That simple.