Sharing a quick market analysis that I did

[Jessica Yuan]

Hey fellow out-of-state investors, 

I just got started with out-of-state investing and am actively reading books & learning market and deal analysis. 

As an exercise, I used the "Top 100 Cash Flow Markets 2024" from BiggerPockets. The goal is for me to downselect 5 markets to research. 

My criteria is 1) median home price <=200k, and 2) needs to have a decent population of >150k. 

Below is my analysis. The scatter plot has Rent YoY growth as X axis and Price YoY Growth as Y axis. The size of the datapoint tells you how big of a population each city has. 

But here're two questions that confused me, and I'm hoping to get some insights from folks here: 

1) Just for down-selection purpose, I think intuitively I should look for cities that are on the TOP RIGHT corner and avoid those on the BOTTOM LEFT. But these cities are really niche, I can't even find realtors to connect with on the Bigger Pockets websites for some cities, even though their numbers look great. 

2) The cities that have Rent to Price ratio >=0.7% has relatively lower rent growth and price growth. Why would that be the case? 

I appreciate anyone giving any insights and suggestions about my questions and my analysis. I'm also wondering if anyone has or is considering investing in any of these areas. 

Thank you all very much. 

[Becca F.]

Hi @Jessica Yuan! I agree with Nicholas' comment 100%. There is no cash flow. I wouldn't pick a market based on a a Rent to Price ratio where you don't know anything about the city and have no connection to it (e.g. family, friends or a place you to visit frequently).

 I invest in the Midwest (Indianapolis metro area). For context I did live there for several years then I rented out the home when I moved back to California. The only reason why I'm "cash flowing" is because I bought it in 2013, refinance during COVID and I have a great long term tenant in a Class A (nice suburb with excellent schools) and I self manage it now. 

I bought Class C in Indy (homes in the $120k to under $200k range) sight unseen in 2023. What little cash flow there was has been obliterated by repairs and property tax increases. Luckily I haven't had any tenant issues so far. Don't buy a property sight unseen - videos and pics from an agent look different from seeing it in real life. I ran out my rental property calculator to 20 years using conservative rental increases (3% but probably lower now) and appreciation (3%) so the run up in property values during 2018 to 2022 is not typical historically. I would get a better return on a high yield saving account - I'm serious. I sold one of the Class C and plan to sell the other one soon. 

I've have a lot of California investor friends and many of them are now sharing how difficult and how much money they've poured into out of state investments. You could replace my Indianapolis story with at least 30 different cities (Houston, Dallas, Columbus, Cincinnati, Atlanta, Philadelphia, Huntsville, etc.) where the spreadsheet numbers looked good. I've poured in at least $80,000 (between downpayment, closing costs, repairs, capital expenses). 

My vote is house hack, consider Sacramento area which is 2 hours away or if you really want to do out of state, Reno or Las Vegas - I did a first trip to Reno and Vegas to look at properties. Mid-term rentals and rent by the room (called co-living by some people) are ways to get higher rent than a traditional long term rental. The cities are the list you shared are all over 2000 miles away. 

If you want to DM me I could give you more detailed information. Btw I'm not an agent or work in any part of the real estate industry other than as an investor (I'm a W2 employee), nothing to sell you.