Where are the best markets for cashflow?

Question

Hello All,

I am a relatively new Boston based real estate investor.  I currently own two properties in Boston but the local market is very expensive and I am looking to increase my portfolio's cash flow.  My thought is that I may have to invest outside the New England region, as I am also interested in investing in mid to upper grade neighborhoods.  Does anyone have any advice on areas I should consider/look into?  I am grateful for any advice provided!  Thank you.

-Ryan

James Wise · Answer

Many cash flow focused 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 fraud 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.

Arsen Atanasovski · Answer

You want cashflow! Detroit is cashflow king! You can forget 2% rules we go by 4.5.6% rules. If your only looking for cashflow.

Mike D'Arrigo · Answer

@Ryan Ricciardelli There are several markets throughout the Midwest and Southeast that will cash flow however if you are buying for long term hold, make sure that the market also has strong economic and demographic fundamentals. Many of the popular cash flow markets have stagnant or even declining jobs and populations which doesn't bode well for long term asset values. Personally, I think that Indianapolis and Kansas City have the best combination of cash flow and economic/demographic trends.

Andrew Syrios · Answer

Best markets for cash flow are in the Midwest (i.e. Oklahoma City, Indianapolis, etc.) and Southeast (Raleigh, Memphis, etc.) generally speaking. The Rust Belt has some cheap markets too, but it's very economically depressed so I would probably shy away from them a bit.

Brendan F. Nagle · Answer

@Ryan Ricciardelli

North Iowa. No appreciation. You can buy 2% rule, 1.5% is workable too. I have found success with small multi family there.

Brian J Allen · Answer

I agree with Philip.  Most of the stuff in Worcester is JUNK as it is all built prior to 1920.  You need a rehab budget so the 203k route works.  The key is finding something that is worth fixing.  Worcester is built on neighborhoods and the traffic patterns are quite complex.  You need to know the neighborhood you are investing in, not just the size or quality of the building.

Ken Goodman · Answer

We've had good luck in Maryland.  Best public schools in the country.  Low unemployment, recession-resistant economy because of the federal govt.  We like to invest near some of the large federal installations and military bases and recruit those tenants.  Private-message me and I'll be glad to hook you up with our resources in the area.  -Kenny

James Wachob · Answer

Being from Memphis (A Memphian) I'm biased towards our city. However, I'm searching for new markets currently and I'm surprised by the numbers. Using the BP proforma, the cash on cash I'm finding in some of these other markets is impressive. The biggest determining factors being the taxes, and of course the rent to purchase price ratio. I will report back about these new (to me) markets as I consolidate the data.

Tom Ott · Answer

Cleveland is a great mid-market city where many OOS investors find success. The Midwest is stable and has seen some growth, now is a good time to get in.

Ben Halabi · Answer

Cleveland is one of the best turnkey market and the most popular for investors because of high rental demand and low cost of entry, property prices are pretty inexpensive here. The first thing you will want to do is check out this Cleveland Price & Neighborhood Map which will help you have a better understanding of the neighborhoods and general market in Cleveland. Good luck!!

Where are the best markets for cashflow?

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