I am in a bad market looking to make my first investment. Where should I invest?
Salt Lake City Utah · Member since 2026 · 2 posts · 8 votes
I am in a bad market looking to make my first investment. Where should I invest?
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votesA common issue, so Copy & Paste info below:
You’re ALWAYS better off investing locally, where it’s easier to:
· Learn the market
· Network to find deals
· Network to find contractors
· Be more hands-on
· Driveby property to keep tabs on it
· Network to find a decent Property Management Company (PMC)
Next best location is somewhere else you lived, where you have an existing network of family & friends to help you as accomplish the above list as needed.
If you invest OOS, your biggest challenge won't be finding properties to meet your goals on paper, it’ll be successfully building a knowledgeable & trustworthy local team.
The biggest mistake we see OOS investors making in our market, over and over again, is not fully understanding Neighborhood/Property/Tenant Classes and how they impact your probability of success!
They all run their ROI numbers assuming Class A results – when buying Class B, C & even D rentals.
Then they’re shocked when their performance expectations aren't met😞
If you choose to invest OOS, and have little to no landlord experience, we highly recommend targeting Class B Neighborhoods/Properties/Tenants. If you target Class C, you better be prepared emotionally & financially for plenty of challenges.
You can find Class B properties in the Midwest to BRRRR, but it will take more digging and YOU will need to understand how to analyze & identify them - because a lot of agents, wholesalers, PMCs, etc. will try to sell you Class C or D misrepresented as Class B:
· Many of them don't know/care what Class the properties are, so they're incompetent.
· Others know exactly what they are doing, so should be labeled as crooks!
EITHER WAY YOU LOSE!
Why is Property Class so important for investors to understand and apply in their investing strategies?
Because the Property Class dictates the Class of the tenant pool that the property will attract.
The Tenant Class greatly impacts rental income stability and property maintenance/damage by tenants.
Both Property Class and Tenant Class will affect what type of contractors, handymen and property management companies you should target and be willing to deal with a property.
The Property Class will also impact the maintenance & renovations you do to, “Maintain to the Neighborhood/Market”.
Why is that important?
Well, if you buy & renovate a property in Class D area to Class A standards, what Tenant Class will actually rent it?
Or, if you put several Class D tenants in a Class A four-plex, what do you think will happen to the property?
What do you think will happen if you rehab a Class D rental to Class A standards?
So, if you fail to apply the correct assumptions to a property, your expectations won’t be met, and it may even be a financial disaster.
We use the following to rank Property Classes, in order of importance:
Property Tenant Pool: closely linked to location, but not always.
Property Location: closely linked to tenant pool, but not always.
Property Condition & Amenities: it’s important to, “Maintain to the Neighborhood/Market.”
Key metrics for each Property Class:
Class A Properties:
Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years.
Tenant Default: 0-5% probability of eviction or early lease termination.
Section 8: Class A rents are too high and won’t be approved.
Vacancies: 5-10%, depending on market conditions.
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Class B Properties:
Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
Tenant Default: 5-10% probability of eviction or early lease termination.
Vacancies: 10-15%, depending on market conditions.
Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation.
Section 8: Class B rents are usually too high for the Section 8 program.
Class C Properties:
Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability.
Tenant Default: 10-20% probability of eviction or early lease termination.
Section 8: Class C rents usually meet program requirements, proper screening still recommended.
Vacancies: 10-20%, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.
Class D Properties:
Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”.
Tenant Default: 20-30% probability of eviction or early lease termination.
Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection.
Vacancies: 20%+, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.
Where did we get our FICO credit score information from?
Check out this chart:
FICO Score | Pct of Population | Default Probability |
800 or more | 13.00% | 1.00% |
750-799 | 27.00% | 1.00% |
700-749 | 18.00% | 4.40% |
650-699 | 15.00% | 8.90% |
600-649 | 12.00% | 15.80% |
550-599 | 8.00% | 22.50% |
500-549 | 5.00% | 28.40% |
Less than 499 | 2.00% | 41.00% |
Make sure you understand the Class of properties you are looking at and the corresponding results to expect.
For example, Metro Detroit has 132 cities and the City of Detroit 183 Neighborhoods, which we’re analyzing and classifying to make better investing decisions.
Logical Property Management4.9469 Reviews
32 Replies
plenty of markets still have cash-flowing deals... look up data commons by google thats what i used for to find a market where i ended up buying 47 doors and do your own analysis. narrow it down, then check actual rents, vacancy and repair costs with owners in those neighborhoods. You can find them on BP. Also figure out how you will manage. If you want to outsource then may be add "selecting a good PM" as a pre req for the market selection too.
- Homeowner · Member since 2023 · 6 posts · 0 votes3w
I really like Buffalo. Just bought here. Great ROI. Very safe and affordable even close to the Delaware Park area.
I'm planning on getting my property in Ohio.
You can go to capatlas.pages.dev and filter based on the capatlas score above 60 to get decent ones over all. And select the metric that you care about the most and go to the top ranked metros. - 3wJoseph ScoreseBusiness MemberBanker · Philadelphia · Member since 2009 · 2k+ posts · 646 votes
Carson, great questions, especially for someone preparing to make their first investment.
I've been involved in real estate and financing for years, and one thing I've learned is that there really isn't a perfect market. There are good deals and bad deals in just about every market. The key is understanding the numbers, the local economy, rental demand, and your exit strategy.
Indiana can certainly be worth exploring, along with parts of Ohio, Pennsylvania, and the Midwest. But I wouldn't select a market simply because properties are inexpensive. Cheap doesn't always mean profitable.
When investing long distance, your local team is everything. Find a reliable investor-friendly agent, property manager, contractor, and title company. Personally, I'd want boots on the ground before putting a dollar into a property.
As far as financing, getting a loan outside your home state isn't necessarily complicated. I work with investors nationwide, and programs such as DSCR loans allow qualified borrowers to finance rental properties primarily based on the property's cash flow rather than traditional personal income.
My advice? Pick two or three markets, study them thoroughly, build relationships, and underwrite deals conservatively. Don't rush your first investment just to become an investor. Your first deal should put you in a position to do your second.
Feel free to reach out. I'm always happy to share what I've learned and help you understand the financing side.
Joseph V. Scorese
- 2wNoah WrightBusiness MemberUSA, Nationwide · Member since 2024 · 342 posts · 123 votes
Looking at Indiana from Salt Lake is a sensible place to start, and thinking about the loan before the property puts you ahead of a lot of new investors. On the financing, most DSCR lenders qualify the loan on the property's rent rather than your W-2, which is why it's a common choice for out of state buyers. The rent that usually counts is the appraiser's market rent estimate, not the listing number or a seller's pro forma. If that estimate comes in lower than you planned, many lenders will lower the loan amount, so you bring more cash to closing. Run your numbers on a conservative rent from the start. A deal is only as good as the rent someone other than the seller will stand behind.
- 2wRyan BrownPro MemberReal Estate Agent · Louisville, KY · Member since 2022 · 93 posts · 31 votes
@Carson Tuttle Hey Carson, Louisville agent here. Since you mentioned Indiana, Louisville sits right across the river from Southern Indiana (Jeffersonville, New Albany, Clarksville). If Indiana's on your list, it's worth looking at both sides of the bridge. It's one metro, so you can see both in a single trip.
I've partnered with and done deals for a lot of out-of-state investors here, and the ones that go well usually have one thing in common. They picked one market, came out once, and had their lender, property manager and inspector lined up before they made an offer. The ones that go badly usually bought off a spreadsheet and tried to build the team after closing.
The loan side is less complicated than people think. Most out-of-state buyers go one of three ways: a conventional investment loan (usually 15-25% down, qualified on your income), a DSCR loan (the property's rent qualifies it, rates run a bit higher), or a local bank that keeps the loan in house. That last one gets overlooked. I work with a couple of local lenders here who are happy to lend to out-of-state clients and tend to be more flexible than the big national lenders. Whichever way you go, get pre-approved first so you know your real price range before you start shopping.
Happy to connect you with one of them if you want to see what you'd qualify for. What kind of budget are you working with?
- Real Estate Agent · Tulsa, OK · Member since 2026 · 6 posts · 0 votes1w
You should look into the Tulsa area, I'd love to be a connection for you over here.
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