When you live in a hot market, it is very difficult to find a rental property that will provide decent returns. You are basically lucky if you can even get it to cash flow. If you are okay with purchasing rental properties that don’t cash flow then your chances of financial freedom are slim. There are some folks who also are okay with even just breaking even on rental properties. This also I avoid like the black plague. I just cant find any reason why I would ever do this. Some may say that they are hoping for appreciation and that in a few years they can make out by selling the house at significant amount more then what it was purchased for. This I also avoid. I am not in the business of gambling my friends and this is exactly what type of investment this is. I mean don’t get me wrong, I like to throw some money down on draft kings during football season for some fun but that’s a whole different topic to be discussed another day.
At some point you will come to the conclusion that if you seriously want to invest in real estate, rental properties that is, you will have to go outside your comfort zone and start looking outside your hometown. This could be an extremely scary thought for some however if done properly you can minimize risk. Just make sure you have a strict criteria and you due proper due diligence on your new city, your new turnkey seller and the house(s) you are interested in. If everything comes out as expected then I say go for it. That is exactly what I have done now and so far its going great.
I thought long and hard about what city I wanted to begin purchasing rentals and after countless hours of reading about all kinds of statistics and stories I decided on the great city of Indianapolis. Indianapolis fit all my criteria as a city and from a real estate market perspective. The following stats and qualities below can be applied to any city. Its a good idea to incorporate some if not all of these in whatever city you wish to invest in: (in no particular order)
1) A steady increasing population. If you google your city name with population appended to it you will see the chart. You want to see this going up, not down.
2) A city with a diverse economy and not tied down to single job industries. One with plenty of big employers there and the city is not relying on single companies or an industry to keep it afloat.
3) A city with a good sports/arts/cultural awareness. Nobody wants a boring city. People needs things to do and places to go. Look for professional sports, major universities. A city that has a great night life also helps. If it has plenty of bars and a good music scene it will attract more people. More people = more renters!
4) Cheap real estate! I realize the amount real estate is worth is greatly dependent on where you are from and what you are used to. To me and the type of properties I’m looking to purchase, I want these properties to be affordable. Its possible to get a good rental in blue collar area for anywhere between 50k to 70k all in. I also have houses in my hometown where they are in the 115k to 150k range. These types of properties make for good rentals as long as the rent prices are in the $1200 – $1600 range. Now grant it the cheaper the properties, the more run down the neighborhood might be. This is why due diligence is vital and you need to make sure you do not purchase in a neighborhood you are not comfortable in. I like C class, blue collar neighborhoods with low crime. These are perfect rental properties and have great cash flow.
Here are actual real life examples of the turnkey properties I have purchase so far.
My goal for is to purchase probably about 4 to 5 rentals in one city then move on to a new city. This will be my way of diversifying my portfolio. By having rentals in different cities and states I can minimize the risk.
Do you want to invest in an out of state rental property? Whats holding you back? What cities are you looking at? I’d love to hear from you on this.