Local vs Out of State
First you must decide if you want to invest locally around where your primary residence is or out of state. Many people on the coasts find it hard to invest locally because of the higher costs and they feel forced to invest out of state, while others may have more options. Here in Chicago and suburbs there are houses available at all price points and rental rates so I could have invested locally. I ultimately decided against it because I knew that if I had a rental property nearby, I would constantly drive by and check on it. This may not be a dealbreaker for most people, but I personally wanted my real estate to be more passive and hands-off so I started looking elsewhere.
Choosing a City to Invest In
As I mentioned, the coastal cities are really tough to invest in. If you are interested in purchasing property there, it’s more of an appreciation game you’re playing instead of monthly cash flow. A lot of midwest cities are able to hit the mark for cash flow though.
Here is a common list I see posted on various websites (in alphabetical order):
- Atlanta, Georgia
- Birmingham, Alabama
- Cincinnati, Ohio
- Columbus, Ohio
- Detroit, Michigan
- Indianapolis, Indiana
- Jacksonville, Florida
- Kansas City, Missouri
- Memphis, Tennessee
- Milwaukee, Wisconsin
- Oklahoma City, Oklahoma
- Pittsburgh, Pennsylvania
- Tampa, Florida
- Toledo, Ohio
There are many more out there as well, so treat this as a starting list of ideas and branch out from there if none of these seem like a good fit for you.
Once you have your list of potential cities, you need to narrow them down. Here is what I personally look for:
- Strong population growth
- Strong job growth
- Stable and diverse industries
- Low property taxes
- Landlord-friendly state
You can use websites such as city-data.com to review each city’s specifics.
I personally chose Kansas City and Pittsburgh for my investment properties.