Choosing the best state to invest in real estate

Chapter 2: Step 1

Choosing the state you want to invest in for real estate.

Time: 12 hours max, Day 1 (not more than one business day, after you get some experience, you will take more time finding markets, but most people get stuck here and never start.  Don’t let failure kick in before you have had a chance for successful real estate investing).

From the super simple quick start guide your first step is to choose the state that you want to invest in.  There are a couple major opinions when deciding where you want your first (or next) investments to be in: either stay local or got out of driving range find the best return for the dollar and your ability.

1) Staying local:

Keeping it local makes life as a real estate investor much easier and allows you to grow into the business at your pace.  Also funding is easier when you are local. I hear from people all the time that there are no “Deals” in their area.  When the real problem is that they don’t know how to market, evaluate deals and are afraid to get out and talk to people.

Reasons to avoid staying local: If you have a terrible job market, lots of crime, bad business environment or are unable to get rental or property insurance in your area.

2) Looking elsewhere:

There are a lot of emerging markets all over the country and some cities are in a state of growth.  At all times (boom or depression), there is a cycle to real estate and things are either looking up (appreciating), looking down(depreciating) or in transition.  It’s cyclical (imagine a line that goes up and down like a wave) and most areas have a cycle that you can anticipate to some degree.  Some areas have a 8 year cycle while others have a 20 year cycle.  Some have a huge variation (in hundreds of thousands) in price from the top of the cycle to the bottom while others only have a minor price distinction (3 or 5 thousand).  Look for areas with job growth and or infrastructure improvement.

Remember there is as much money to make in a depreciating market as there is in an appreciating  market, you just need to know the right tools.  That said, I prefer to be in an appreciating markets or markets that are stable and offer a high return.

Also, there are plenty of low price point markets that are easy to buy and manage properties that produce great cash flowing assets. For the most part this is how I got started in real estate.  I found a couple markets through friends, partners, coaches, and mentors that I was able to get into buying properties at a low price point and found some great deals that I was able to rehab with my team and make consistent cash flow.  My first goal was to make over 5k per month from my rental portfolio.  This doesn’t sound like much, but it was my security cash flow target.  You need to figure out what your point is and what you are willing to do to make it.  It took me 3 years to get to that point and from there I didn’t have to worry about finding a job for my wife or myself and I was free to do what I wanted, which is to make more investments, travel and have fun!

The first step is to know yourself.   Do you have the ability to travel for investments?  Will work or family get in your way? First define what your minimum rate of return for you is.  Will you be happy with 5%, 10% or 20% returns?  Once you know what you can live with, take a good look at your area.  Start evaluating opportunities right in your back yard.  This is the best option to start with.

Find your realtor(s)! Go online and find some realtors.  Try to find investment properties (key words like, fixer upper, mold, ugly, needs tlc, great return, etcetera…) and see what realtors are listing them.  Call up these realtors and arrange to meet them.  Don’t be upset if you make 20 calls, and only 3 or 4 call you back, let this motivate you to get your realtor license.  Yes, having a real estate license means more responsibility, but much more money for you in the long run and there is nothing wrong with ‘having’ to run your business ethically. (More tips on this and more in the newsletter).

Segment your market.  Do some research on your area of interest (start with your local area).  Find out the pricing for neighborhoods. I like to use heat maps(do a google search for it, it’s hard to find) to give me a graphical view of the pricing for areas of town. From here you can figure out what are good rental properties (for yourself or other landlords), and what are good areas to flip in.

Some questions for your prospective realtors:

  • What is the median home price for these areas.

  • What are rents for these areas (some MLS systems have good data on these, while others do not, check out your areas).

  • What are the FHA lending limits for these areas.

  • Can you put me on hot sheets for properties that look like they are good for investors.

  • Do you have any listings that I can check out right away that will offer (a) a great rental return or (b) a great flipping opportunity (depending on what you are looking for).

  • Does he work with other investors?

  • Ask what they bring to the table and how they will help you be successful and find and sell properties efficiently.

  • How is the job market here?  Is there industry coming in or leaving?  (even if you are looking locally, you can say that you are looking for other people opinions on this because realtors usually keep an eye on trends that will improve or hurt real estate values).

  • Are more people looking to buy or sell right now? Are more people moving in to the area then are moving out?

  • What is the REO market like here and how are the banks pricing their properties?

  • What are the average days on market and are properties selling for under, over or for asking price?

  • Where do they see the market going in the next 12 months and what areas are hot for Landlords, first time home buyers and upgrade homes.

Hints in dealing with a realtor:

  • They are not trained investors.  Don’t expect them to be, but do expect them to be able and excited to work with you.  If they aren’t working well with you in the beginning, don’t brush them off, but keep looking for a good match.  Remember that most of them do not have a degree, but value their Real estate sales agent certification very very very highly (like an MBA graduate or a CPA would) and do not understand how to make money.

  • They have limited time and view their time and gas as precious.  The more professional you sound and the better your real estate vocabulary the better your relationship will be.  They are evaluating you and trying to see if you are serious or wishy washy.  The more focused you are on what you are looking for and the better you can communicate it the more engaged they will be.

  • Experience is nice to have, but if you don’t have assets under your belt, then look professional and focus.  Ask for specific listing criteria and know what you want ahead of time.

  • Ask them what they bring to the relationship.  The goal is for everyone to make money together.

  • Do not sign an exclusive buyer or seller agent agreement! If they ask you to, say something like, “I deal with multiple locations and agents.  I cannot sign a general agreement that will stop me from doing business.  If you have a specific address that you bring to me I will sign an agreement for that, but anytime you bring me a deal, you will definitely be my agent for that deal.  I want you to make a lot of money with me so that we can work well together.  Don’t you think that fair?”

  • By the way, in many states you can get your own realtor license in a month, some states you can do it online even.  To become a broker, most states require at least an associates degree and 2 years of experience.

Join your local REIA (Real Estate Investment Association).  If there isn’t one, then start one!  There are lots of benefits of being a REIA member, usually including benefits and discounts that pay for themselves many times over if you are actively investing.  If you are on the line of deciding to invest locally or in another state, this will be a great place for you to figure out if there is opportunity in your area.  Also look for landlord associations and check them out.

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