If there’s one thing I see rookie real estate investors struggle with the most, it’s choosing a market, or the best places to buy rental property.
And it’s totally understandable.
There is a TON of information out there.
Everyone has an opinion on what they believe are the best places to buy rental properties, and these opinions are often extremely biased.
In short, it’s intimidating and it’s easy to be pulled in all sorts of directions when choosing a real estate investing market.
In this post, I’m going to provide you with a step-by-step framework for how to think through this complex decision.
My goal is to help you determine the best places to buy rental property for YOU. That’s a lot different than how the masses approach this problem.
And that’s the number one mistake people make when choosing a real estate investing market. They get hung up on whatever everyone else believes is best and forget to consider what’s best for them.
There are three steps to this process:
- Find markets that align with your goals
- Narrow to markets you are familiar with
- Determine what’s most viable
That may sound a bit abstract but I’ll take you through each step and you will be able to use this framework for determining the best places to invest in real estate for you!
Step #1: Understand Your Real Estate Investing Goals
Chances are you already have some ideas for where you want to start buying rental property.
But you may not have actually dug in to make sure those markets make sense.
The very first thing you need to do is understand your goal.
And it can’t be something like, “I want to retire early”. It has to be much more defined than that.
Defining Your Real Estate Investing Goal
I actually have a blog post on how to properly define a real estate investing goal, so be sure to read that if you haven’t already.
A proper goal will have both a time component as well as a monetary one. For example, mine was to create at least $8,000 in net cash flow in 5 years or less.
That’s a very clear, cash flow oriented goal.
But you might be in a completely different place.
Maybe you enjoy your W2 and simply want real estate exposure. Flesh out exactly what that looks like and over what period of time.
But also don’t forget to include your “why”.
Why Are You Investing In Real Estate?
My primary focus was cash flow because I wanted to be able to move back to California without my wife needing to go back to a W2 job.
That’s a very clear reason to be investing in real estate.
A goal is not complete without a why. And you’re going to need it.
Things will get tough, you will want to quit, and remembering why you’re doing it will keep you going.
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Step #2: Choose A Market Where You Have Some Knowledge
The best places to buy rental property are the places you understand.
Really, that’s your most likely competitive advantage. The more you understand a market, the better investment decisions you can make.
So the obvious best place to invest is where you live.
The Best Places To Buy Rental Property Is Your Local Market
It is unlikely you know any market better than the one you live in.
And there’s no substitute for being able to physically visit your properties, projects, tenants, etc.
When I started investing in Detroit in 2019 I lived in the suburbs. I was a short 20-30 minute drive from any of my rentals.
Even still, I made major mistakes, got taken advantage of by contractors, etc. But I could be there to take care of it in person.
Being physically present was key to my success.
But I was lucky.
It just so happened that my goals aligned with the market that was right in my backyard. Many folks don’t have that luxury, especially those that live in high cost of living locations.
Favor Markets Where You Have Roots
If investing in your local market is just out of the question, the next best thing is to invest somewhere that you have knowledge, family, friends, etc.
Maybe it’s somewhere you previously lived, went to college, or grew up. The important thing here is you have some familiarity with the market and maybe even a bit of a network.
Again, this should be tied into the most important criteria, your goals.
If you’re in San Francisco and know a bunch of people in Miami, that’s cool. But it’s not going to be helpful unless investing in Miami makes sense for your goals.
So what if you still don’t have a market that makes sense for your goals that you also have roots in?
If All Else Fails Rely On Research
Luckily, familiarizing yourself with a market and building a network is something that can be done from scratch.
It takes some work, and you need to be smart about it. But it’s definitely doable.
Connect with people already operating in a handful of markets that align with your goals, learn about the cities, neighborhoods, etc.
I’m doing my best to create awesome resources for folks looking into Detroit real estate investing, for example.
And it never hurts to visit if you can. You’re making a big investment. Take it seriously and do your due diligence.
Yes, ultimately there will be a big part of this process that relies on trusting the people you choose to work with. But you also need to educate yourself.
Step #3: Choose A Market That’s Viable For You
The final criteria for choosing a real estate investing market is really a sort of test.
Is it viable?
That doesn’t mean whether or not it can be done.
It means is it viable for you, your goals, your financial situation, and your personal bandwidth?
The Best Places To Buy Rental Property Will Match Your Goals
We’ve already touched on this a bit, but it’s worth fleshing out.
When I started investing I was 100% certain I was going to be purchasing rental properties in Ann Arbor.
But guess what? I don’t own any rentals in Ann Arbor.
It was 2017 and my wife and I decided we were ready to start thinking about our first rental. But as I started crunching numbers on potential deals, I realized I had to be “missing something”.
None of the deals really cash flowed all that much. I was looking at homes in the $200,000 – $250,000 range and finding either negative cash flow or very little.
Here’s a house we looked at buying for $220,000 in Ann Arbor:
With some real digging I could find deals like this that would cash flow maybe $100 per door.
But that was a real problem.
There was zero chance we would hit our goal of creating $8,000 in monthly net cash flow in under 5 years if our plan was to buy $200,000 properties and make $100 per month.
It wasn’t going to work.
So we had to take a step back and look at other options. We quickly realized the Detroit market was the best place for us to buy rental property because it better aligned with our goals.
Do You Have Enough Capital?
But we didn’t make that leap all at once.
In early 2018 I distinctly recall throwing our toddler in the back seat and hitting the road to scope out some potential real estate investments.
We went through Allen Park and Redford, looking at homes in the $55,000 – $65,000 range.
They looked alright, and they made sense on paper, but we only had about $50,000 in savings at the time.
Since our strategy heavily relied on paying cash for deals, fixing them up, and then refinancing, this just wasn’t going to work. We decided to pause and figure out how we could come up with more capital.
Ultimately, we utilized a HELOC to get started investing. And we decided Detroit proper made the most sense for our goals.
Whatever your goal and market is, you’re going to need to make sure you actually have the money to pull it off.
Scaling quickly is great, but it generally takes a fair bit of capital.
Putting 20% down on a rental property is also great, but you won’t be creating equity and scaling quickly that way.
We’re veering a bit into general strategy here but understanding what you’re personally capable of is paramount when choosing a market.
Does Your Strategy Match Your Bandwidth?
Speaking of what you’re capable of… what is your personal bandwidth like?
A lot of people have dreams of building their “core four” (queue eye roll) and going it alone.
That’s great. I respect the desire to do that. But it’s an awfully big hill to climb, especially if you aren’t operating in your local market.
It’s tough even if you are.
And if you have a demanding job, kids, or outside interests… good luck!
This is why a lot of people end up buying turnkey rentals. It’s by far my least favorite strategy, but I understand why folks gravitate toward it.
But most people are wanting to force some value and scale a portfolio more aggressively. That’s exactly why we offer a non-traditional turnkey real estate investing service in the Detroit market.
We marry the best of both worlds.
Whatever direction you decide to take, make sure you are mentally prepared for putting in the work.
Adjust your market and your strategy to fit your lifestyle and expectations.
The Best Places To Buy Rental Property Is Highly Personal
Hopefully by now you understand that the best places to buy rental property are not found by looking at a bunch of data or listening to what a guru is hyping.
It’s far more nuanced and personal than that.
And I know it’s overwhelming.
All you want to do is get going and start making progress. I get that. I’ve been there.
But slowing it down and going through this process will set you up for success.
And it will also give you conviction on your market of choice. I’m big on making concentrated bets, and you simply can’t do that without conviction.
And you can’t have conviction unless you understand exactly what you’re doing and why.
People will call you crazy, challenge you, tell you you’re wrong or worse. And you’re going to have to have the mental conviction to keep going.
Take the time now to do it right so you can stay the course later.