In response to a blog I saw online, I had commented with a quick analysis of some great rental markets out there right now. The conversation was about markets having either good cash flow, appreciation potential, or both. Here was my analysis. Remember, I just taught you the difference in the macro- versus micro-markets. This list is all macros, just FYI. And it pertains to buy-and-holds only.

The Good: (good price-to-rents, taxes and insurance are affordable, great population trends…)
Phoenix– new construction is now cheaper than existing properties. Turnkeys are no longer the way to go. New construction only. (that window closed about 6-10 months ago)
Atlanta– the hottest market right now, but following Phoenix’s trend, so it won’t be much longer before new construction is the way to go there too. High cash flow, appreciation potential is very high. The appraisal system is broken, tho, so financing is a little squirrley.
Memphis– good cash flow, mild appreciation potential, but limited exit strategies because 45% of the population rents so resale later will likely be to another investor.
Charlotte– good cash flow, medium appreciation potential, smaller city but up and coming, especially being so close to Atlanta.
Houston– lots of built-in equity from the start (good appraisals), good cash flow, good appreciation potential
Indianapolis– crazy high cash flow! Little chance of appreciation but because of a very stable market.

The Bad: (only two of many examples)
Los Angeles and Florida– Bad price-to-rent ratio (no cash flow), tenant-friendly states (can’t get rid of bad tenants easily), property tax and insurance expenses are crazy high

The Ugly:
Detroit– Don’t let the numbers fool you. Detroit investors have been in trouble for awhile. Tenant-friendly state with bad tenants (at least for where the investment properties are). Good chance a drug lab will be set up in your house and deem it uninhabitable and then you have a total loss. Not judging, just stating facts.

Again, remember, these are the macro-markets. You want to know more about the micro-markets within these before you invest. Research wisely. (or ask me!) I just don’t want to write the world’s longest blog spelling out the micros too. But this list should give you a good idea at how different markets are in fact different, and hopefully helps you realize what you should look for when picking a market.

1st rule: Don’t lose money. The numbers should justify your decision to invest there.

2nd rule: I’m human. I know people have unjustifiable preferences sometimes. Some want cash flow, some want appreciation potential, some want southern, some want western…whatever. Just make sure the numbers support it.

Comments
  • Jennifer
    Reply

    So glad I came across your site. (I found you on BP.) Anywho, I’m a Memphian, it’s so rare to see the city mentioned as a good place to invest. But it is. And most of the city is willing to rent before they’d buy.

    On occasion we run into a great tenant that wants to buy the place they’re renting which is always nice.

    I’ve only purchased foreclosures there. Looking at opportunities in Atlanta now.

    Thanks for your article.

    • Ali
      Reply

      You’re very welcome Jennifer!

  • Peter
    Reply

    Hi Ali. I saw you on Bigger Pockets. I see that you are involved In Chicago area RE. Are you doing wholesale in that area? I love your candid view of everything and humor.
    I am trying to get into REI more actively but finding the right property seems to be the biggest hurdle right now. My first choice would be to fix/flip then buy -and-hold in right neighborhood. Love to hear from you.

    • Ali
      Reply

      Hi Peter, nope we don’t work with wholesaling or fix/flipping. If you are just looking for good buy and holds, we do have those. All fully rehabbed.

  • John
    Reply

    Hey Ali,
    Found your blog today from biggerpockets.com and have loved going through it. I’ve always wanted to get into investing in real estate but have been scared to jump in and don’t really know how to start. I’m specifically interested in starting in Denver, as that’s where my family lives, would you consider this a good/bad/decent market? Would love to get some advice, pointers, and a kick in the pants to get moving.
    Thanks!
    -J

    • Ali
      Reply

      Hey John! I can definitely try to help you get started if you are interested. I have family in Colorado Springs actually. Not Denver of course, but pretty close. The problem with Denver and cities like that (oftentimes called “sexy” cities…although the real sexy ones are more like Miami, LA, NY, etc. but Denver is semi related) is that the prices are so high to buy a property that it doesn’t make sense from a numbers standpoint to buy them as investments. The easiest example is- if the rent you can get from a tenant doesn’t cover the mortgage, you will be very negative in your cash flow. That’s bad. You always want positive cash flow no matter what. So that is why the “sexy” cities aren’t always the best investments. I don’t know that about Denver for sure, but I’m pretty certain it falls in that category. I’ve never heard any investor mention Denver, and I believe most Colorado cities are pretty expensive. Phoenix has some properties, not too far from Denver (relatively), but even the returns on those are pretty slim. But once you start jumping into other cities, you’d be amazed how well you can do from a returns perspective. If you want to chat more, definitely let me know and I can try to help.

  • Ping
    Reply

    Hello Ali,
    Great information, especially for beginners like me. I have a full time job, so I am only interested in turn key properties that I don’t have to spend a lot of time or worry about it. You mentioned that you have some good contacts regarding turn key opportunity, could you share?

    Thanks,

    Ping

    • Ali
      Reply

      Hey Ping, absolutely! I’ll have to email you with them though. Can’t disclose all the names on here in open space 🙂

  • francesca
    Reply

    hi, thanks for your sharing of information!
    I want to buy a small multi family with 3-6 units.
    I have cash for downpayment, but my credit rating us only about 560. is it possible to get financing for a profitable building with that scenario, and what percentage would I have to put down.
    Can you recommend any books on the subject?
    what is considered turnkey in the apt building rental market?
    thank you so much, I need all the help I can get.
    best,
    francesca

    • Ali
      Reply

      Hi Francesca, thanks for writing. Sorry, I don’t know what is considered turnkey in the apartment market as I haven’t hopped into that market yet. As for financing, sounds like your best bet would be to focus on properties with 4 or more units because then you’d be looking at a commercial loan, which is approved based on the property. I don’t have personal experience in commercial loans so you will need to do some online research and talk to some lenders to get a better feel for how they work.

  • JULIE
    Reply

    Hi Ali .
    I am glad I found your blog and info.
    I’m curious….how do you fund your turn-key purchases? Has it all been all your own money?

    • Ali
      Reply

      Hi Julie! A couple years ago I met a team of guys who only focus on turnkeys. They do all of the market analyses, search for good turnkey providers, establish the relationships with them and put a team on the ground to check out the operations. Once they do that and get a new turnkey provider established, they let me (and their other buyers) know about them to see if we are interested.

      As far as my own money, no, most of it has not. I think only about 1/2 of one down payment was actually mine and that was only because push came to shove and we needed it done. Other than that it has been an investor’s money. He puts the cash in, I take the mortgage and the title and manage it and we split 50/50.

  • Shane E Keller
    Reply

    Hello Ali – Your blog is full of extremely useful information and I am very appreciative. I have some questions if you have time to answer them: How exactly would you define new construction in AZ, and how would you go about locating it? Also, the best resource I’ve found for attempting to research this type of info is neighborhoodscout.com – do you have any other suggestions? And lastly, if you have contacts with whom you may have worked in places like Charlotte and Atlanta (realtors, lenders, hard money/private money lenders, property managers, etc.), please let me know how I might contact them if I decide to take that step …
    Thanks!
    Shane

    • Ali
      Reply

      Hi Shane!

      Thanks for your comment! I do have some great contacts in Atlanta especially, and Charlotte as well. I work mostly with turnkeys in both of those cities, but I have contacts in Atlanta outside of the turnkeys as well. As far as Phoenix, the short answer is that it is just cheaper to build a new house than it is to buy an existing one, which is why turnkeys there are no longer the way to go. Might as well just build a new house since it is cheaper. Every now and then a good turnkey may still be found, but they are far and few between now. As for neighborhood information, I really haven’t dug around the internet that much to know the sites very well (plus as you know you always want to be leery with information you find on the internet). I’m into turnkeys in all of the cities I mentioned, so all of that information is just my observation based on the actuals. Shoot me an email when you get a chance and we can talk about contacts. ali@hipsterinvestments.com

      Ali

      • Jay Bhatt
        Reply

        Hi Ali,

        Great website. I stumbled upon your quora posts which lead me to your website and subsequently to BP and lot of other websites like turnkey-reviews etc.
        I wanted to request if you can update the list or what would be your recommended markets at current time?
        In your podcast on turnkey-reviews, you mentioned that Atlanta may have passed its prime and it’s time to look for new markets. Any suggestions on what could be next generation markets? Thanks.

        • Ali
          Reply

          Hi Jay! Sure. Which list are you referring to though? As far as markets, they are always changing but right now we are recommending Indy, Kansas City, Philly, and Chicago. But it’s fluid. Shoot us a message on our Contact Form and we can send you some live inventory in different markets so you can get a feel for what is available, and recommended, right now.

          • Jay Bhatt

            Hi Ali,

            I tried to reach you via BP since there was a technical error while posting a comment or submitting the contact form.

Leave a Comment

Your message.

Who are you?