Many investors cannot buy cash flowing properties where they live locally due to high home values. Many investors also want to diversify their rental property portfolio by investing in out-of-state rental properties. The hard part about investing in long-distance properties is deciding where to buy out-of-state properties. Where are investors buying and where can you get great cash flow?
What cities are turn-key rental property companies investing in?
I have done a lot of research on turn-key rental property providers and I wrote an article on the basics of turn-key investing here. Turn-key rental property providers buy homes, renovate them and then place a tenant in the home. After the home is rented and managed, they sell the home to investors. I noticed many trends of where the turn-key investment companies are investing. Below are the most common places I have seen the turn-keys set up shop.
Memphis appears to be the number one place for turn-keys with relative low house prices and high rental rates. There are at least five turn-key companies investing in Memphis now. In fact some turn-key companies are moving out of Dallas because there are so many investors there, they are worried about the market. For a list of my turn-key providers please send me an inquiry here.
Indianapolis is another popular spot for the turn-key providers. There are many turn-key companies investing in Indianapolis, because of low prices compared to high rents.
Texas is a popular spot for the turn-keys as well. Texas has one of the most stable economies in the country and affordable real estate. However, Texas has very high taxes in some locations that makes it hard to cash flow. Texas is also predicted to have one of the strongest economies moving forward.
The turn-keys are still investing in Florida as well. South Florida like the Miami area has seen huge increases in property values and the focus seems to have shifted to mid Florida for cash flowing rental properties. Florida still has many foreclosures and opportunities to buy below market value.
Kansas City/St Louis
The turn-keys are also focusing on Kansas City and St Louis, although these areas have seen appreciating prices as well.
Ohio has many affordable housing markets; some are affordable because the economy is horrible and others are affordable because there is nothing flashy to Ohio. I know a couple of turn-key companies that focus in Ohio and have great cash flowing properties.
Many investors have swarmed to Milwaukee due to its low prices and high rents. I know a couple of turn-key companies in Milwaukee and many investors in the area buying with great cash flow.
What cities are the hedge funds buying long-distance properties in?
A few years ago hedge funds like Blackstone and Colony Capital started buying thousands of properties that they turned into rental properties. The most popular locations for the hedge funds were Southern California, Phoenix, Las Vegas, Atlanta, Southern Florida and other large metro areas. Here is a great article on how many homes the hedge funds have bought in Tampa Bay and how their buying has decreased recently.
The hedge funds have toned down their investing in these areas greatly because of high appreciation. The rent to value ratios in these areas have decreased and caused hedge funds to look elsewhere. Many hedge funds have ramped down their buying significantly because of the issues involved in renting and managing thousands of rental homes.
An interesting piece of information from the FICON conference was that hedge funds have started looking into buying homes in Europe. The European market is crashing due to the economy and houses can be bought extremely cheap. One company I talked to said they are buying homes at 20 cents on the dollar of what they sold for a few years ago and they are making 30 to 40 percent returns on their investment!
What areas of the country have the best economic outlook?
It is not only important to look at cash flow when deciding on an area to invest in, but the local economy of areas as well. There were a lot of economist and data experts at the conference who spoke about economic trends in different locations. I learned that the hedge funds and large investors do not randomly pick locations to buy real estate. They use professional firms to accumulate as much information as possible to pick locations. Some of the areas of the country with the best economic growth coincide with where the turn-keys are buying.
Predicted to have 33% percent appreciation over the next five years. Memphis has a very stable economy with many large businesses headquartered in the area. This may be why there are so many turn-key providers in Memphis.
Charlotte is expected to have 25% appreciation and an extremely strong local economy. Many of the economists said Charlotte has incredible growth potential with a new Boeing plant being built and has been off many investors radar up to this point.
Texas has a great economy anchored by the oil and has industry. Exxon is building a 3 billion dollar facility by Houston with 25,000 new jobs expected. Houston and Dallas is another area that keeps getting mentioned as a great opportunity for investors.
What does this data say about where out-of-state investors should be investing?
The tricky part about choosing a location to invest in is nobody knows what will actually happen. Even the smartest economists and investors can’t predict what will happen in specific locations. Having said that, the economists, turn-key companies and hedge funds spend a lot of money researching where to invest and what areas will provide the best returns. It may not be a bad thing to listen to the experts if you are trying to decide on a great place to invest. There are many other great places to invest besides what I listed here. I have also heard of great opportunities in Ohio, Milwaukee, Atlanta, Columbia and more. Columbia homes for sale are probably the least expensive of the cities on that list. I am going to keep investing locally because of the huge advantages I have as an agent and the reduction in costs.
Buying out-of-state properties is a challenge and risky. However, it is the only way some investors can find cash flowing properties. I would always try to visit any area you are going to invest in and if you have friends or family there, that would be a huge bonus. If you want to take the work out of buying out-of-state you may want to look into turn-key rental properties that are repaired, rented and managed by a property manager.