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Guest Blog: How to Choose Where to Invest

This blog was originally published by Marshall Reddick Real Estate Network.

Written by
Ross Nelson

CEO

As CEO and Partner of MRREN, Mr. Nelson is responsible for managing the investment groups, brokerages, and real estate service relationships as well as overseeing investor transactions. He acquired his first investment property at age 23 and many since. Mr. Nelson also has been a licensed California Real Estate Broker since 2009.


How to Choose Where to Invest

How do you go about choosing where to invest? There are a number of factors to consider. At the Marshall Reddick Real Estate Network we spend a lot of time researching the best markets across the country for our investors. We look at a variety of criteria such as cash flow, potential for appreciation, affordability, rental demand, job market and economic diversity, state eviction laws, good educational systems, and availability of quality property management. These are all important factors to look at when choosing a market to invest and all must be taken into account.

We stick to large metropolitan markets, or “MSA’s” as they are technically referred to. Many of the markets we select are actually state capitals because they have a larger population (bigger tenant pool) and stronger job market (lower vacancies). Also, large cities tend to experience more appreciation in home prices than smaller cities do. Within these large metropolitan markets like Phoenix, Austin, Atlanta, Memphis, Indianapolis, and Kansas City just to name a few, we find that the suburbs usually have better school districts, higher quality neighborhoods that attract families (families tend to stay longer in properties), newer properties (less maintenance required), and lower crime rates compared to the inner city.

Some factors that help us choose the suburbs within these large metropolitan markets are proximity to: job market, shopping, major freeways and good schools. One of the many tools we use for our research is www.bestplaces.net.  We look for towns that have colleges, good health care, good schools, low unemployment and diverse recreational opportunities. We know these things make for great investment areas.

Not all investors have the same investment objectives. This may be due to a difference in age, a difference in risk tolerance, or a difference in available capital.       We therefore offer different categories of properties to fit different investor requirements. “A” Properties offer higher appreciation, “B” Properties offer a balance of appreciation and cash flow, and “C” Properties have higher cash flow. The reason for these distinctions is that older homes cost less that they can rent for less, therefore have greater rental demand and better cash flow. The “Rent-to-Price” ratio is usually better in older homes.

Formula for Rent-to-Price Ratio: Monthly rent divided by Purchase Price. Example: Monthly rent is $1,000, Purchase Price is $100,000, Rent-to-Price ratio = 1%. The higher the number, the better the cash flow.

There are two major driving forces in Real Estate today: 1) Where are the jobs? 2) Where are the Baby Boomers retiring to? The retiring Baby Boomer population is huge and retiring at the rate of 10,000 per day and will be for the next 20 years. This puts a lot of pressure on the areas where they elect to retire. Many will be retiring to the more affordable Sunbelt states like Arizona, Texas, and Florida and many will choose to rent.

While California may be a great place to live, it does not pass the test of a great place to invest. Prices have gotten so high it’s hard to break even with a huge down payment, let alone cash flow. The Rent-to-Price ratio really fails the test in California. With the down payment required to buy1 house in California, you can buy 4 houses out of state and have greater cash flow. Not to mention that California is considered a “Tenant Friendly” state, meaning that the eviction and rent restriction laws are HEAVILY favored towards the tenants. It’s not uncommon for an eviction to take 6 months in CA, all the while someone has to pay the staggering mortgage.

Let us help you find the area and the property that best fits your investment objectives. To get started, book a complementary Real Estate Consultation with one of our Real Estate Advisors who are not only licensed, but also experienced investors and property owners themselves.

Click here: http://www.bookedin.net/marshall-reddick-real-estate-network-2  

 

Real Estate Consultation Includes:

 

1.    Setting your financial and retirement goals

2.    Creating your unique investment criteria (Where, What, When and How)

3.    Making a step-by-step action plan to achieve financial independence

 




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