New real estate investors often struggle with where they should invest. Lacking experience in any particular market, they believe that opportunities only exist in certain areas. As a result, I often hear this question: Ryan, where are the best places to invest in real estate?
There are real estate investment opportunities everywhere! Instead of thinking about the best states, investors should analyze their local markets to determine where nearby opportunity exists. I do this by looking at the number of cash deals in local zip codes, which indicates the presence of deals.
In the rest of the article, I’ll dive into my thoughts on finding the best places to invest in real estate. Specifically, I’ll cover these topics:
- An Overview of Finding Real Estate Deals
- My Strategy for Where to Invest
- What I Look for in Target Zip Codes
- Driving for Dollars
- Cross Reference Properties with Investor’s Edge Data
- What If I Live in a Rural Area?
- Final Thoughts
Discovering the Best Places to Invest in Real Estate
It’s a theme I see over and over with new real estate investors: people get caught up in what state has the most investing opportunities and where are the best places to invest in real estate. In other words, people think no deal potential exists where they live, but there’s some perfect investing area elsewhere. There’s opportunity everywhere!
Instead of trying to find that perfect market, I recommend that investors look more close to home. That is, ask yourself: where is the most opportunity in my area? Once you’ve exhausted options in your local market, then start expanding your search to other markets and, potentially out of state. But, the key here is to begin looking for deals in your local area.
When talking about the best places to invest in real estate, I like to use a fishing analogy: fish where you know there’s fish. As a fisherman, it wouldn’t make sense to spend a bunch of time fishing a water hole or river that doesn’t have any fish. Similarly, as an investor, it doesn’t make sense to look for deals where none exist. And, this is what discourages plenty of new investors: they spend a ton of time looking for deals in areas that simply don’t have them. When they don’t find any opportunities, they get frustrated and call it quits.
But, this situation begs the question: how do you know where the “fish” are in your local area?
My Strategy for Where to Invest
After years of figuring out the best ways to find deals, I’ve settled on a tried-and-true strategy for identifying the areas with the most deal potential. First, I need to decide how far I’m willing to drive. This will depend somewhat on the population density in your area.
For instance, if you live in a rural area, you may need to drive much farther to see potential deals than someone who lives in a busy suburb. Personally, I recommend setting 30 minutes as an ideal drive with one hour as a maximum distance. On the outer edge of that range, you’re looking at a two-hour round trip to visit an investment property—long, but not impossible.
Next, I need a map. If you’re old school, a hard-copy one works. For the more technologically savvy, Google Maps works extremely well. On the map, I plot two points: my home and my office. On weekends, I search for deals from my home, while I search from my office during the week. From both of these points, I draw two circles: my 30-minute radius and the one-hour one (NOTE: Google Maps has a good tool to build a driving distance radius). The area within these circles becomes the geography where I’m willing to invest based on drive time.
I begin with the 30-minute radius, as I see the one-hour range as more of a back-up. Personally, I’d rather drive shorter distances than longer ones (obviously), so I focus my initial attention on the smaller circle. If I can’t find any deals in there—which is unlikely—I can always expand my search.
Within this circle, you’ll likely cover a variety of counties, towns, and individual zip codes. For every county that my circle touches, I break it down into a list of individual zip codes. If a zip code falls within my driving radius circle, it becomes a “yes” zip code, that is, an area where I’m willing to invest.
What I Look for in Target Zip Codes
However, just because a zip code meets my geographic criteria doesn’t mean it meets my investing criteria. To establish my list of actual “target zip codes,” I need to dig into some deal-related details for each of these areas.
In particular, I look for the number of cash sales that occured in each of my geographic “yes” zip codes over the preceding year. More precisely, I look for the number of cash sales within my purchase range. For instance, I may be willing to consider deals ranging from $75,000 to $500,000, so I’ll filter my search for cash sales that have happened within that range. Back to the fishing analogy: you want to fish where the most fish are. And, the number of cash transactions in an area serves as the best indicator of the number of deals that happened in that area.
When fix & flip or BRRR investors buy homes, they take one of two paths: use a hard money loan or pay with cash. In public records, hard money loan transactions appear the same way as any financed purchase. As a result, these transactions are tough to determine in an area. On the other hand, cash sales are reflected as cash sales. Accordingly, if a zip code has a large number of cash transactions over the past year, you know there are a lot of “fish” there, that is, a ton of deals.
So, while cash sales information doesn’t tell you about total deals in an area (as it ignores deals financed with hard money loans), these numbers provide the absolute best indicator for deal potential in a given zip code. Simply put, a lot of cash deals in an area means that investors are “pulling fish out” all the time.
Once I have a list of the number of cash sales for all of the zip codes in my geographic area, I run a basic Excel sort. With a couple clicks, I rank the “yes” zip codes by cash deals, from highest to lowest. With this sorting, I can clearly visualize the number of deals. For example, the top three zip codes may have had 20, 18, and 14 cash sales over the last year, while the bottom three may have had 2, 2, and 0. Clearly, the zip codes with the most cash sales represent the best “fishing holes.” As such, these become my target zip codes, or the places where I’ll look to invest!
After completing these steps, I’ve clearly identified the best places to invest in real estate for me personally. Each of my target zip codes now meets all of the following criteria:
- Close proximity to my home or office
- Plenty of deals available
- Deals within my price range
But, finding the areas to invest in is only a partial solution. Next, I need to actually find deals in those areas.
Driving for Dollars
Once I have my target zip codes, how do I find deals in those areas?
In more than two decades of investing in real estate, I’ve tried a bunch of different strategies for finding individual deals. One strategy absolutely beats all the others: driving for dollars! And, it’s really as simple as it sounds. Every week, you need to carve out a few hours to hop in your car and drive around your target zip codes.
More specifically, when you drive for dollars, you need to drive every single street and road in a target zip code. During these drives, you look for homes that exhibit signs of disrepair, distress, or abandonment. While not an all-inclusive list, here are some key indicators:
- Clear signs of disrepair or damage on a home’s exterior
- Overgrown grass, bushes, and other signs of landscaping neglect
- No blinds or window coverings – can see right through the house
- Snow on the ground but no footprints or tire tracks
- Stacks of garbage outside
- Mail jammed into and overflowing from the mailbox
- Any other basic signs of abandonment
All of these indicators suggest that a home won’t qualify for traditional financing. With traditional mortgages, lenders want to make sure a home is actually habitable. Before approving a loan, these lenders will require that major repairs have been addressed, a cost-prohibitive undertaking for most sellers of these homes.
Alternatively, investors can step in and purchase these homes with, as discussed, cash or hard money loans. Recognizing this, I’ll make a note of every single home I see while driving for dollars that seems to meet these criteria, as they represent potential deals.
And, at Do Hard Money, we believe so strongly in this strategy that we’ve built a Driving for Dollars app. Using this app, you can precisely track your progress in a given zip code. That way, you can guarantee that you’ve covered every single street so you won’t miss out on any potential deals. Additionally, you can add information about each of these individual properties within the app, saving you the headache of dealing with scribbling notes on pads of paper.
As a Do Hard Money member, you’ll have access to this incredible tool for free! If interested, drop us a note – we love helping new investors!
Cross Reference Properties with Investor’s Edge Data
But Ryan, how do I find out information about potential deals I find while driving for dollars?
Great question! Prior to releasing our Driving for Dollars app, we created an extremely powerful database for finding deals: Investor’s Edge. We poured our entire team’s collective real estate experience into creating the best software for investors. This program provides you access to over 90% of the MLS data in the US market, to include tax records, active properties, and sold property information. Simply put, Investor’s Edge provides you the MLS data you need to make informed real estate investment decisions.
More precisely, our Investor’s Edge software seamlessly lets you complete the following tasks. And, we’ve now integrated all of these incredible features directly into our Driving for Dollars app!
With Investor’s Edge data, you can sort through over 160 million properties to find the perfect deal, and you can do it instantly. And, to fit your particular investment objectives, you can select from dozens of search parameters, ensuring that you only find the ideal property targets. As these results come in, you can save them all in a single, organized list – no more jotting down tons of different properties onto scratch paper.
Save Your Preferences
No matter how many potential properties exist in a database, it sometimes takes a little while to find a deal that fits your investment objectives. We understand this reality. As a result, Investor’s Edge and the Driving for Dollars app let you save all of your exact search parameters. Once created, the software will then automatically update your list of potential deals in accordance with these search parameters. In other words, you set your search criteria once, and Investor’s Edge – and, now, Driving for Dollars – does the rest, automatically updating your list of potential deals as new properties populate in the MLS.
But, finding potential deals doesn’t equal actually closing those deals. Once again, we’ve poured our combined decades of real estate experience into our software to address this problem. With Investor’s Edge and the Driving for Dollars app, you can market instantly to homeowners. As you narrow down your list of potential deals, our software lets you print postcards with pre-filled addresses or send a voicemail directly to these homeowners – for your entire property list!
This system lets you efficiently bridge the gap between a potential deal and putting a property under contract.
What If I Live in a Rural Area?
Unfortunately, some people living in rural areas will struggle with the above strategy for finding places to invest in real estate. The limited population density of these areas causes two immediate problems. First, with so few people, both rental properties and for-sale flips will likely spend a significant amount of time on the market. During this time on market, investors still need to pay all the holding costs associated with these properties (e.g. taxes, insurance, utilities, loan interest, etc.), despite not receiving any income – either through rents or the actual sale.
Second, finding lenders willing to provide loans for homes in rural areas poses a potential obstacle. For fix & flip investors, this means that, even if you do find a buyer, he or she may struggle to qualify for a loan to close on the sale.
Considering these challenges, what alternatives exist?
Broadly speaking, if you live in a rural area, the best strategies involve investing outside of that rural area. I recommend the following two options.
Option 1: Make the drive yourself
Simply put, instead of asking buyers and contractors to come to you, you go to them. In other words, if you live in a rural area, you have a higher likelihood of successfully investing by driving to the nearest, more-developed areas. It’s far easier to hop in your car and drive a couple hours to another market once a week or so than trying to convince contractors or buyers to do the same.
This may not seem like an ideal solution, but it provides you the opportunity to A) research new markets, and B) choose to invest in the best one (recognizing that you may need to log some miles getting to-and-from properties).
Option 2: Invest out-of-state remotely
New real estate investors typically want to actually see and walk their investment properties, a reality that limits your geographic opportunities. For peace of mind, these investors want to make sure that, if they’re pouring thousands of dollars into a deal, they get a chance to review the property in person.
While I largely agree with the invest locally approach, you don’t need to see your properties. Some of the most successful investors I know have made tons of money investing in out-of-state markets. With the wealth of property data available online, you can conduct your initial research from the comfort of your own home. However, when you’re ready to pull the trigger on a deal, you’ll need to have a trusted real estate agent on site. This individual serves as your point on closing-related procedures, and he or she can connect you with reliable contractors and property managers in the area.
No single best place to invest in real estate exists. Instead, investors should find the opportunities that exist in their local market. For most people, there’ll be plenty! By combining some basic zip code research with the driving for dollars strategy, you’ll find the best deals in your local area. Or, as I like to say, you’ll discover the best “fishing holes!”