the biggest problem becomes fear of a

blank map you’re excited because you’ve

opened up the entire us and you say I

have a clean slate I can look anywhere

in the country to try and find a market

that’s going to fit my goals people

bring their money from expensive markets

Drive higher incomes and they overpay

and they over Buy in these markets and

it creates this Distortion of like

what’s the actual underlying value for

the people that live in those

communities you know there’s some places

where you can find $800,000 homes and

super fancy and you know 10 out of 10

grade schools and then there’s places

where even our property manager will not

go all right welcome back to our special

podcast series The 20-minute investor

where we bring you actionable nuggets

and insights from our real estate

investing Journeys in bite-size

20-minute episodes I’m Aaron Amin my

wife and I built a portfolio of eight

cash flowing rental properties across

three states while working full-time and

raising a young family and I’m Nathan

I’m a husband father a tech executive

who built a portfolio of cash flowing

rentals across two states from over

2,000 miles away together we co-founded

the remote real estate Academy where we

coach investors how to build their own

portfolio of cash flowing rentals from

anywhere in the world this week we’re

going to jump into a fun topic so we

have a email course that kind of goes

over the the biggest mistakes that new

investors make when they’re getting into

out ofate investing and so what we

wanted to do in this next few episodes

is actually break down dive a little

deeper into each one of those mistakes

so the first one we kind of talk about

is the idea of kind of neglecting or or

skimping on your market research when

you’re going to pick a market so

specifically you know the reason

investors fa fa to thoroughly research

the market they want to invest in why

that leads to low or potentially no

appreciation depending on their choice

higher vacancy and a riskier tenant pool

and then of course our thoughts on

potentially how to fix this or um or be

a little better at it so let’s jump in

but Nathan you have any any cursory

thoughts on the matter uh that’s a good

good topic tough one market selection

seems to always be the first or the

biggest or both stumbling block for

anyone getting started um

yeah I don’t really know where to take

this because we could take it so many

different places but I think it it all

starts with understanding your goals

we’ve said this a bunch of times it’s

not news hopefully by now right but

oftentimes one of the the the biggest

mistakes that I see is you know people

starting to look at or research even

cursory research you know markets that

don’t even fit their goals by that I

mean for example maybe a stereotypical

and easy to conceptually understand

example is like if you want to invest to

get some monthly cash flow into your

bank account you start looking at you

know markets like uh New York Boston San

Francisco Los Angeles right on the

coasts and that just doesn’t map to your

goals at all right so yeah I I would

start with that I don’t what do you

think I that’s the thing I see first

almost always and all the time and then

we can get into like a specific Market

let’s say you’ve identified or found one

or two markets that more or less align

with your goals than there other issues

that come into play yeah I think there’s

a few two kind of Dimensions to this

right the first is when somebody starts

considering outstate investing that

usually means they’ve already started to

kind of strike out in wherever their

backyard is so Nathan and I I think we

were originally bonded by the idea that

we lived in high cost of living areas

where it didn’t make sense to buy rental

properties even though like even with a

strong income household income it still

doesn’t make sense to invest in certain

markets especially if one of your goals

is cash flow like you mentioned all

those Coastal markets I don’t know how

you can make a a rental property worse

especially at today’s property prices

and interest rates so I’m going to go

ahead and assume that most people that

are looking at out ofate investing have

already kind of come to the conclusion

that their Market might not work for

them so then the biggest problem becomes

that what I kind of think of as fear of

a blank map it’s like okay you’ve in one

hand you’re excited because you’ve now

opened up the entire us and you say I

have a clean slate I can look anywhere

in the country to try and find a market

that’s going to fit my goals well that’s

overwhelming right there’s there’s

decision fatigue around that if I can

pick anywhere how do I know where to

pick so then when you start applying

this filter I think for me I can speak

only really for myself here but my wife

and I had a similar issue where we had

invested in our home Market in when we

lived in Las Vegas then it got too

expensive to invest there we moved to

Washington we invested in our home

Market in Washington then it got too

expensive to invest there so it kind of

forced us to go start looking at other

markets and we we hit that same decision

fatigue we landed on an area called the

Quad Cities in Iowa but before that we

were looking all over the Midwest all

over the South the Great Plains all

these different cities and we didn’t

know one from the other it was really

hard for us to understand having been

new at out ofate investing even what to

look for so I think there’s there’s a

degree of also being a little impatient

and just wanting to get to a destination

that sometimes people Barrel through and

they say oh you know Oklahoma City looks

nice right I see that they have houses

for

$150,000 Zillow said that it can rent

for $1,200 like great let me just go to

Oklahoma City and they kind of just like

transpose what they want what they want

to see into a market that they’re

looking at instead of actually like

going through the process of of

selection so I think that like the

analysis fatigue if you will of trying

to like figure out like where fits with

if you don’t have good guidelines and

parameters then you’re either going to

make a rushed decision or potentially

uninformed one so I think it’s the idea

is like how do you how do you create the

right parameters and the filter with

which to look at different markets would

you call it again the open map problem

yeah like fear of a blank map basically

fear of a fear of a blank map yeah I

love it because uh I think what what

I’ve seen happen as well is like exactly

to I think basically what you’re saying

but like once you’ve let’s say

eliminated the coastal markets because

they don’t you know produce the goals

that you want or the cash flow that you

want and then you kind of open up the

entire you know map of the US you could

you find you know hundreds of thousands

of cities potentially right where you

could go invest and often times I see

people that are just will pick any City

because like oh look over here this city

has houses for you know $75,000 that’ll

rent for 900 I’m above my you know 1%

rule great fantastic fantastic I’m going

to go there but what they fail to think

about in their market research is that

city has you know 10,000 people living

in it one employer and that’s about it

if that employer goes out or moves or

shuts down or whatever it is then

there’s nothing right or just like

10,000 person you know location or city

has one property management company

there so you’re forced to work with them

so often times I see kind of the that I

think what you were saying people

rushing into well I could pick anywhere

now so I’m just going to pick here cuz

zil has cheap houses there but they

don’t think about the rest which I think

is part of like that that next step you

know deeper Market due diligence that

we’re talking about here yeah and I

think the people start to think of Deals

Only in the terms of spreadsheet math

like if you look you could pull up a

house in just about any Market in the

Midwest and other than the major Metro

cities and you can probably find houses

that are much more affordable than the

average house in a coastal market and

there’s just also like there’s just

relative trans um I don’t know what to

call it ex ex L but basically when

you’re when you’re conditioned and you

grew up in a coastal area or you live in

a coastal area and the cheapest single

family house that you see within 20 mi

of you is

$700,000 and then you you start googling

or Zillo in a another Market in the

Midwest and you see that they have a

house for $200,000 $200,000 feels cheap

to you when everything around you is

$700,000 but to the person who grew up

in that City $200,000 might be wildly

overpriced so what what also happens is

that people bring their money money from

these more expensive markets and where

where they drive higher incomes and they

they overpay and they over Buy in these

markets and it creates this Distortion

of like what’s the actual underlying

value for the people that live in those

communities um and I I think that’s

another kind of interesting trap that

people fall into is that they convince

themselves relative to where they’re

from this should be you this is a deal

but they’re not really translating it to

what the actual local market provides

and so that’s another kind of trap I

think I see people fall into and I say

people I fell into it as well like I was

totally lured in in Iowa thinking you

know and the houses we bought thankfully

we bought them at reasonable prices we

didn’t like wildly overpay but we did

certainly think that they were better

deals than they actually were just

because of our relativity so that’s one

other kind of thing that comes to mind

yeah and I think I think just pulling on

that thread as well and maybe you

touched on it kind of implicitly but you

talked about how you know those $200,000

homes might be uh you know larger

efforts you know bigger value for the

local you know people who live there and

purchase these homes but what I don’t

know that you said this explicitly but

one thing that we see as well when

you’re bringing your Coastal money or

Coastal money mindset where your homes

are a million dollars you know a piece

and you see these properties for 200,000

if you don’t do your homework and do

diligence on the particular Market you

don’t actually know if a $200,000 home

is overpriced underpriced is a $200,000

because it has all these issues in every

house around it’s $400,000 or the

opposite is this one just super

overpriced and it’s listed at 200,000

which seems like nothing to you but

every house around it is $100,000

obviously these are hyperbolic examples

but you need to do your due diligence to

understand you know what the kind of

average you know property value is for

the type of property that you look at in

your Market um and that’s yeah like you

said that’s you know directly related to

like this skewed uh uh Price Point View

or whatever that you might bring from

the coastal Market that needs to be that

people need to be aware of yeah 100% And

you you kind of alluded to this earlier

right so the the 10,000 person town that

has no diversity of industry and has

maybe only one or two property managers

unclear if they’re good property

managers or not you can be too indexed

and too dependent on one or two things

and that can when you talk about

preserving your wealth so let’s say you

find a house that fits really well it

fits your buy box from a pricing

standpoint and a investor return

standpoint but then you have trouble

finding somebody to manage it and you

live halfway across the country and

they’re not taking as good care of the

maintenance so deferred maintenance ends

up costing you more than you think they

can’t find good tenants you end up with

evictions or people paying late um all

these operational problems where maybe

that thing looked really really good on

paper but you’re actually ending up with

a a a kind of a painful investment where

even if you got if you bought it for

$70,000 and it rents for $1,000 a month

well that doesn’t really matter if you

can’t actually collect the rent or you

can’t find good stable tenants and you

have you know repair and issues going on

all the time so I think there’s that

element too of like there’s what it

looks like on a spreadsheet like it

might perform in the first you know one

to two years and then there’s the

actuality of owning and continuing to

operate these homes for the long term

which is what most people listen to the

show are planning to do Buy and Hold

long-term Investments when done out of

state need that continuity and that

management and that consistent uh

oversight if you have anything to add

there well yeah the thing I wanted to

add is like we’ve been talking about

this 10,000 person in town with the one

or two property managers but that

actually is true and can be extrapolated

to every person on your team member

you’re in this small town where there’s

really only one or two plumbers and one

or two roofers and one or two you know

Insurance Brokers you know at best and

then you find yourself in the situation

where you know every time for for

everything you’re running into

roadblocks you people aren’t available

to do some form of repair or rehab work

that you need or they will just have the

one price quote that you can’t negotiate

because there’s nobody else toit them

against so there’s all these operational

aspects that need to be taken into

consideration before getting started

yeah yeah and um so 10,000 person town

is an interesting example because I

don’t think we really we don’t focus on

those types of areas and neither do most

of the students and people that we’ve

worked with but but you’re right like

that stuff can also apply in in bigger

markets and even the team and and the

people that you have to build there’s

like inherent checks and balances that

don’t exist if there’s only one or two

people like they don’t have that if they

don’t have that many people to compete

with then the quality of their service

the quality of their oversight and and

their the way that they their attitude

towards how they serve their clients is

different than if there’s 20 people that

they’re competing with for business uh

it kind of forces a certain standard or

at least it should in theory business

principles but yeah I think so the

tenant selection is another interesting

variable to kind of look at so obviously

the the type of City you invest in and

the the types of industries that exist

there the types of jobs the median

income all these stats that you can kind

of at least get a broad stroke picture

of who lives there is one Element but

also the area within a specific market

so you know the class A Class B Class C

and class D neighborhoods within a large

city could have completely different

Dynamics you know within the same market

and so that’s another area where I think

when people say oh I want to invest in

St Louis well there’s different parts of

St Louis right and perfect example yeah

so maybe maybe you can peel it back

there and like how people can be a

little more specific and figure out

which parts of a bigger town they might

want to invest in yeah I mean I I think

you basically touched on it or said it

all right it’s like you know another

stereotypical kind of um uh speed bump

roadblock Problem whatever we want to

call it the people run into is like

they’ll pick quote unquote a market and

that market is as an example here St

Louis St Louis is a pretty massive City

I don’t know it’s top 15 largest cities

in the country or something like that

probably wrong on that but it’s big um

and when you say I’m going to invest in

a market St Louis in this case an

example St Louis has a lot of zip codes

a lot of neighborhoods a lot of

different areas they’re not all the same

and it’s just like the you know what do

they always say in real estate location

location location I mean that’s very

very true right when you look at you

pull up a map of quote again a market or

a city there’s a lot of different places

and to your point you know some are

probably lower end or you know some are

higher end again I I’m more familiar

with St Louis because that’s where we

have most of our portfolio you know

there’s some places where you can find

$800,000 homes and super fancy and you

know 10 out of 10 grade schools right

and things like that and then there’s

other places where even our property

manager will not go uh for example right

just because they’re so rough and

there’s theft and you know crime and all

of that being familiar with that is

critically important um and you know

talking to local investors your team

locally property managers and whatnot to

get that information is critically

important and then once you know what

your

what want to call it CU not Market

anymore but like the submarket or the

areas you want to invest in stick to

those right and you know zero in and

like for instance for us I think we’ve

been looking at five ZIP codes in the

however many the St Louis market quote

unquote has we’ve been looking at five

for the last seven years I think and

those are the only ones we look at and

we know them like the back of our hand

at this point and we know which streets

not to cross because things get rough we

know which areas and zones in those zip

codes have the better school scores so

that’s another trap to be careful for

yeah I invest in Indianapolis it’s like

well yeah Indianapolis is pretty big

yeah so and it’s also a mix like what

you just described of qualitative and

quantitative information right if if the

only thing you look at is metrics you’re

missing a big part of the picture

because metrics don’t necessarily tell

you when I cross this certain Street I

get into a very different part of town

that has a very different profile and

like you said sometimes there’s streets

where your property manager won’t even

cross that street but if you’re pulling

comps or if you’re using a tool like a

Zillow or even some of the other tools

that we use the comps are very imperfect

because if it’s set to pick up within

0.5 miles but you cross that street this

hypothetical Street it might be giving

you information that suggests that this

area is the same when it’s actually not

and so that’s where also knowing your

market and getting correct me if I’m

wrong Nathan but you’ve never been to St

Louis right I have not no right so the

ability to pick up that kind of street

level local knowledge without actually

visiting that’s obviously one of the

skills that we try and teach but it is

possible but you can’t ignore the

qualitative Parts like if all you ever

looked at was data and you never

bothered to like talk to your property

manager talk to other local investors

and like engage in every way you can

without being there to learn like what

those nuances are then it would be

impossible for you to make a really

informed decision because you would just

be going with numbers and with without

any of that extra stuff and at the end

of the day these are houses these is

people’s homes this is where they choose

to live people pay rent in exchange for

the the shelter and they want a certain

thing out of it and if you’re not kind

of aware of what you’re offering and uh

and what what you’re offering can

support that um you know is an

incomplete picture that can lead to a

lot of problems down the road so we got

a couple minutes left here I think you

know any final threads to pull on on

Market selection particularly maybe

looping back to this fear of a blank map

if somebody is kind of stuck and they’re

excited because they have so many

options but they’re overwhelmed because

they have so many options what do we

think they can do I was once given um

this advice or Pro tip whatever you want

to call it that I’ve personally always

adhered to which I love is like look for

cities that have a major league sports

team you know NBA NFL NHL MLB whatever

it is typically if those businesses

operate in a city the city is large

enough to attract you know enough

population and therefore enough business

and diversity of tenants you know

Property Management you know

corporations all that stuff uh so that’s

always helped me that’s maybe a pro tip

that can’t remember who told me that but

I like it and I still apply it yeah I

know it sounds simple but like I’ll use

Las Vegas as an example it’s it’s always

been thought of as this big tourist

destination there’s a lot of money that

comes into the city but as a result it

felt very over indexed on Hospitality

let’s use covid as an example the strip

shut down for three months almost and

the whole city unemployment was 27% and

like everyone was basically struggling

to eat even with some of the government

Aid that existed it’s extreme example

but the idea is that you know the city

is thought of as completely indexed on

external visitors but over the last

seven eight years they had Pro Hockey

come they have NFL come they’re likely

going to get an expansion team for NBA

and they also have MLB coming and they

built multiple new Arenas right and so

you can see they’re attracting a

different type of attention a more

permanent cultural fixture and that’s a

signal of a growing economy and as a

result Las Vegas the property values

have grown dramatically so that’s just

one example of how that could play out

and then you know the population growth

I think that’s another one not to ignore

a really high level indicator of course

that um you know it could be a trap too

if you look at a city that’s got you

know very favorable return metrics but

the population is declining um you got

to just extrapolate that Trend don’t

just look at the first two years oh I’m

making 8% on my my cash what’s it going

to look like 10 years from now if I

still hold so that’s about that’s about

all we got time for another 20 minute

episode in the books but uh if you have

any thoughts on the matter or if you

want to engage with us feel free to drop

a comment or shoot us an email and we’d

love to hear what you think we’ll catch

you next time thank you for making it to

the end of today’s episode as you may

know podcasts are very difficult to grow

organically if you’re getting value from

today’s episode I’d deeply appreciate if

you can take 30 seconds to leave my show

a five-star rating and review this will

go a long way to helping me reach more

listeners just like you thank you so

much in advance