Where to Invest
Most investors start by buying real estate locally. It seems like the safest option because it's the area you're most familiar with, and you can visit and inspect your rental as needed. However, this approach is neither the safest nor easiest. In fact, it may be one of your costliest mistakes, that will at best create a part-time job for you and at worst bankrupt you.
Real-estate markets are highly local, and you're really limiting yourself if you stick to your backyard. Not only are you putting all your eggs in one basket, you're also at the mercy of local laws, which may be very hostile to newcomers. Moreover, your local market may not align with your risk tolerance or goals. California is a great place to invest for appreciation, but horrible if you're looking for cashflow. I believe that all rookie investors should first aim for cashflow, and only play the appreciation game after they build up a decent portfolio of safe properties. It's in tough times like the COVID-19 pandemic, when many states are forcing landlords to absorb the financial shock when this becomes apparent. Can your properties survive 32% of tenants not paying rent? That was the initially-projected unemployment rate CNBC forecast. We won't find out actual numbers until later this year, however.
Do you have a safety margin for repairs? Many people forget about them. Your rent should do more than just cover the mortgage, otherwise you're one disaster away from a foreclosure. It's no secret that land on the coasts in US costs several times more than anywhere else due to demand. But these very same overlooked areas that are unpopular are often the hidden gems you should be looking for. Look at this rent/price map, for example:
It's an important metric that shows whether the rental will be bringing monthly revenue or become a moneypit. The areas that are most popular (California, New York City, Boston) rate the worst on this scale. This means that as a landlord, you probably will be losing money the first few years. Additionally, California and Massachusetts have some of the strongest tenant advocacy groups, resulting in very unfair laws for landlords. A single mistake or a bad tenant willing to exploit these laws could easily bankrupt a beginner. I've had a tenant in Boston run up my water bill to the tune of $20,000 over the 8 months it took to get her out, and that's not even factoring in attorney costs, legal fees, and repairs, which came out close to that as well.
I would much rather buy several houses in Texas than another one in Massachusetts, despite living here. Losing $40,000 on your first investment because of a bad tenant is not how you want to start your real-estate investing. Contrary to popular belief, managing a property remotely is easier than it seems as well. Make sure you hire a competent property manager who will shield you from tenant issues and prevent real-estate from becoming a second job. If you buy in your local area, you may not have the needed safety margin to hire property management or even a repairman, which means that you'll probably be spending your weekends at your new "investment" repairing plumbing while also losing money on it. Of course if you focus on flipping houses instead, these expensive areas may actually be most-desirable for you to invest in, but in that case you're probably already doing real-estate full-time anyway.
Investomation started as a personal tool for analyzing real estate markets I was not familiar with using demographics and economic trends, as well as local politics to find areas I felt comfortable investing in. Several friends suggested opening it up to the general public, which is how this web app was born. I hope that you find it as useful as I do, and open to any feedback.