Sooner or later in your real estate investing career, you’ll find yourself having to decide which of several promising markets to purchase investment properties in. This is especially true with out-of-state real estate investing, where you can’t easily see the market or property first-hand. Each seller you talk to will tell you their market is the best and why you should invest there. As an investor, you need to know how to do a real estate market analysis so you can decide whether that market fits your goals and investment strategy.

To help you, I’ve broken down the steps for conducting a market analysis for real estate and the questions you need to ask to understand the attributes that make up a good market.

If you’re buying locally, you probably already have a sense of your market, as you can easily drive through neighborhoods, hear about new businesses opening, and talk to other local real estate investors. But when you decide to invest in out-of-state rental property, you need to be more intentional about your research because there isn’t a backlog of local knowledge.

That’s precisely why doing a thorough real estate market analysis becomes even more critical when you’re looking at markets outside your home state. The good news? The same systematic approach you’d use to evaluate any market works just as well (maybe even better) when you’re researching from a distance. You just need to know the right questions to ask.

The goal of the initial screen in a real estate market analysis is to quickly eliminate markets that aren’t a good fit. Doing this will allow you to focus your time and energy on more promising markets. This step can take as little as 10 minutes once you’ve done a few. For this exercise, I chose three deal-breaker questions for my initial screen.

My first screen when doing a real estate market analysis is to verify if the numbers “work” in this market.

Some markets have a poor rent-to-value ratio, i.e., meaning the rents are low relative to the purchase price, so you’ll have negative cash flow. That doesn’t work for me. I want a market where the properties pay for themselves while I’m building equity.

To illustrate, compare the metrics for San Francisco, CA, vs. Port Charlotte, FL, near Ft Myers:

While this is an extreme example, it illustrates how the numbers don’t work for a city like San Francisco. The purchase price is so high relative to the rent that it has a negative cash flow of almost $5,000 per month.

The old rule of thumb was the “1% rule,” which states that, ideally, you’d want the monthly rent to equal 1.0% of the property’s purchase price, e.g., $1,000/month for a $100,000 property. That 1.0% ratio is very hard to achieve in today’s market, but at current interest rates, a property would need a rent ratio of at least 0.6 or higher to break even. The Port Charlotte property has a rent ratio of 0.67 ($2,300/$345,000).

(Also note that, for the same amount of money, you could buy four brand-new houses in Port Charlotte for the price of one 100-year-old house in San Francisco!)

For me, the numbers on the San Francisco property just don’t work. Imagine losing your day job and having that much negative cash flow! That said, a lot of people have made a lot of money in California real estate by accepting the negative cash flow and banking on price appreciation.

If you’re less risk-averse than I am, just remember that you’re getting a sure thing (negative cash flow) in exchange for a not-so-sure thing (future appreciation).

Also, if you’re looking at properties that have only $200/month in negative cash flow, you may decide you can live with that. You have to decide what numbers work for you or not.

Whoever is selling you the rental property should provide a proforma real estate statement itemizing rents and net cash flow after expenses. Be sure to ask for this information.

The most common reason real estate investments fail is poor property management, so I always recommend investors identify at least two good property managers in any given market. That way, if the first one doesn’t work out for whatever reason, you’ve already identified a backup.

The property management company should be a real company, not a mom-and-pop operation out of someone’s house. There should be a “deep bench” of managers, leasing agents, handymen, etc., so service won’t be interrupted if someone’s on vacation or if there’s personnel turnover.

Note: Requiring two good property management companies may effectively eliminate smaller metros. It’s hard enough to find one good property management company, but finding two such companies in a metro area with a population of less than 100,000 can be difficult.

This is one reason why many successful out-of-state investors focus on larger metros with established property management infrastructure. When you’re not local, you need professionals who can handle everything from tenant screening to emergency repairs—and you need backup options if things don’t work out. If you’re serious about investing in out-of-state rental properties, having solid property management isn’t just important; it’s the foundation of a successful investment. For more detailed guidance on this topic, check out our article on how to manage out-of-state rental property.

1. Your property provider should have a recommended property management company, so evaluate them to see if they’ll work for you. To find a second (backup) property manager, you can:
   • Go to Yelp.com, search for “residential property management” and “city name,” and look at the ratings. Many will have negative ratings from disgruntled tenants, so focus on the ratings by landlords.
   • Go to Meetup.com and search for real estate investor clubs/groups in the area where the property is located. Then, email the Meetup Group organizer and ask for recommendations.

2. If you can’t find at least one and preferably two suitable property management companies, then you should stop there and pass on that market.

Not having a diverse economy is a deal-breaker for me personally, so I’m including it in this initial real estate market analysis screen. If it isn’t a deal-breaker for you, you could save this attribute for the next section.

My reasoning is that single-industry metros like Detroit or Las Vegas tend to get hit harder during recessions. When times are bad, the first thing consumers cut back on is discretionary spending, such as a new car or a trip to Vegas.

Worrying about whether my tenants will lose their jobs with every downturn in the economy is one more wild card I don’t want to deal with. I want to limit the number of variables outside my control.

You can determine how diverse a local economy is by going onto Google and searching for “city name” plus “top 20 employers” and looking at the number of jobs in each industry. For example, compare the results of Atlanta vs. Detroit:

Atlanta’s major employers span diverse industries: Delta Airlines, Home Depot, UPS, Coca-Cola, Emory University, the Centers for Disease Control and Prevention, SunTrust Bank, Georgia Tech, AT&T, Marriott, and countless hospitals.

By contrast, although it’s trying to become more diverse, the bulk of jobs in Detroit are still in the auto industry: Ford, Fiat-Chrysler (Stellantis), General Motors, Magna International (auto supplier), Quicken Loans, and health care.

With a diverse economy like Atlanta’s, if one sector struggles (e.g., Delta Airlines during the COVID-19 pandemic), other sectors can pick up the slack. That makes for a more resilient market with more stable rental occupancy and cash flow for investors.

At this point, we’ve eliminated the markets that don’t meet our initial real estate market analysis screen without investing too much time. Now, we can dive deeper into the semi-finalists who passed our initial screen.

New jobs in an area are a bullish sign for that area’s growth because someone has determined that the business climate there is promising enough to make the investment.

For example, Texas Instruments (TI) is currently building a new 300-millimeter semiconductor wafer fabrication plant in Sherman, Texas, with an estimated 3,000 TI jobs created, plus indirect jobs. Those high-paying jobs will pump lots of money into the local economy, including its real estate market.

This kind of major job creation is exactly what out-of-state investors should be looking for. Big employers moving into or investing in a market create ripple effects for housing demand, new businesses, and infrastructure improvements. All these can benefit rental property investors. Getting in before the market gets too hot is one of the smartest moves you can make as a remote investor.

The seller or property provider of the property you’re investing in will likely include information in their “pitch” if jobs are moving to the area and why it’s a good place to invest. You can check an area for job growth by:

• Checking the city’s Chamber of Commerce website for press releases about new jobs.
• Googling “what companies are expanding in “+ “city name.”
• Always make sure you locate where the new jobs are coming from on the map. Consider commuting distance and traffic patterns when determining where to invest.

Though job growth usually results in population growth, the two are not always in sync, so they should be tracked separately.

For example, parts of Florida are popular destinations for retirees, so their population growth is greater than their job growth, since retirees don’t need jobs. In other places with high unemployment, like Detroit, a new Amazon warehouse might create jobs but not increase the population, because there are enough unemployed people there to absorb any new jobs.

A growing population is important because it signals increased demand for housing, which in turn likely drives rents and property values higher.

Again, whoever is offering to sell you the property should have information on population growth. To do your own research, you can:

• Run a Google search
• To save you time, here’s a list of the top 40 fastest-growing metros in the US from 2023 to 2060. Note that The Villages, FL (the largest retirement community in the country) is #1.

Sometimes, you can find city-specific information by searching “city name” + “population growth forecasts.” Here’s the Jacksonville, Florida, housing market forecast:

Image Source: Macrotrends.net

Note that though the rate of growth is slowing (bottom graph), the metro is still expected to grow by 400,000 people in the next 15 years.

Our last desirable attribute for a market is that it be investor-friendly, namely, one that makes it easy for real estate investors to do business.

Some markets have high property taxes (Houston), others require a city inspection every time a property is sold (St. Louis), and some markets have a time-consuming process for evicting non-paying tenants (San Francisco).

While these may not necessarily be deal-breakers for you, you should be aware of the business climate before investing. This is why I’m including this tip for your real estate market analysis.

When you’re researching markets for remote investing, connecting with other investors who actually own properties there is invaluable. They’ll tell you about the quirks and challenges you’d never find on a city website.

• Look up Real Estate Investor Associations (REIAs) or real estate investing Meetup.com groups, and connect with investors who own properties in multiple cities. An investor in only one city knows that market well, but remember, what they think of as “normal” might be very abnormal when compared to other markets you’re considering.

Don’t ask your property manager, “Is this city investor-friendly?” because they may not have anything to compare it to. Instead, ask very specific questions, such as:

• How long does it take to evict a non-paying tenant? What’s the process, and how much does it cost?
• Does the city require periodic inspections? How long does that take to schedule and complete?
• How often are property taxes reassessed?

Then compare those answers to the answers from other markets you’re considering and decide what market you’re most comfortable with. Learn more about the pros and cons of being a property manager.

That’s it!

This back-of-the-envelope market analysis for real estate may seem like a lot of work at first, but after you’ve done it a few times, you’ll find you can do your initial screening in about 10-15 minutes. The deeper dive could take a little longer.

Performing this analysis will give you the confidence you need to get out of “analysis paralysis” and start investing in real estate.

Once you’ve completed your market analysis and identified promising locations, the next step is figuring out how to buy out-of-state real estate. The framework we’ve covered here, evaluating numbers, property management, economic diversity, job growth, population trends, and investor-friendliness, applies whether you’re buying three blocks from your house or three time zones away.

The main difference? When you’re investing remotely, you’ll rely more heavily on vetted professionals and turnkey solutions. This is exactly why many remote investors choose to work with RealWealth, as we have already done the heavy lifting by vetting turnkey property teams in top markets across the country, all with professional property management already in place. Instead of spending months researching markets, property providers, and property managers in unfamiliar markets, our members work with teams who have been thoroughly screened and have proven track records.

That’s the benefit of turnkey real estate investing with RealWealth. You can browse turnkey rental properties knowing that the infrastructure for success is already in place. It’s a particularly smart approach when you’re buying rental properties for passive income in markets you may never have visited.

For those who want to take an even more hands-off approach while still benefiting from real estate growth, real estate syndications for passive investors offer another avenue worth exploring. Either way, the market analysis skills you’ve learned here remain your foundation.

If you’re specifically interested in which markets are showing the strongest fundamentals right now, our guide to the best places to buy rental property can help narrow your focus. And if you want step-by-step guidance on the entire process, check out how to buy rental property and earn income while you sleep. In addition, RealWealth members have access to an unbiased investment counselor like me, who can help you narrow down a market based on your goals. Schedule a strategy session here.

Few markets will “check all the boxes” and provide the perfect place to invest. If there were such a market, it’d be too hard to get property there because all the Wall Street private equity funds would be snapping them up.

You’ll have to decide for yourself what criteria are your “deal breakers” and then use them on your initial screen.

The only non-negotiable, in my opinion, is property management. If you can’t find good property management, your investment is almost certain to fail. All the other criteria are up to you.

But knowing that the numbers work, that there’s good property management, a diverse economy, job and population growth, and an investor-friendly environment will help you pick the best markets for you.

And here’s the beauty of mastering this real estate market analysis process: it works everywhere. Whether you’re evaluating your hometown or researching markets halfway across the country, these fundamentals don’t change.