Today's question comes from Phillip and he says, hi Marco. My name is Phillip from Southern California. I'm a millennial that is looking to create serious passive income through rentals. What kind of properties and what city would you recommend to invest for first-timers in real estate? Investing like myself, especially in these strange times. Thank you for providing us educational and informational content every week! - Philip.





Well, Philip, thank you for your question. It's a good one. There's a lot of new investors out there. Some of them just call themselves newbies, but we all start with our first property and we all start at someplace in the beginning. And you living in Southern California are in an unfortunate circumstance being surrounded by very expensive property. So from that perspective, it doesn't make sense to invest in your backyard.

However, good news. The good news is is that this is a very large country made up of over 500 metropolitan statistical areas or what is known as an MSA. And because of that, you have the ability to invest in any of those markets. Pretty much anytime you want, the question is what market and what are you looking for? And I think that's the basis of your question here is you're asking what kind of properties and what kind of market or cities should I invest in. And you're a first-time real estate investor. So you want to start off on the right footing and not make mistakes, or at least not costly mistakes in the beginning, but you want to have success and that's not hard to do just follow a simple formula.

And so here's the formula and it really is a top-down approach. Think of it like a funnel. In fact, I talk about this in my 10 rules of successful real estate investing. And I believe it's rule number six, which is taking a top-down approach. So what do you want to do is not start with a property, although that is important, but you want to start with the market. So you want to find a market or look for a market or have someone help you find a market, decide on a market that is healthy. It has good fundamentals. In other words, you want to market that is not in decline. You want a market that has population growth and at the heart of it, all our jobs and job growth. If you have a healthy, vibrant economy in a local market, then you will have jobs and probably job growth. That job growth means that more people will move into that market and the population will grow and that increases demand.

And that drives the market up in terms of price. And even if it doesn't go up in price, you have that stability, that upward pressure, because people need a place to live, whether they're buying it or renting it. So at the heart of it, all our jobs and job growth population growth is great. Organic is there ideally, but if you have people coming in from the outside, then you have net migration, positive migration that helps the market. And that just helps you. Now keep in mind, a lot of the markets are pretty big and you start to need to look at submarkets neighborhoods within those. And that's the funnel approach. So you start with the market, work your way down to the neighborhoods, and then the property. One more comment about markets that I want to just throw out there.

There are three general types of markets that we classify there. The tier one, two and three, uh, we don't typically use that terminology all that much, but a tier-one market is the big market like San Francisco, Los Angeles, New York, and often those very large markets tend to be overpriced, maybe not everywhere within that metropolitan area, but many parts of it. So where are you going to find the numbers, making sense and still have a diverse economy and a healthy market and a lot of supply and or demand driving the market one way or the other are in the tier two markets. These are markets that are typically in the hundreds of thousands in population to a couple of million. So Kansas City,