Out of state Investor

I live in California and am thinking about investing in a fourplex in Utah? My fear is my responsiveness to the rental. I've been told to hire a property manager, however, they can suck up much of the profit. Those of you whove invested outside of your state, what has been your experiences?

Edited: 06/26/2010 at 02:54AM

Frank Adams

· Loveland, CO

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Feb 16 '06, 07:08 AM

If I can't drive to it in less than 30 MINUTES, I won't buy it. Problems tend to increase at the square of the distance you have to travel.

I realize it's hard to get something to cash flow in CA, but why UTAH? I'm sure RENTS IN UTAH are a reflection of PRICES IN UTAH. Not a reflection of prices in CA! I see a lot of out of state folks considering buying in TX because our prices are so cheap, that doesn't make it a good reason to invest here. In fact, most SFHs here don't cash flow any better than CA. IMO a negative cash flow is a negative cash flow, I'm in it for profits, not losses.

all cash

Edited: 06/26/2010 at 02:54AM

Bryan Casteel

Real Estate Agent · Cincinnati, OH

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Feb 16 '06, 07:37 AM

There seems to be a lot of East Coast and West Coast money pouring into the Midwest as people 1031 their way out of these markets. The first money was put into triple-net commercial leases because they are totally hands-off. The next money (happening right now) is searching for larger commercial residential (30 units and up) because they cashflow and they can afford full management.

The problem with a 4-plex rental that is far away from home is that even if you get a good deal on one, management is going to eat the cashflow. Like all cash said, managing a property like this on your own would probably make you insane and you would quickly become a tired landlord and motivated seller.

Edited: 06/26/2010 at 02:54AM

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Feb 25 '06, 03:23 AM

I live in San Francisco and I have a condo that I rent out in Laughlin, NV. I use a property manager and I think, it's a waste of money. I will not use her again when the tenant moves out. I signed a one year lease with this property manager.

Edited: 06/26/2010 at 02:55AM

Bryan Casteel

Real Estate Agent · Cincinnati, OH

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Feb 25 '06, 05:23 AM

dkdk100,

It is very difficult to justify a property manager on any type of leased residential property (SFR, 2-Fam, 3-Fam or 4-Fam). The numbers just don't support the expense. Of course, if you live out-of-state you have to have someone watch the place.

One option you may consider is to ask the current tenants if they would be interested in buying the place within a couple of years. You could turn your lease into a lease/option and then tell the tenants that they have to take care of the property and fix anything that costs less than $500 to fix. You are still the owner and you will have to fix any big-ticket maintenance problem, but that rule will cut out 99% of the nuisance calls from a tenant and get the property out of your hair in a couple of years.

Edited: 06/26/2010 at 02:55AM

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Feb 25 '06, 04:53 PM

Great answer Prohabber!

Another option is to have a real estate agent rent it out for you. They will do this for a nominal fee, that is far less than using a property manager, and you don't have to worry about signing a long-term contract... when it's rented... it's over! :wink:

Edited: 06/26/2010 at 02:55AM

Derek Guyer

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Feb 27 '06, 10:35 PM

The only reason that paying a property manager is too expensive is because most investors aren't buying low enough. There are plenty of deals where there is more than enough cash flow and you don't have to kill yourself doing all of that junk. If that sounds insulting, I don't mean for it to at all.

I like the lease with option to buy as well and do it myself, but think that having a property manager creates the desired result where your money is working for you.

As an investor, I want to be free and doing the property management is NOT an option.

Edited: 06/26/2010 at 02:55AM

Joshua Dorkin

BiggerPockets Founder · Denver, Colorado

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Feb 27 '06, 11:48 PM

I agree with landchasers. It is well worth the expense to pay a manager 8-12% to run a property for you when its out of state. When considering a property for purchase, you must consider management on top of mortgage, insurance, and taxes as fixed costs. If you do that, then your buying behavior will likely change.

Finding a good manager is not easy. You should take the time to research them, and you should interview them. Before I ever make a decision on a new manager somewhere, I interview several companies. It is just too important to do.

If you pan on flying to Utah everytime you need the toilet unblocked, I say, go without one. It is a risky move on your part, though. Have you run the numbers with our property analysis tool?

Edited: 06/26/2010 at 02:55AM

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Bryan Casteel

Real Estate Agent · Cincinnati, OH

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Mar 11 '06, 07:09 AM

I am absolutely in agreement that you would need a property manager for an out-of-state rental, but if you are going to be looking, maybe a little larger unit place would better be able to support the expense. In order to get a property at a low enough price to support the management, as Landchasers says, you are going to probably have to make a lot of offers. That could be a difficult task if you are having to travel to the area to look at places.

One option for finding the right deal could be to start a direct mail marketing campaign to owners of multi-family properties. You could discuss the situation on the phone with them and have the deal sketched out before even going to see the property. That could cut down on your travel expenses.

Edited: 06/26/2010 at 02:55AM

Jason Barnett

· Dayton, OH

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Mar 12 '06, 07:15 PM

If you're looking out of state then just find a bird dog in the area that you want to invest in. Let them do all of the searching and once they find some deals that make sense they can bring them to you. They can email photos, research tenants, etc.

Edited: 06/26/2010 at 02:55AM

Derek Guyer

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Mar 12 '06, 07:17 PM

100% agreed.

Edited: 06/26/2010 at 02:55AM

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Apr 14 '07, 05:54 AM

Great and informative post, thanks everyone!

I am in NW burbs of Chicago but might still even consider out of state (WI/IN/OH/MN) if i can't find decent deals around here.

Question to get experienced investor's advice....
<sob>
sick of corporate work - working for someone
<sob>
now we have that out of the way, i am just starting out and have not got my first purchase yet..I am going to take somewhere between $20k and $50k max out of my current primary residence to get me started in real estate...I am having trouble figuring out a strategy though...Number 1 long term goal is to have accumulated income producing (cash flow) properties.

So, i wonder if i should either:
- try to buy 1 or 2 SFRs or duplexes to start off with as a way to get experience and rent them out - Comments about the property mgmt though do concern me - i would have to include this as an expense as i don't want to do that atleast while starting out and still working full time.
OR
- try to flip/rehab a few properties to build capital - say 2-4 properties and try to build $100k+ to dump into an LLC
OR
- leverage the $50k to try to find a larger apt building (say 10 to 20 units), have it property mgm'd and then think about flipping/rehabbing to build capital/equity...Not sure if this option is too much to start off with though or if I could get the finance. I have a good, 6 figure job right now so do have some income and assets behind me..

Any ideas/opinions, particularly from those that have been doing this for a while much appreciated!

thx.

Edited: 06/26/2010 at 03:29AM

Richard Warren

Real Estate Investor · Las Vegas, Nevada

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Apr 14 '07, 07:01 AM

I always use a property manager. I have managed my own properties before and quickly realized that I wasn't in this business to deal with tenants. It is well worth the 8-10%.

Edited: 06/26/2010 at 03:29AM