BiggerPockets

Im in California and I was wondering where would I start when looking to purchase out of state properties? I was looking in the AZ or NV areas. When I contact people regarding a mortgate rate,they ask if I have a home picked out. If there is a home I'm interested in, they ask if I'm pre-qualified for a loan. When I contact property managers, they ask the same questions as above. Etc. etc. The same question starts every conversation.."Do you have this yet?" Im just curious what would be step # 1 when trying to purchase out of state? Also,should I start an LLC in my home state or the state Im planning on buying property?
Eric

If you are looking only in those locations, your first step will be to find an area that you want to invest (narrow it down), find out what the rent rates are, and find a property that will bring you the cashflow your looking for.

You should be able to get a mortgage pre-approval without having a property in mind if you talk to the right people at the bank.

I would call and speak with a property manager per Jon's suggestion. Ask what areas rent the fastest, what the rents run, etc. Let them know you are interested in buying rental property in the area, and they should jump at the chance to help you.

Eric, if you are buying, the money has to come from somewhere. Many sellers don't want to waste their time with lookie-loos and people with no hope of ever buying. That's why they want to know where the money is coming from for the purchase.

You'll have better luck getting financing within the area you are considering.

So step one is to decide upon an area of interest.

Then you contact some area banks and tell them you are thinking about buying investment property and ask what they can do for you.

If you like their available loans, you ask to get pre-qualified. They look at your financials and decide that they might be willing to loan you the money, if they like the property that you eventually decide upon.

Now you can show the sellers that you can get the money to pay for the property. So they are willing to show it to you, and to provide some information about it.

Eric -
I'm in Oklahoma and we have many people like yourself from California who bring their money in to invest in our real estate because of the stability of the market.

I have quite a few clients from California who have been absolutely screwed blind by the management companies they have worked with.

What is the norm is that these guys come in and pay way too much for some local guy's junk...

I usually get involved to help solve the problem. Anyway, just be very careful when you go out of state looking for real estate. The tendency is to pay too much and end up with substandard management.

Agree with the above posters comments.

Recommend:

1) narrowing your search to one or two areas. Check employment prospects, vacancy rates, schools, crime etc. Vacancies are an issue in Phoenix and other sun belt areas.
2) travelling there to meet with buyers agents and property managers + get a feel for the town etc
3) check comparable sales on trulia
4) crunch the numbers using the 50% rule

Quiet a few people on here will tell you to stick to an area you know and are familiar with- but they dont live in a completely overpriced market like Cali.

I understand the issue here. In Sydney Australia where i live - avg condo price 400k: avg rent 2k pm for what is considered a good deal - do the maths! You do need to spend the time doing your research thoroughly though.

I am about to purchase my first deal in upstate NY (over 20 hrs from my home) and have met with a good local property manager and just visited the town. Have also spent ages researching the area, vacancies, crime, comparable sales. I am not going to make as much as someone that manages on their own but i am confident i can still do well out of this with a strong team. Cannot stress the importance of this enough.

Interested to hear from BP regulars on their opinions of out of town buying though? (and also some that have successfully made it work!)

I wish you all the best.

John,
Financing is a challenge. There are a number of other posts on this but to be honest I dont think I have seen many that actually answer this tough question.

Your best options for finance are:

1) seller financing (tough to get but something many sellers in the US will offer if they are desperate enough to sell)
2) equity in your current property
3) find a US lender that will lend to you. Im looking at this at the moment. It is possible but you will pay anywhere between 1-3% premium upon the standard interest rate.
4) hard money lenders
4) cold hard cash

In Aust, banks will not lend you money to acquire an overseas asset. This makes sense - too hard to value, forex issues etc. Assume this would be the same with any other western country. Using equity in your own home is different, as that is the same as cash.

On a side note - do your research on Phoenix. I heard vacancies are high there thats all. Happy to stand corrected. Check out area stats on yahoo real estate, homefinder, homepath stats etc. Of course some may say the same about eastern Ohio (where I am looking) - it is all about doing the research on the particular area you are looking into!

Hope this helps.


Josh