out of state investing

Rehabbing & House Flipping
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out of state investing

Zubair Khan
Lorton, VA · Member since 2011 · 41 posts · 1 vote

So I'm thinking about investing in another state but just don't know if its safe. Anybody know what steps I should take and how to protect myself fully when doing deals with someone in another state so I won't get scammed?

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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
14y

Having a credible broker and investor in the area you are looking to purchase in.

Someone not out for a quick buck but life long business relationships and friendships.

Watch out for companies that talk fast and seem excited and pressure you to act or you will "lose the deal of the century".

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  • Sharad M.Pro Member
    Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
    14y

    Hi Zubair,

    What are some of your reasons for choosing to invest out of state? I am sure you have very valid reasons, but I am just curious.

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  • Chris Weiler
    Flipper/Rehabber · Anaheim, CA · Member since 2010 · 188 posts · 118 votes
    14y

    I do quite a bit of investing out of state. The advice I would give is: Find a market that fills your needs, build a team, then go look for properties. Do it in that order. To many people get burned finding a "cheap" property with no team in place and without studying the local market dynamics. Good luck!

    2Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    14y

    Having a credible broker and investor in the area you are looking to purchase in.

    Someone not out for a quick buck but life long business relationships and friendships.

    Watch out for companies that talk fast and seem excited and pressure you to act or you will "lose the deal of the century".

    Podcast Guest on Show #47
    NNN Invest53 Reviews
    WebsiteView Page
    3Reply
  • Zubair Khan
    OP
    Lorton, VA · Member since 2011 · 41 posts · 1 vote
    14y

    @Sharad: I want to invest outside of the state because right now the market I am in is to saturated and not in my affordability range. The guy I found was on an investing website and spoke to him directly and he said that the homes in his area are less then 40k which is more then feasible for me. Any feedback will be greatly appreciated.

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  • James Vermillion
    Lexington, KY · Member since 2009 · 2k+ posts · 1k+ votes
    14y

    Zubair,

    Not trying to change your mind but there is a reason those properties are prices much lower, and they are often very difficult to successfully flip (as they surrounding properties hold the value down). I am assuming the guy you found is investing somewhere in Detroit, Cleveland, etc. There is money to be made in these markets, but there is no way I would invest from out of state (as a beginner), as many people are having problems trying to do exactly that. Additionally have you verified the credentials of "this guy on an investing website". There are a lot of dishonest people out there and investing out of state is a huge risk unless you have a great and trustworthy team in place.

    I would highly recommend reconsidering. If you decide to proceed please make sure you do your due diligence on the property, the area, the repair costs, the property value, etc. I would not trust anyone to provide this information to me. If I were you I would continue to save money until I was able to invest in my local area where I could monitor the rehab and ensure the area is a place I would want to invest in.

    3Reply
  • Sharad M.Pro Member
    Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
    14y

    Zubair,

    I agree with everything that James has said. It is very risky to invest out of state as a beginner. What is the price range of properties in your market? Are there any real estate investment clubs in your area? I would go attend some meetings and talk to other investors and see what's working for them.

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  • James Vermillion
    Lexington, KY · Member since 2009 · 2k+ posts · 1k+ votes
    14y

    In addition to what Sharad said, perhaps you should look to partner with someone in your area and go 50/50 on a deal. With some searching you might be able to find someone who not only has some experience, but can add to your funding capabilities. This would allow you to invest in a local property, learn more about the business directly from you partner, and start meeting and working with contracts, banks, and others in your area that will come in handy for future deals.

    0Reply
  • Rich Weese
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    14y

    If you have the flexibility and time, go study the area first. Then select one and------MOVE THERE!! I've done that 4 times, thanks to a "very" flexible wife. If not flexible, most of the replies have been helpful. I don't agree with all the suggestions, but most are great, imo. Rich

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  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    14y

    Zubair -

    If your strategy is to invest in an out of state area because of price point in your area, make sure you are not using price point as the "main" attraction to out of state investing. Many, many investors purchase out of their area and are successful, but many more are not.

    You have two hurdles that are going to be very important for you. One, define exactly the criteria you want in an investment property. Price needs to be at the bottom of your criteria list. Just because properties are under 40K does not mean they are good deals or will be a good long-term investment.

    "PRICE IS WHAT YOU PAY, VALUE IS WHAT YOU GET" Charlie Munger

    2nd hurdle is the market itself. Great advice above on doing your due diligence on the market and the people you team with. Once you have identified a market you like, you MUST go and visit that market. Rent a car - view the houses and neighborhoods you are interested in during the day AND at night. Rely on the local experts to give you their advice, but THEN get a feel for yourself. It is your money - your investment - and you have to be willing to own that process and your decision to purchase.

    You can have success as a passive investor, but you just have to be real clear on why you are buying in another market and don't simply buy because the price point is good compared to where you live.

    I wish you the absolute best of luck -

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  • McKellar Newsom
    Real Estate Investor · Chattanooga, TN · Member since 2009 · 191 posts · 47 votes
    14y

    I was in your situation in 2007. I lived in Bozeman, Montana, a resort town with a minimum home price in the 250s. I kept making bids to get a 10 percent return and never landed anything. I ended up investing in other states and have loved my results.

    Out of state investing, however, is not for everyone. You have to like managing managers because you aren't there to do everything. Choose a market with cheaper house prices, landlord friendly laws, high rents and potential future job growth. Look at places with good airports that you wouldn't mind visiting often. Don't forget to add travel costs in for your returns.

    I will say I ended up moving to one of my markets but still have houses in 6 different areas. I like the diversity. Good luck to you.

    3Reply
  • Sherry Lewis
    Rehabber · Fort Walton Beach, FL · Member since 2011 · 240 posts · 48 votes
    14y

    Zubair,

    Definitely use caution when price is directing you to a lower price market. These folks can tell you the nightmares I had starting out. I invested in the wrong neighborhoods because I didn't have anyone on the ground in advance that knew the area. I am still sitting on my 4 properties.

    Having said that, I am in the Florida Panhandle area. I do come across some great deals, but I need someone to partner with me on the projects as I do not have the equity myself. Are you looking to rehab and flip? Hold and rent? What are you investment goals?

    0Reply
  • Zubair Khan
    OP
    Lorton, VA · Member since 2011 · 41 posts · 1 vote
    14y

    @Sherry: I'm looking more into rehab and flip so I can move my money around instead of buying and hold.

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    14y
    Originally posted by Zubair Khan:
    So I'm thinking about investing in another state but just don't know if its safe. ...

    There is no such thing as "safe" - there is only something known as "acceptable risk".

    So you'll have to determine what risks are acceptable to you - it's hard for any of us over the internet to know what those are ...

    1Reply
  • Mike Welch
    San Francisco, CA · Member since 2011 · 69 posts · 18 votes
    14y

    I invested in my first property in Arizona earlier this year. I bought in the town I went to college in, where I had lived for ten years, had friends, etc.

    It is critical to have a broker you like and trust who will guide you to gems and away from bad neighborhoods, risky properties, etc. I was fortunate to find a broker who new the area well, was an investor himself, and had a GC background.

    My goals are hold and rent over the long term. I located a property that was a short sale opportunity, and closed on it within 30 days. I then spent one week at the property, renovating it (roof replacement, A/C upgrade, floors, paint, etc).

    Getting a good local team in place is critical. I needed to locate a good handyman, electrician, etc. Additionally, I interviewed 3 property managers, then went with one my broker recommended. She has done a great job helping me stabilize the property which is now flowing cash with a good tenant in place.

    McKellar's comments about 'managing managers' is correct. I can't imagine trying to manage this property directly as some tried to convince me to do. Having a property manager has been a key to success.

    I'm now beginning my search for my second property. Acquiring and rehabbing for long term hold one property per year will be my focus. I plan to continue investing in this out of state market as the Bay Area, where I live, is not a suitable climate for investors. Now that I know where to go for repairs, property management, etc., I anticipate it will be much easier moving forward.

    Overall, it would be preferable to be in the same city as the properties I own, but this simply isn't possible currently.

    1Reply
  • Sherry Lewis
    Rehabber · Fort Walton Beach, FL · Member since 2011 · 240 posts · 48 votes
    14y

    That is what I was looking to do starting out as well. It is a good way to start building some cash and then move to buy and holds later when it is more financially feasible.

    0Reply
  • Tamara R.
    Investor · Vienna, VA · Member since 2011 · 158 posts · 45 votes
    14y

    Zubair:

    I am in your area. Have you looked at properties in Baltimore, MD? About an hour drive from you, but doable. I don't invest there, but a contractor who works on our houses does and he has bought houses for $5K and up. Those are in rough neighborhoods, but you could probably find something in the $40K or less price range in a more desirable neighborhood that needs to be fixed up.

    0Reply
  • McKellar Newsom
    Real Estate Investor · Chattanooga, TN · Member since 2009 · 191 posts · 47 votes
    14y

    For cheaper properties, I like Chattanooga, Memphis and Nashville. I recently bought a 4/2, 1100SF, 2007, Section 8 type property for $21,500. Newer ones like that don't come around all the time, but on occasion.

    I like to add alarm systems, motion sensor lights & HVAC cages for lower end properties, especially if they are not located in my home city.

    0Reply
  • Michael R.
    Real Estate Investor · NY · Member since 2008 · 313 posts · 87 votes
    14y

    Hire a good property manager and fly out to where you invest to visit the property before buying. Also to meet the property manager face to face as well as anyone else you plan to do business with. In the beginning I did everything via phone and email but once I started showing my face and meeting the people I was working with face to face things got much better.

    3Reply
  • Zubair Khan
    OP
    Lorton, VA · Member since 2011 · 41 posts · 1 vote
    14y

    @Mckellar: what is the ROI on your return for those type of properties?

    0Reply
  • Todd Brittingham
    Real Estate Investor · Walled Lake, MI · Member since 2010 · 121 posts · 66 votes
    14y

    Zubair,

    You've received a lot of great information on this post, and as you can see investing out of state definitely has it's pitfalls. Rather than purchasing properties outright, have you thought about partnering with someone in the market you are looking to invest in?

    We just launched a program that allows our clients to partner with us and earn a very nice return. The benefit to this is that you will have a partner on the ground with a vested interest in seeing your properties perform. This is a much different situation than purchasing properties outright because you bear the full risk of their performance after the purchase. Give it some thought and I'd be happy to answer any questions you may have...

    Good Luck!

    1Reply
  • Sherry Lewis
    Rehabber · Fort Walton Beach, FL · Member since 2011 · 240 posts · 48 votes
    14y

    Zubair,

    I have a few potential investment properties in the Panhandle areas as well. I sent you a PM. Happy to talk to you about what I have in this area. Looking at 4 plex's right now. I am in a tourist and military area which always makes for a good investment.

    0Reply
  • McKellar Newsom
    Real Estate Investor · Chattanooga, TN · Member since 2009 · 191 posts · 47 votes
    14y

    Zubair,
    The property I mentioned is rented at 698 and should hit in the 20% range for a return if expenses don't go over 50%. My insurance is for bought value not replacement so my costs might be a bit lower than some. I do have 7% property management and $20/month alarm monitoring on that particular property.

    The problem I have found with the cheaper properties is that you have to buy in cash. Banks don't typically want to loan less than 50K.

    0Reply
  • Mike H.
    Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
    14y

    One reason I keep toying with idea of investing out of state is that financing has become so difficult for me here in Illinois. I'm over the 4 property limit and I'm almost over the 10 (I have 2 spots left).

    I have managed to get a few portfolio loans through but those lenders have all stopped doing those loans now.

    I don't see an exit strategy if I want to keep adding more houses here.

    Whereas in places Texas they have lenders still doing portfolio loans so that would allow me to keep adding more homes. And texas always seems to be a great market for housing.

    Unfortunately, I'm still going to have the same problem with financing there. I don't know that the local banks will want to lend to someone from out of state.

    Its always something......

    0Reply
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