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Out-of-State Real Estate Investing 101

by Ali Boone on December 22, 2012 · 59 comments

  
Out of State

One of the biggest questions I hear is “How can I invest out-of-state? I hear the returns are much better, but how would I even start to do that?” Assuming you live anywhere other than in a handful of cities, you are probably right about the returns. You also realize that you don’t need to be local to your investments so that you can routinely “check in on them”.

So you are fully convinced this is what you want to do, now what?

The two major components of investing out-of-state:

  • How to Choose a Market
  • How to Find Properties in an Unfamiliar Market

How to Choose a Market

Choosing what market to invest in depends on your goals. For example, do you want to flip properties or buy rental properties? A good market for a rental property may not be a good flipping market and vice versa. I personally don’t flip properties, so I won’t focus on those markets here except to encourage you to make sure you do investigate what makes a good market for that type of investment.  I can however suggest what to look for in a good market for rental properties. Some of these may even carry over to other types of investments.

Considerations When Choosing a Market for Out-of-State Real Estate Investing

  • State Laws: Is the state tenant-friendly or landlord-friendly? You want to invest in a state that is landlord-friendly. This means that if you have a bad tenant the laws work in your favor to get him/her out as quickly as possible. Tenant-friendly states tend to give renters so many rights that you could potentially be stuck with a bad tenant for months while your expenses go through the roof (pun intended).
  • Trends: What are the population trends in the market? Population is probably the most important trend to look at because it is representative of other trends you want to research, such as industry and overall growth trends. A growing population = awesome. A decreasing population = look out.
  • Price-to-Rent Ratios: How much rent do properties in that market get compared to how much you have to pay to acquire them? For example, I have a rental property in Atlanta that I bought for $74,000 and rents for $1025/month. I looked at a comparable foreclosure in Orange County, CA that I would have had to pay $270,000 for and it rented for $1200. See the problem?

This is far from an all-inclusive list of things to look at when analyzing a potential market, but if those three things are good you are probably looking at a good market to buy a rental property. (In case you have no desire to do that much research, here is an insider’s tip- find people who have already done all of this analysis and piggyback off their finds. Make sure they are credible and don’t just take their word for gold, maybe even double-check what they say with some easy research, but this will save you a lot of research time on your own.)

How to Find (Rental) Properties in an Unfamiliar Market

Now you’ve chosen a rental market to invest in, but how do you find a property? I’ve seen it done one of two ways: You find a real estate agent you really trust who has connections to contractors, inspectors, and property managers –or – you can buy a turnkey property, meaning at the time you buy the property it is fully rehabbed with tenants and property managers already in place. Which route you choose depends on your goals for getting into the property. Are you primarily focused on the numbers, or are you more focused on less risk and less work? Here’s a breakdown of the two options:

Foreclosure

foreclosure

Pros:

  • Lowest purchase price
  • Highest rate of return (ROI)

Cons:

  • Vacancy time between purchase and tenant placement, due to rehab
  • Risk of rehab costing more than planned
  • Length of wait time and paperwork if a foreclosure or short sale
  • Fewer checks and balances on the purchase, rehab work, and property management
  • Cost of materials can be more expensive because they are purchased in smaller quantities
  • Teams on the ground have to be formed manually (i.e. someone knows someone who knows someone)


Turnkey

newer bungalow

Pros:

  • Fully rehabbed
  • Tenants already paying at time of purchase
  • No work required outside of normal due diligence
  • Standardized materials make repairs less costly
  • Certain standard of quality guaranteed
  • Checks and balances increased by how many players are involved
  • Teams are already in place

Cons:

  • Higher purchase price
  • Lower rate of return (ROI)

How much of a difference in price and returns are we talking about here? A realistic illustration of the differences between the two options:

Property A: foreclosure, $25k purchase price, needs $10k of repairs, will produce a 20% ROI

Property B: turnkey, $60k purchase price, needs no repairs, will produce a 12% ROI

Turn Key or Rehab?

So you are either in for $35k with a 20% return, or $60k with a 12% return. It seems obvious, right? Anyone would pick Property A at first glance. What you have to keep in mind though is that a lot of that money savings and increased return is actually compensation for how much work you have to put into the process. There is a big difference between active and passive income and when you are that involved in a purchase, you are doing active work. This work may be perfectly fine with you and maybe you even enjoy it. If that is the case, rock it out. If you want less stress, less risk and a lot more free time to pursue other things, maybe the turnkey route is worth it to you. If for nothing else, turnkeys are definitely a good route for new investors while they learn how to crunch numbers and own an investment property rather than being overwhelmed with building teams and managing rehabs. Remember, even if you go for the turnkeys your tenants are covering all of your expenses anyway, so if you are still cash-flowing well maybe the higher price tag doesn’t matter.

It all comes down to the definition of investing. Investing means you use (something) to gain a return.  In this case, it’s a difference of using your time and money to get a return, or just your money. Choose based on your goals, but know your options.

In the next version of Out-of-State Real Estate Investing I will hit on things to focus on once you own an out-of-state property. Until then, Does anyone have a compare and contrast experience? Are there any flippers who can elaborate on finding a good market for flipping? Leave a comment below and share!

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{ 59 comments… read them below or add one }

Brandon Turner Brandon Turner December 22, 2012 at 10:11 am

Great article, Ali and we are glad to have you as a new writer! I think you are going to bring a great new perspective to this group. :)

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Ali Boone December 22, 2012 at 10:28 am

Thanks so much for the opportunity to write for you guys, Brandon! I look forward to being part of the BP fam :)

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Ryan Bowman December 22, 2012 at 10:25 am

Great article! I am a real estate agent in Akron and currently work with investor clients in Vegas, California, Tennessee and VA. I am also an investor myself. Lots of great info here. Thanks for writing!

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Ali Boone December 22, 2012 at 10:30 am

Thanks, Ryan! What kind of deals do you and your clients work with mostly? Feel free to share any insights from your experiences!

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James Mitchell December 23, 2012 at 1:52 pm

I have been in the Arizona Real Estate market for over 20 years and 6 months ago decided to move to Williston North Dakota to take advantage of the oil boom. In the past 6 months I have acquired several projects on my own or with Joint Ventures with other groups that are looking for funding usually. The Cash Flow opporutunity is beyond anything I’ve ever seen and will be offering these opportunities to other Investors World Wide, I hope to be able to utilize Bigger Pockets and your Group to grow my network. Please feel free to contact me on current opportunities or what you are looking for personally. I am boots on the ground in North Dakota which is a very tough area to live, not just because of the harsh winters, and crazy traffic but the fact that your new 3 bedroom 2 bath units rent for 5200.00 per month with very few vacancies. I look forward to hearing from you.

James Mitchell

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Sunny January 23, 2013 at 5:27 pm

James,
Thanks for providing information on North Dakota Real Estate. Do you have or know the resources if there are cash flow properties that can be invested. this would be a of course an out of state investment for me.

Ryan Bowman December 22, 2012 at 10:43 am

Thanks Ali! Typically my clients have purchased REO properties that need some work to get them rent ready. I find them the properties, rehab estimates, est rental rates, property management etc.. I work in the market here everyday. I also provide these services for those clients that live here. The typical agent just shows the client whatever properties the client finds online. I bring them properties that are of value and have been previewed already. It typically saves the client a lot of time. It’s a unique value proposition here.

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Ali December 22, 2012 at 12:04 pm

That’s awesome that you help the investors out in that way. You’re definitely the kind of agent investors need in a city to help them out. Thanks for sharing!

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Keith and Kinsey December 22, 2012 at 1:14 pm

Nothing personal to the writer. This strategy works great for some. Although, I’d strongly advise not investing in property more than an hour from home. Yes, there can be some great returns. However, you lose too much control, and the potential for disaster is much greater. I purchased on out of state property that should have been amazing by the numbers, but two evictions, and a lot of damage later, I took a big loss to unload the place. I prefer to be able to keep my eyes on the property on a regular basis. My local properties have been much more reliable, because I have more control over them.

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Ali December 22, 2012 at 2:54 pm

Actually I do appreciate you writing this. You just hit on one of the biggest deterrents from investing out of your local area- an investor’s lack of ability to know exactly what is going on with the property at all times. For some this is okay and for others it is not. It is just up to the individual investor. The absolute most critical component to the success of investing out of your local area is your property manager. Without an excellent manager, you can be in a lot of trouble. Unfortunately, good managers can be extremely hard to find, but it is doable.

For me, out-of-state investing works perfect for two reasons: 1. I live in Los Angeles which doesn’t have affordable properties with good returns (among other problems), and 2. I’m actually the opposite than you where I stress more if I see my properties all the time because I’m such a perfectionist that I will nitpick the property to death for no real good reason. I prefer to be totally detached from my properties so I’m not thinking about them at all unless my manager needs me for something.

You are right though in that typically no one will take care of your property better than you will. It just depends on how involved you want to be in the management.

Good thoughts! Thanks for sharing.

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Jose Gonzalez December 22, 2012 at 8:24 pm

Ali, I find this last comment even better than the main writing (which was great!) in the way that shows better in how you manage your investments and for me is the way that investors should, at least the ones that want to have multiple properties. When you start investing in single family homes or whatever real estate property you like, when you analyze it from a “calculator” point of view, if I may use this comparison… you will have better results. But if you are present and want to have everything in full control and take care of everything… you will lower your ROI (higher cost in rehabs), increase stress and even get discouraged fromRE investments.
You cant possibly have someone more in favor of this oppinion than me I believe. I started investing in a different country and putting together the whole team was the most dificult thing to do as you said… PROPERTY MANAGERS! I believe is the key, together with a good real estate agent that can give you options that he finds and analyze like Ryan Bowman… and opposite to Keith and Kinsey if you can have a good advice is not to give up! when you get to find a good property manager, good contractors and real estate agents… it is simply described in the article… ROI pays it all!
Ali, I would love to remain in touch since we have the same perspective and I also am a buy and hold type (and live in different states)
Great topic and congratulations with the way of thinking, not everyone that you get to talk/read thinks this way!

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Ali December 22, 2012 at 9:26 pm

Thanks for the comments, Jose! You couldn’t be more right about the importance of finding a good team. Any team an investor works with is critical to an investment. While it may seem like we are suggesting it’s easy to find these magic teams, it most certainly is not unless you are lucky enough to already personally know people who do the jobs you need handled. Finding the right teams not only takes a good bit of networking, but it also requires some failures! You have to endure the failures, at least in my experience, to find the gems. They do exist, you just have to find them. Once you have the teams, you can use them again and again and enjoy the luxury of not worrying about your properties. The good thing is when you have high returns on a property, you have some wiggle room to work with while you find these teams. Property managers are the unfortunately the most critical component for this type of investing and yet the hardest (good) ones to find.

I’ll definitely stay in touch! Thanks again for the comments.

Jeff Brown December 22, 2012 at 6:08 pm

Welcome, Ali.

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Ali December 22, 2012 at 9:43 pm

Thanks, Jeff! I love reading your articles!

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David December 22, 2012 at 6:21 pm

The greatest benefit of purchasing a turn key property, in my view, is that the out-of-state investor can get conventional financing (30-year fixed), with no additional capital required beyond the 20-25% down payment + closing costs. REOs are often not financeable due to condition, and even when they are financeable, they typically need $7-15K of additional capital to make them rent ready, which dilutes your ROI until such time as you can do a cash-out refi, but those are tough and have lower LTVs, so it’s a lot less efficient in that respect.

I tend to agree with the poster that said you should invest within driving distance, which I’d define as 2 hours, maybe 3. Even CA coasters can get to viable rental areas in the valley in that length of time. You need to be able to hold your PM accountable, and that means touring your properties (unannounced) occasionally. Being able to go there regularly will also enable you to actually learn about the rental submarkets in that market. The PM will be very cavalier about freely racking up expenses if you’re a distant, hands-off investor. It’s just human nature. Just talked to a west coast investor who has purchased rentals in my area, using two different PMs (generally reputable ones, I might add), and the investor was very unhappy with both. If they t know you won’t ever be showing up, they can do anything and TELL you anything. And it can be done in such a way that you can’t prove anything, or ever really know for sure, you’ll just have very high maintenace and operating expenses. PM work is a low margin line of business, and the temptation to stretch out work and nickel & dime investors is great (especially long distance investors).

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Jose Gonzalez December 22, 2012 at 8:36 pm

David, many people I have known around the US and Europe tend to have one thing in common. The most succesful investors and business men actually do the contrary than most people… They behave rather agressive in their investments since they dont even know many of their properties (many own more than 1000 doors) but are in contact with good people, partners and advisors. The best thing of RE investing that I found when I started is that really if you get to build a good system, the time that takes to mantain your properties is very low, it only absorbs if you want to stay in control of analyzing the new buys (which you can even arrange to recieve the analyzed properties by the way) and focus your time in education, networking or whatever you choose to.
I also encountered a very bad Property Management company… took me 2 months to switch since I really follow the numbers and not the excuses. But now after several phone intervews and research, I have a great company that really does everything… So it only depends on you, if you prefer to control everything or work a little harder to find the team, and then let them work for you, absorb the stress and send you emails regarding the stuff that you decide to know about your investments.

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Ali December 22, 2012 at 9:39 pm

David, Excellent point on the financing ability with the turnkeys versus the rehabs. Thanks for sharing! You are absolutely right that the financing ability between the two options can be very different from each other and may easily affect which route an investor decides to go. Both options can be leveraged but the loans may be structured very differently from each other and must be understood.

You are absolutely right with the things you mention that can happen to non-local owners because of their property managers. I’d venture to say the majority of property managers will rip off an investor, whether intentionally because they can or because they just aren’t good managers. I do think though that a half-smart investor can know if they are getting taken advantage of. At least I can usually figure it out pretty fast. If I experience seemingly ridiculous charges for something, or too many or too high of charges, or if the communication is bad, or in general I can sense something is off, I can feel that and question it. If the manager can’t answer or I don’t feel comfortable with the answer, it’s time for a new manager.

While I don’t personally worry that I’m getting taken advantage of it, just because I’m comfortable as long as I’m receiving the rents every month and the extent of repairs is normal, I appreciate your points because they help educate investors on the possibilities of what can happen when using property managers from afar. And yes, some people aren’t comfortable trusting someone else, and that is totally fine. Regardless of preference, all education about the topic is beneficial.

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Leonid June 2, 2013 at 4:48 pm

I totally agree with David.
The risk of remote land-lording is that you have to locate good property and good team to manage it. There is not much money in property management .. even if one gets 10% management fees, you need 100s of them to pay your salary expenses and make reasonable living .. so PM does not scale very well. The more properties one has the more staff one needs and the more expenses require even more properties to manage to maintain PM income equilibrium.

There are much more money in margin on repairs, so you need really ethical PM, who (against default human nature) will not let his own self-interest to prevail over the one of his clients. I don’t want to sound cynical, but its a rare fine. I am sure there are such people in the business, but like gold ..lots of it in many places .. but the trick is to find it.

Main issue I see, that when you buy the property, you are making a commitment without good basis to judge if you have found that Gold PM .. when you find out .. you already in the game .. were you have very few controls over, the only guarantee is expenses.

I would like to invite Ali to share the process she uses in locating “Te Team” and the properties. How one does it in unfamiliar lands?
Interesting discussion.
Thanks for sharing your thoughts

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Ziv Magen June 2, 2013 at 6:11 pm

I’ll second that, Ali – great topic for an article :)

Personally, I make sure the legal and financial reps are there first – even if I don’t have to use them much, knowing you’ve got a good accountant and legal RE professional watching your back and to bounce your ideas off is priceless (even if it costs a bit to get their opinions occasionally).

PMs, reno specialists, insurance agents and everything else can come and go with (relative) ease – trial and error and relatively few losses – it if you’ve got your legal and financial lined up these mistakes will cost you far less in the long run.

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Melodee Lucido December 22, 2012 at 7:45 pm

Awesome and timely Ali. I am one who will go out of area and out of state.

I love your idea about flippers sharing their view of your topic. Hope this tread continues with lots of juicy ideas and shares.

Thanks Ali!

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Ali December 22, 2012 at 9:42 pm

Hi Melodee,

Me too! :) I’d love to start learning more about the flipping markets as well and look forward to hearing any perspectives on those.

Awesome to hear you are an out-of-area-comfortable investor! What markets do you focus on?

Ali

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Mike December 23, 2012 at 2:54 pm

Great article Ali. I am an Orange County, CA “Native Son” so I know of what you speak about in Southern California. I never really started making money in Real Estate Investing until I left the state of California and I have never looked back. The very LAST thing I want to see is a house I own or a tenant living in one of them. I have been in over 20,000 different houses in my life time and enough is enough. I can get a Professional Home Inspection and Appraisal done, usually cheaper than a flight and hotel room for a couple of days. That, along with my five rules of investing greatly reduces any problems. Currently, I own property not only in California, but Arizona, Texas, Oklahoma, Colorado and Tennessee. I ran my own Property Management company, many years ago, back in 1985, so I know what needs to be done. And I have no problem FIRING a bad Property Manager, I have fired 3 in the past 4 years.

For those who are fearful of long distance ownership, I suggest maybe starting not too far away, say 4-5 hours away. My first “long distance” rental was in Fresno, CA, around 300 miles away. If you just have to drive by it, it is only a day trip. But if you buy right and get a good property manager, you will be driving by it less and less.

When investors evolve their Real Estate Investing from “hobby” to “business”, they will see that their time is much better spent in finding new deals, negotiating and research, than driving by a rental to make sure the tenant is cutting the grass and not trashing the place. I did not start Real Estate Investing so I could quit my job, I did it so I could become wealthy. Trading a 9-5 job for a 24/7 job. which managing property is, did not appeal to me.

As your business grows, you will not have time to be driving by your rentals. Maybe you can if you have 5 or 10, but will you drive by them when you have 50 or 100? At some point, economies of scale kick in and you will have to delegate.

I enjoyed your article Ali, I hope you write some more.

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Melodee Lucido December 23, 2012 at 7:37 pm

Mike, you rock! That was a generous and well thought out post from you. I tried to find you in the members list—-would love to be a colleague of yours.

Ali December 23, 2012 at 8:17 pm

Mike, thanks so much for the great words! Amazing testament to the idea that out-of-state investing can work just fine. I totally agree with you.

Where in Tennessee have you invested? I graduated undergrad from MTSU and I still go back to Nashville twice a year. I love it out there and still have a lot of friends there.

And I can’t help but notice the Jeep in your picture! I just bought myself an old 1990 Islander that I am beyond excited about! She screams beach bum :)

Thanks again for the comment!

Mike McKinzie June 2, 2013 at 5:17 pm

Ali, I ventured into TN last year, buying my first rental in Memphis. Paid $56K for it, put about $9K into it and it rents for $895 a month. As for my Jeep, my wife agrees with you about the Beach but I love the Mountains! We have done Black Bear Trail, Imogene, Engineer, Cinnamon and many lessor trails in SW Colorado. That picture is at the crest of Imogene trail, 13,100 feet elevation. My Jeep is a 2003 Rubicon.

Now to find the next state to offer me a great return!! I am looking at Indiana, the Carolina’s and maybe Nevada!!!???

Cheryl December 23, 2012 at 1:21 pm

I loved this post as I am a newbie out-of-state investor. There’s no way I could be an investor here in the Bay Area – or even in the Sacramento area.

I bought a semi-turnkey multifamily in St. Louis. 3 out of the 4 units are rented. and 1 out of the 3 pays on time. Haha sad. That said, good realtors and property managers are worth their weight in platinum. My realtor was very patient with me. Finding the right place took a year. And the property manager deals with the headaches.

I love out-of-state investing because I can actually afford to do be a real estate investor.

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Melodee Lucido December 23, 2012 at 7:34 pm

Cheryl, thank you for your view and thoughts; very encouraging!

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Ali December 23, 2012 at 8:19 pm

Thanks for the comment Cheryl and yes, I totally agree with you! :)

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Mark December 23, 2012 at 1:24 pm

I enjoyed reading about owning real estate out of state. All I have heard is “Don’t own out of state.”

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Ali December 23, 2012 at 8:20 pm

Well in that case, Mark, I am also glad you saw my article! So few people it seems like realize that it is definitely possible to invest anywhere you want. If I can ever help you explore the idea more, please feel free to stay in touch!

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Marc Donovan December 23, 2012 at 1:51 pm

I find that the most important aspect is to hire a good PM as an EMPLOYEE. Incentivize them by paying them a percentage of your rent minus expenses. This causes them to want the same things that you want – maximum rent, least hassle, least expense. I often interview 30 – 40 people before I decide and one of my main criteria is: have they owned rentals themselves? I ask questions about what would you do in this scenario, that scenario, etc. You can quickly find the ones with experience. I also like to hire secret shoppers. This can keep you informed. If the PM has actually rented the place and tells you that it is vacant, you can check this with a secret shopper. If the place is not presentable, or has neglected maintenance, the shopper can let you know. Another thing I want when the place goes back on the market is pictures. Lots and lots of pictures. I don’t let the PM do any physical work, even for small items. I want that hired out to someone that I choose myself. It takes time to get this right, but it is well worth the end result.

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Ali December 23, 2012 at 8:25 pm

Marc, excellent ideas! Thanks for sharing. I hadn’t even thought of using a secret shopper, but that is an awesome way to make sure your PM is performing for sure. I also like the idea of the PM making their % not off the gross monthly rent but the net instead so they have an incentive to keep costs down like you say. I wonder though if that may tempt a PM to cheap out on fixing something to the quality that it should be done in order to keep the net higher? Have you experienced that at all? Thanks again for your thoughts!

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Joel December 23, 2012 at 2:19 pm

I am not a fan of owning little houses all over the place and out of state. Your economies of scale among other things gets diluted and hard to manage.

If you owned even say 10 houses in different counties in your state various management companies might do one county and not the other etc. You are creating multiple roofs, multiple management companies to keep control of everything.

Every investor buys certain kinds of investment for different reasons. For instance my clients as well as me like multifamily 5 + units, triple net, land banking buys etc. These type of properties lend to a more passive activity. For really high income earners you value time more than anything and make less money swinging hammers, doing fix up yourself, having a headache with little properties everywhere. You do better with a little less return and no headache.

The larger buildings for multifamily property managers are specialized and have systems in place to run properly although you still need to watch them occasionally.

The benefit to little houses just like wholesaling is the low cost to entry as other investment methods take considerably more cash to play in those spaces. Someone with 1 million already is fine getting a 7 to 8 percent return yearly and a tax write off versus trying to hit grand slams and use a hammer to quit their day job. I understand those with small funds to start as they have to hit it big every time to grow the money to something substantial and then after that time they can mix up their portfolio with various amounts of risk and return involved.

With the little houses the SINGLE MOST important tip is to make sure the PM only does PM work. With little houses you will run into part-time PM people that are focused on your rental but once a sale comes along or the tenant starts giving trouble the PM does not have the experience or patience to deal with it for the low monthly fee they are getting. Now the investor is states away wondering what is going on and incurs thousands and thousands in lost revenue and damage as a result. This is why the PM should only do PM work in my opinion to have the systems in place to protect the investors investment and make sure returns stay as close to the optimal projections as possible. I can’t tell you how many investors call me with the nightmare stories of being out of state with the little houses. Some have worked out but a big majority there is something major that happens.

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Ali December 23, 2012 at 8:34 pm

Great comments and points, Joel. You are correct in everything you say about the capital required for various levels of investments and the risks and issues with each. Your arguments against the little houses are valid. There is always a trade-off in any investment. There are some major perks to the little houses right now which are higher ROI (new to this market, and a lot of why apartments aren’t the biggest focus any longer), and the exit strategies with those are better because you just have more options on how to get rid of them should you choose to do so. But the trade-off for those perks is that you are dealing with individual houses so potentially individual managers, multiple areas, etc. Some of this can be alleviated with investing in pockets in multiple markets. So instead of having 50 properties randomly scattered around, have pockets of 10 properties in 5 distinct areas, so only 5 PMs instead of 50. There are other ways to work it, but you do make great points and are ones that any investor should definitely consider.

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Thomas December 24, 2012 at 12:53 am

A great post! I have often wondered how folks deal with out-of-state rentals – I have a few units in Oklahoma and have been using the same PM for the past few years. I noticed that my PM has always managed to keep a ~30% expense ratio (10% management fees, plus 20% repairs/maintenance). Time to fire the PM?

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Ali December 25, 2012 at 7:49 pm

Lol. Welllll. First of all, thanks for commenting! As far as the repairs go, I must say my first feeling is to absolutely fire your PM, but then I decided I shouldn’t assume the worst. It really depends on the property. If you bought a $15,000 house built in the 80’s, 20% may be totally normal. I know an nvestor friend of mine who actually bought three $15,000 houses in a suburb of Atlanta and for all three of them uses a 25% repair cost estimate. He doesn’t pay 25% every month in repairs, but that is the estimate who uses to crunch numbers. I buy mostly turnkeys, so I only use about a 5% estimate because they are freshly rehabbed. If your properties are in great condition, you should probably fire the guy. But 20% may not be unreasonable if they are older properties? But every month… I would look into it!

I would love for you to keep me posted on what you decide to do, or what you find if you dig into it. I’ll be expecting a follow-up comment from you in the near future to tell me the outcome! :)

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Michael December 24, 2012 at 1:42 am

Congratulations Ali and I look forward to your post’s on BP. Love your energy and enthusiasm.
How are things in Nicaragua?
Great post and great example of pointing out the difference to buying an REO/distressed property vs a turnkey ready to go property.
For the beginner buying the REO and paying for rehab…..might even cost them more money if they make some mistakes or miscalculations.
I am looking at a large out of state purchase currently with some great opportunities for cash flow.
Just living the dream.

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Ali December 25, 2012 at 7:51 pm

Nice! I’d love to hear the details on it if you want to email me with them. I have been planning to email you as well to talk a little bit about flipping.

Nicaragua is good! The development I work with investors at just made a huge announcement that Wyndham is officially coming into the property, immediately by taking over the existing condo hotel and then they will brand the under-construction condo hotel a Wyndham Grand. Hellllooo swanky! I’m so pumped. I’ll probably head down there in February I would imagine, March at the latest. Come on down! Margaritas await.

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jeff December 24, 2012 at 9:54 am

Nice post Ali. I’m in the same position as many here in terms of barrier to entry in my home market. I live in the SF Bay Area and railed for years over the idea of investing out of state and paying a property manager. Especially because I’ve managed 16 doors for in-laws for almost 8 years while working a day job on the side and could manage my own local holdings with ease. I HATED the idea of paying somebody to manage my properties when I could so easily do it myself………..if I could buy locally. But the buy in cost locally is huge and cash flow is negligible or negative. So I finally decided to buy out of state and make money rather than own nothing and make nothing. I started with buying a couple of turnkeys. Worked well enough, but then decided to cut out the middleman and go out of state on my own. Built my own teams in Texas and Georgia. In the past year I’ve bought 7 properties. I flipped one, kept 5, and am selling another to someone locally. I’ve had friends inquire about me getting them investment properties out of state, so now along with getting my own keepers I’m flipping to friends and colleagues in the same boat I was in with living in the Bay Area.

As others have mentioned here you MUST have a good property manager if you are investing out of state. Do your due diligence or you will get burned. If your PM is lousy, fire them. They work for YOU, not vice-versa.

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Ali December 25, 2012 at 7:55 pm

Solid point, Jeff! Couldn’t have said it better. That’s so awesome to hear you’ve gotten into the swing of the out-of-state investing! I’d love to hear about your Atlanta experiences and properties (I’m in Atlanta as we speak working with investors) and where you are investing in TX. There are definitely some great areas in TX to invest in right now.

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Lawrence December 26, 2012 at 5:07 pm

Great article! I think turnkey might be the way to go. My market NY metro is too expensive.

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Ali December 26, 2012 at 10:09 pm

NYC is a bit expensive, that’s for sure! The price-to-rents aren’t exactly what I’d want in an investment property either. If you have any questions in your turnkey pursuit, feel free to ask! Thanks for the comment, Lawrence.

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Ziv Magen December 26, 2012 at 6:58 pm

Great article, and even greater comments man the discussion from you, Ali – here’s another warm welcome :)
I’d add that, as an investor and buyers agent whose clients all invest not just out of state, but out of country and often out of continent as well (actually, in the case of our US clients, about four continents away ;)), I’d say you’re spot on – remoteness actually adds not only to delegation skills (what you call “not being nit-picky”), but also to objectivity and level-headedness. When you’re not there to visit in person, fall in love (or hate) with buildings, interiors and areas, you actually have a far better chance of being calm, collected, objective, and let the (REAL) numbers do the talking – which is the best recipe for success in the deal evaluation phase, and afterwards as well. Emotional detachment is key.

I’d add that the crucial skill for remote investors, which you’ve only briefly touched upon (sorry if this is a spoiler for your next post ;)) is team-picking. When you’re not hands-on, the most important skill stops being your amazing renovation experience, tenant screening skills or any other previous “boots on the ground” specialty you may have had – instead, your ability to do due diligence on realtors, property managers, insurers, lawyers etc etc becomes the main “make or break” game changer.

Once again, welcome aboard, and thanks for a great article! :)

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Ali December 26, 2012 at 10:14 pm

Thanks, Ziv! I’ve read many of your articles on BP and am excited to have you read mine! Quite flattering :)

You nailed it in your comment. You reach a point where it is no longer the property you are managing, but rather the managers and team you must manage! You also hit on a point that I think about all the time but probably haven’t said on here yet, which is not only do I want to be emotionally detached to the property, but I more importantly want to be emotional detached from the tenants! I can get my emotional attachment fill for the property by looking at pictures of the cute little place, but when it comes to tenants, I don’t want to even know their names. What happens when you know your tenants? You are more likely to accept excuses, accept a skipped month of payment, etc. All because you know the personal circumstances of the tenant and your heart goes out and you want to be helpful. Commendable trait that you can be empathetic, but horrible for business. You will lose money and get taken advantage of. Don’t know your tenants. Just focus on managing your team :)

Thanks again Ziv! I look forward to staying in touch.

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Cheryl December 27, 2012 at 9:54 am

I think because I’m a newbie and why I got into real estate in the first place, I’m very attached to my properties. I love old houses, and my goals are to renovate to rent and eventually restore. I like to know who rents my place, but I definitely need to be more detached. You’re right about accepting excuses. That makes it so hard. I hope to be more detached from my tenants in the next property.

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Ali December 27, 2012 at 7:32 pm

Haha… I definitely understand Cheryl. In the beginning, it’s not necessarily a bad thing to be attached as it will teach you a lot about properties and tenants. All great information to be aware of and understand. I’d imagine that as you continue on, you will start becoming less attached and more objective. No matter how far away from my properties I am or how little involvement I have in them, I am still attached to each one. I love all of them, get excited to show them off, and one of them I’ve never even seen in person. It only takes great numbers and a cute house to make me proud! You’re doing fine. Just keep on keepin’ on!

Chris Clothier January 5, 2013 at 8:43 am

Ali –

Welcome to the BiggerPockets Blog! Sorry I am a little late to getting around to your articles. I followed your links and I love the “Hipster” site. Very good and I think you are giving out some really good practical advice both on there and in your first articles here. Plus, I think it is huge that you are so engaging in your responses…watch out though. You’ll get a reputation for being long-winded like me!

Looking forward to connecting and reading more.

All the best to you –

Chris

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Ali Boone January 5, 2013 at 9:38 am

Chris-

Haha. Although I have to say it won’t be the first time I’ve been accused of being long-winded! It’s definitely awesome to connect with you, especially since I just heard I may be working closer to you soon… I work hand-in-hand with good ‘ole Matt Bowles who just told me he’s been talking to you a lot lately about some deals.

And would you know, I just read your article about the 30 year mortgage versus the 15, I read all of the comments, and I spent I don’t know how long typing up what I thought to be an awesome comment… I hit “submit” not realizing my internet connection had flunked out… Lost it all. I tried to start rewriting it again last night and just couldn’t muster up the mojo. Lol. Oh well. Next time.

Will be in touch! -Ali

Ali

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Terry Hershberger February 2, 2013 at 4:10 pm

Ali, great article. I also reside in California but invest in my birth sates 2300 miles away.

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Ali February 3, 2013 at 4:05 pm

Hey Terry, that’s awesome! Where are you in CA and where are your investments?

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Michelle April 20, 2013 at 10:24 pm

Hey Ali!
I just saw this article through your blog and I have also seen you here on BP. I love your site!

Anyway, I know I’m late to the party here but I wanted to mention something that clicked with me that you mentioned and a few posters commented on and that is how some investors don’t want to be driving by their properties all the time. Funny thing is, my property is only a five minute drive from where I live but I very rarely drive by unless I happen to be in the neighborhood because I have such a great PM! So, I definitely believe in the power of a great PM.

Due to circumstances where I live, I am looking to possibly investing in the next state over, in Colorado. Only maybe a 1-2 hour drive but definitely out of state!

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Ali April 22, 2013 at 12:42 am

Hey Michelle! Glad you like my site, thanks :)

Colorado? I don’t often hear of anyone finding deals there. Have you found some already?

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Michelle April 22, 2013 at 1:12 pm

I haven’t found any deals yet…I remember reading Jon Holdman saying they are hard to find. I may try to link up with Mark Ferguson who is in Greeley. I’m from California and I thought THAT state was expensive!!!

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Ali April 22, 2013 at 1:21 pm

Yeah, I don’t know that you are going to find much in CO unless you want to do rehabs and flip and whatnot.

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cj February 13, 2014 at 7:48 am

Thats funny you mentioned Denver, is why I have to look elsewhere. Is the west part of Atlanta a good investment,( some great deals)?What is your feel for when the values will start appreciating there? Have you gone there to do your own rehabbing? Do you think a duplex is a good investment?

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Ali Boone February 13, 2014 at 11:33 pm

Hi CJ,

Yes, the west side is good but most of the “great” deals in Atlanta are long-gone. Still plenty of good ones though.

Values in Atlanta already appreciated huuuuge over the last 2 years. More appreciation? Probably in line with the general real estate market.

I don’t rehab.

Yes.

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Georges Arnaout March 16, 2014 at 5:23 pm

Ali,

I’d be interested to know your opinion about buying out of state foreclosures. You talked about them and explained them , but would you personally buy a foreclosure property w/o seeing it?

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Ali March 17, 2014 at 1:47 pm

No i wouldn’t Georges. I won’t buy foreclosures anyway because I don’t want to do that much work or deal with the headaches, but that part is personal preference rather than advice. My advice is not to ever buy a foreclosure sight unseen because you have absolutely zero clue about it’s true condition. I’ve gone out to see a ton of properties that look great on paper only to find that pictures taken right can make anything look good. And the areas were usually not somewhere I’d want to buy, despite what I originally thought about them. The only way I would recommend buying sight unseen is if you have a team on the ground in that location that is so trustworthy you would trust your mother with them. They could be your eyes and ears but you’d want to know for sure they know what they are doing. Regardless, extremely risky.

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Georges Arnaout March 17, 2014 at 1:53 pm

Makes perfect sense!

thanks!

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