4 Must-Haves When Investing in Out-of-State Rental Deals

4 Must-Haves When Investing in Out-of-State Rental Deals

2 min read
Matt Faircloth

Matt Faircloth, co-founder and president of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, N.J., is a developer and owner of commercial and residential property with a mission to “transform lives through real estate.” DeRosa creates partnerships to finance select real estate investments and has a proven track record of providing safe, profitable investment opportunities to their clients.

Experience
Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to hundreds of units in residential and commercial assets throughout the East Coast. Under Matt’s leadership, DeRosa has completed tens of millions in real estate transactions involving private capital, including fix and flips, single family home rentals, mixed-use buildings, apartment buildings, and office buildings.

Matt is an active contributor to the BiggerPockets Blog and has been featured on the BiggerPockets Podcast three times (show #88, #203, and #289). He also regularly contributes to BiggerPockets’ Facebook Live sessions and teaches free educational webinars for the BiggerPockets Community.

Matt authored the Amazon Best Seller Raising Private Capital: Building Your Real Estate Empire Using Other People’s Money. The book is a comprehensive roadmap for investors looking to inject more private capital into their real estate investing business and is a must-read for anyone looking to grow their business by using private lenders and equity investors. Kirkus, the No. 1 trade review publication for books, had this to say about Raising Private Capital: “In this impressively accessible introduction to a complex subject, Faircloth covers every aspect of private funding, presuming little knowledge on the part of the reader.”

Matt and his wife Liz live in New Hope, Penn., with their two children.

Education
Matt earned a B.S. in Industrial and Systems Engineering with a minor in Business from Virginia Tech. (Go, Hokies!)

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DeRosa Group’s YouTube channel
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For several reasons, some investors decide to invest out of the state they actually live in.

Many who do so choose to go that route because their hometown area is too expensive. They’d rather invest in a place where the numbers make sense and produce the return and cash flow they are looking for.

While out-of-state investing can be exciting, it can also be very scary at the same time. To set yourself up for success with this strategy, you need to have a lot in place.

Here’s my two cents when it comes to buying out of state.

Related: 10 Essential Real Estate Team Members (& How BiggerPockets Takes the Pain Out of Finding Them)

Must Haves for Investing in Out-of-State Rentals

1. Establish Your Search Criteria

What are you looking for? Define your goals and your search criteria. Are you looking for a small multifamily? Are you looking for a single family home? What rent and purchase price are you aiming for? How much money can you bring to the table? Are you going to do real estate syndication or a small partnership? Determine price, deal size, and geography—pinpoint one to three markets at most—before jumping in.

2. Focus on Management

Don’t expect to self-manage from states away. Unless you have phenomenal systems in place, management needs to be done by a third party that’s in the area. This is a fact for big deals, small deals, all deals. The best laid plan for a rental property will get thrown out the window if there’s poor management.

3. Assemble a Team

Each state has different laws, landlord rules, and so on. First and foremost, you need a good lawyer in the state (and sometimes in the county or town) you want to be in. You also need boots on the ground, meaning someone who has equity alongside you or is financially benefiting from the deal somehow. This person needs to be able to go out and look at property for you, so you don’t have to fly into town every time you come across a deal that looks interesting. Also, look for a local broker or real estate agent, local maintenance team, and as many others in the market as possible that you can leverage as a team.

4. Find Funding

If it’s a smaller deal and you find a local community bank that’s willing to fund the property for you, that’s probably the cheapest money that you’re going to come across. However, some small banks don’t want to work with anyone who isn’t actually residing in that area. In this case, you might have to look to a national lender.

Tackle all of these things before you go and start looking at properties. The path to success is having a lot of this in place going in.

The market is moving so fast right now, if you find a good deal, it’s not going to stick around for a couple of days before it’s under contract. Ensure your deals are successful by taking these steps first.

Watch my video above, where I go into greater detail about each of these concepts.

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What other advice would you offer investors interested in finding deals out of state? 

Let’s discuss in the comments. 

Some investors decide to invest out of the state they actually live in. Many go that route because their hometown area is too expensive. They'd rather buy in a place where the numbers make sense and produce the return and cash flow they are looking for. But to do this successfully, you need to have a lot in place.