looking to buy first rental property out of state!
Hello everyone! My wife and I are looking to start our real estate journey! Currently we live in Hawaii and I am an active duty Soldier, we have decided that investing in Hawaii is too much of a risk for us at the moment, but are looking at other markets that offer good value but also not a warzone. We would love to do multi family, but are also open to doing SFR as well. Our max price range is around 170k as we would have to put 20% down. Cash flow would be nice, but long term appreciation and with break even cash flow is even better! Any advice and leads are very much appreciated
Hey Jared,
My top advice would be to look into getting a VA loan and utilizing it however you can. You can only have one VA loan at a time, but you can refinance the loan after 12 months into a conventional and then go get another VA loan again. That gives you a lot of flexibility where you can invest to get cashflow.
In terms of good markets, I believe there are great deals in any market. You just have to look a lot and run the numbers. the Biggerpockets calculators are a big help.
Hope this helps!
Tyler
The only downside with a VA loan is you have to have it as a primary residence, but after I am out of the military we will be utilizing it to its fullest! I appreciate the advice though!
Originally posted by @Tyler Peitzmeier:Hey Jared,
My top advice would be to look into getting a VA loan and utilizing it however you can. You can only have one VA loan at a time, but you can refinance the loan after 12 months into a conventional and then go get another VA loan again. That gives you a lot of flexibility where you can invest to get cashflow.
In terms of good markets, I believe there are great deals in any market. You just have to look a lot and run the numbers. the Biggerpockets calculators are a big help.
Hope this helps!
Tyler
You are in a prime position with the military. If you can swing it, buy a house at every new base you get stationed at. Get the low interest, live there for your assignment, then rent it out. Several military friends have decent portfolios doing this.
Just know that out of state investing leaves you in a disadvantaged position overall. First, you will be reliant on property management services. That alone will usually eat up 1/3 of your cash flow on a financed property. Second, there is little motivation for PM’s to be frugal with your money (ie. how they spend it for you on repairs, etc.) when we had one they wanted $800 to repair a garage door opener that we fixed ourselves for $200 and 2 hours of our time.
We have just under 40 rentals that we self-manage locally. If you are just getting into the business, I would really encourage you to think going local first before trying out of state investing. There is a learning curve that you might pay a steep price for if you are not careful. From just not knowing the market to being exploited by vendors, it could be a rough ride. In the end, no one cares more than the owner.
All the best
Randy
Congrats on getting started. The sunbelt continues to experience rent growth, population growth, job growth, income growth and job diversification. Depending on goals and timelines you could look at major markets Atlanta, Dallas, Jacksonville, Charlotte, Orlando. Secondary markets have also provided opportunities like Chattanooga, Huntsville, Birmingham, Winston Salem and Greensboro. Hope things progress well and that 2022 is a good one.
Hey @jared m @Jared M Pilarski! Using a VA loan would be a huge help for you, being able to utilize the 0 down and great rates, but that is for owner-occupancy, so may not work with your current strategy. If you purchase a property with that loan each time you move, it can work great. If not, rocking that conventional route still can work - just keep in mind most lenders require more than 20% down for non-owner occupied MFH!
@Jared M Pilarski Don't let the haters tell you that you can't do it. I've built a real estate portfolio in 3 different states while active duty, and I use property management and I can assure you that its possible. Its all about finding the right people and building a team of rockstars to help you on your journey. There are plenty of agents, lender, and contractors out there that can help you and your family achieve your financial freedom goals.
Have you read "Long Distance Real Estate Investing" by david greene? That book was huge for me and helped me accept the concept: "live where you want to live and invest where the numbers make sense". I have purchased 6 different investment properties sight-unseen and I don't regret a single purchase.
Keep us updated on your journey and don't hesitate to reach out! Good luck!
@Randall Alan Investing locally is not an option for @Jared M Pilarski so he's having to look into other, less expensive markets. I own 5 out of state properties and I've never had property management services add up to 1/3 of cash flow. If he can't buy locally, do you think he shouldn't buy any real estate at all? I think he can put a team together in a market out of state and be successful.
I think its great that you're able to purchase real estate locally, but that's not a reality for many folks in the military, myself included, because we don't get to decide where we live. Does that mean we shouldn't invest in real estate?
@Doug Spence Thank you so much for the insight! I recently connected with a team in the Columbus area and it seems to fit all of the checks based on what I have read so far in the book! but yeah I'm not too worried about the haters. Obviously buying locally can be better, but I wont have that option for another 2 years and I definitely do not want to wait that long! I am hungry so starving myself of this passion is not in the cards.
It sounds like you have a lot of great opportunities! I would love to talk to you about these! I send you a message!
@Jared M Pilarski Love it! Stay focused on your 'why' and your long-term goals to keep you motivated. And keep taking action! Don't get analysis paralysis. Let me know if I can help and keep us updated on your journey!
Hawaii is a primary market NOT ideal for cashflow investing.
It could appreciate but I consider that gambling. Sophisticated investors invest on cashflow where the rents exceed the mortgage plus expenses (and enough money to pay for professional property manage to do our dirty work). A lot of this concept is explained in the Keynesian Beauty Contest theory where only the top competitors get the most notoriety but the best picks are hidden in the field. So part of the game is staying away from the "dumb" amateur money.
Sophisticated investors look at the Rent-to-Value Ratio and look for at least 1% or more to be able to cashflow after expenses. You find the Rent-to-Value Ratio by taking the monthly rent dividing by the purchase price. For example a $100,000 home that rents for 1,000 a month would have a Rent-to-Value Ratio of 1%. Most people I work with live in primary markets (as opposed to Birmingham, Atlanta, Indianapolis, Kansas City, Memphis, Little Rock, Jacksonville, Ohio, or other secondary or tertiary markets) where the Rent-to-Value Ratios are under 1%. Plus we invest in red states so we have good landlord laws on our side too.
Live where you want and invest where the numbers make sense 🤙
If you take a typical $100,000 rental that rents for $1,000 a month, your P&I would be $482 at 4% interest. If you say taxes are $100 a month, insurance $100 a month, and a $100 maintenance / capex reserve, you are going to cash flow around $218/month. Property management at 10% of rent is going to be $100.
even if you flex those numbers pretty hard property management is a significant hit to cash flow.
To each their own, but my numbers have typically looked at about 1/3 of net cash flow on a financed property.
My point was not to not invest out of state, but that PM takes a big bite, and by not managing properties yourself first, you may not know when you are being exploited by a property manager.
All the best!
randy
Originally posted by @Jared M Pilarski:@Doug Spence Thank you so much for the insight! I recently connected with a team in the Columbus area and it seems to fit all of the checks based on what I have read so far in the book! but yeah I'm not too worried about the haters. Obviously buying locally can be better, but I wont have that option for another 2 years and I definitely do not want to wait that long! I am hungry so starving myself of this passion is not in the cards.
Columbus, Ohio is a great market to buy real estate in
Originally posted by @Remington Lyman:Originally posted by @Jared M Pilarski:@Doug Spence Thank you so much for the insight! I recently connected with a team in the Columbus area and it seems to fit all of the checks based on what I have read so far in the book! but yeah I'm not too worried about the haters. Obviously buying locally can be better, but I wont have that option for another 2 years and I definitely do not want to wait that long! I am hungry so starving myself of this passion is not in the cards.
Columbus, Ohio is a great market to buy real estate in
I agree you can get cashflow and appreciation in Columbus and if you look at the population and job growth trends they are booming
@Randall Alan Isn't the PM cost only 10% of the gross revenue in your example? Not 1/3.
Whether you have a PM or not, you're still going to have to pay taxes, insurance, repairs, maintenance, and capex. I think $100 is a reasonable price to pay to be able to invest out of state when the alternative is not investing at all!
Kansas City is a hot area for OOS investors. Would love to chat more, I'll send you a message!
There are a lot of solid markets in the midwest that can fit those criteria. I would look in to some of the cities in Ohio, there is a lot of opportunity in multiple markets. @Jared M Pilarski
Congrats on starting your investment career, and thank you for your service. I also serve in the military based out of Birmingham, Al, at the 117th Air Refueling Wing. We also have the 20th Special Forces group colocated on base with us. You have some great advice from a great community here on Bigger Pockets. If you decide to purchase in the Birmingham or Huntsville areas, I would be more than happy to help you.
@Randall Alan Just curious, does your time have no value? I keep reading these statements that doing it yourself is so much cheaper. I can see this being the case if you only account for your time at minimum wage or a really low hourly rate or zero.
It is true that some property management companies don't take good care of their investors but its not the norm. I have a company in the Quad cities that uses a team of handymen with specializations. They charge me $50 for each trip to a property plus a very reasonable $40/hr and parts. I would value my time higher than that, so its a good deal.
@Axel Meierhoefer
I absolutely value my time… but I also value my money! Your question might be conflating two issues…. Let’s break them apart:
My wife and I are full time landlords. Before getting into real estate we each worked full six figure time corporate jobs.
Once we had 20 units one of us could afford to work full time in real estate, and within 6 months after that we had replaced all of our corporate income (we bought 12 properties in 2018, and 9 in 2019, and a few more in 2020).
So the two parts of the issue are: Maintaining a property, and managing it. The problem with PM is you pay for management of the property every month whether the PM lifts a finger or not. I can tell you that 80% of our tenants we don’t even talk to in a year (about a problem they are having). So management of issues is really pretty rare for us. We maybe get 3 calls a month, and typically each of those is handled with a phone call to the plumber, or AC guy, or septic company, etc.
Our monthly rents are close to $40,000 gross. So for me to PM our properties I’m going to pay the PM Company $4,000 to handle 3-4 phone calls.
There is occasional turnover, and while that does take more effort, we have it down to a science… our last empty unit we listed for 4 HOURS on Zillow and had 57 inquiries that got us 6 qualified applicants and cost us about $2.50 to list on Zillow.
again, being a full time job this is really child’s play as to how much time the typical occurrences take. That’s not to say there isn’t routine maintenance that is needed… but we have a lawn guy that mows the properties regularly and is on auto-pay, we have the typical cadre of vendors… plumber, handyman, AC, electrical, etc. again, it’s just not that hard… so the question for me comes down to: who is going to get the $4,000 each month?
mid I was stressed by the volume of calls / work, sure, PM makes it easier. But I would rather put the $48,000 a year in my pocket.
As for maintaining the property- the rates you quote are very reasonable. My experience was being told it would cost $800 to replace a garage door opener (just the motor). So your people are far better than the PM my wife had. But the bottom line point is that no one is going to care more than the owner. If I don’t like the prude, I’m going to shop it. A typical PM isn’t going to. In fact, most mark up the price as a part of their service to you.
so that’s my thoughts. If it ever gets over the top maybe I would consider PM, but we manage 40 units with very little effort on our part.
all the best!
Randy
If you are investing in properties at this price range out of state you will need volume. Prepare to keep buying and rolling all money into the next investment for a few years to become worth it.
I started investing out of state 5 years ago and have reinvested every dollar. I can see the light at the end of the tunnel with rent increases and appreciation. I take the hit with my property managers but so far they have done a good job. I would love to make enough to retire but I am nowhere close. I currently own 11 units and view this as my (slightly early) retirement plan.
Advice - make sure you meet your property manager. What looks good in email and the internet can be completely different in person. We flew to multiple cities and met with multiple PMs and contractors and realtors before we felt comfortable. Its better that both you and the PM can put a face to the name.
Do not underestimate the degree to which property mangers can make or break your whole endeavor.
Originally posted by @Randall Alan:Just know that out of state investing leaves you in a disadvantaged position overall. First, you will be reliant on property management services. That alone will usually eat up 1/3 of your cash flow on a financed property. Second, there is little motivation for PM’s to be frugal with your money (ie. how they spend it for you on repairs, etc.) when we had one they wanted $800 to repair a garage door opener that we fixed ourselves for $200 and 2 hours of our time.
We have just under 40 rentals that we self-manage locally. If you are just getting into the business, I would really encourage you to think going local first before trying out of state investing. There is a learning curve that you might pay a steep price for if you are not careful. From just not knowing the market to being exploited by vendors, it could be a rough ride. In the end, no one cares more than the owner.
All the best
Randy
I disagree, ask any of my investors that I work with. I care very much about my clients and I want to ensure they're able to invest OOS worry free. I also charge 8% as my PM fee, so not near 1/3 of your cash flow. Plus, I 'm going to get top rents in my area, often times surprising my investors with a few hundreds over the numbers that they needed. I will agree with being exploited by vendors, if you aren't careful but that's why they have me. Expect Better!
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Real Estate Agent Missouri (#Notary), Kansas (#2021XXXX), and Missouri (#20017XXXX)
Hi Jared! I'm currently working with investors in Hawaii. We've just begun but I recently advised them to back out of a home after the inspection. I am fiercely protective of my clients and I think that it helps that I start the process by being their Realtor. I don't want to help buy something that isn't going to do well as a rental. I know my market very well and I don't even have to run numbers anymore to tell you if it's a good deal. If you have any questions, please feel free to reach out.
I'm shamelessly asking for a plug @Gerald Amasol :)
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Real Estate Agent Missouri (#Notary), Kansas (#2021XXXX), and Missouri (#20017XXXX)