New investor looking to start out of state
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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ voteswell... given all the constraints you posted, unless something changes or you change something, your options are limited.
it looks like you posted 3 years ago asking about turnkey properties. with limited time, and you believing / saying you "can't" invest locally... that might be your primary option. but... with prices and rates the way they are, I would strongly caution you.
say you use the available capital you have to buy a turnkey in the midwest, and you find a great team and great tenants, and you net $200-300 a month. so what? at that point you're done until you save up enough for your next one, right?
i know this is heresy on a real estate forum, but... with $70K, you can earn $3500 a year nearly risk free in a savings account. it's not clear to me, given your current life situation, that buying a property thousands of miles away just to net less than that makes a ton of sense. there are plenty of threads on BP, if you look for them, about people who bought that wonderful midwest property only to get immediately crushed by Capex. yes, the risk of this happening is way less with a reputable turnkey provider, but it's never 0.
if you had more time and didn't have a newborn. i'd give different advice =)
feel free to respond here or DM me if you want to discuss more. i know this isn't what you want to hear. it's just a tough market right now.
72 Replies
- 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
well... given all the constraints you posted, unless something changes or you change something, your options are limited.
it looks like you posted 3 years ago asking about turnkey properties. with limited time, and you believing / saying you "can't" invest locally... that might be your primary option. but... with prices and rates the way they are, I would strongly caution you.
say you use the available capital you have to buy a turnkey in the midwest, and you find a great team and great tenants, and you net $200-300 a month. so what? at that point you're done until you save up enough for your next one, right?
i know this is heresy on a real estate forum, but... with $70K, you can earn $3500 a year nearly risk free in a savings account. it's not clear to me, given your current life situation, that buying a property thousands of miles away just to net less than that makes a ton of sense. there are plenty of threads on BP, if you look for them, about people who bought that wonderful midwest property only to get immediately crushed by Capex. yes, the risk of this happening is way less with a reputable turnkey provider, but it's never 0.
if you had more time and didn't have a newborn. i'd give different advice =)
feel free to respond here or DM me if you want to discuss more. i know this isn't what you want to hear. it's just a tough market right now.
- Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes3y
Hey Dan, it really depends on where you're looking and what your goals are.
My wife and I spent years in SF proper, then moved to Walnut Creek. In 2017 we tried out Metro Detroit. I built a 12-door portfolio while there between 2019-2021 that now generates $16,000 in gross monthly rents.
$70k today in Detroit can get you a decent SFH with $200+ net monthly cash flow.
Refinance out and do it again would be my strategy, and the same one I did while there.
Appreciation has also been great. There's a ton happening in Detroit and if you align yourself with someone that understands the market (like me), you can take advantage of it.
All of my properties have appreciated 2-3x since purchased in 2019-2021.
Happy to chat.
- 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
i have to challenge you on this a little.
"refi out and do it again" - in how many years?
- Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes3y
Quote from @Nicholas L.:
i have to challenge you on this a little.
"refi out and do it again" - in how many years?
Not sure what you mean. I was doing it ASAP... sometimes that would be delayed financing (immediately), worst case it was six months.
Which method you do depends on the level of rehab, of course.
- 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
my point was that, if he buys a single turnkey property using his funds as a down payment, he's done investing for a while. he'd need to save up another 70K.
if you're saying 70K acquisition to do a BRRRR and then refinance out, fine, but OOS BRRRR with no experience is a very high risk strategy. and harder than 5 years ago in any market.
- Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes3y
Quote from @Nicholas L.:
my point was that, if he buys a single turnkey property using his funds as a down payment, he's done investing for a while. he'd need to save up another 70K.
if you're saying 70K acquisition to do a BRRRR and then refinance out, fine, but OOS BRRRR with no experience is a very high risk strategy. and harder than 5 years ago in any market.
I'd agree if you're going turnkey you're stuck.
But that's not what I described.
I also agree that OOS BRRRR is difficult but again, that's why I said you need to align yourself with a team that's already super experienced in the market you're targeting.
I get the "5 year ago" argument all the time. The reality is I'm still doing it today.
- Real Estate Agent · Austin, TX · Member since 2023 · 57 posts · 27 votes3y
Putting 70k down is unnecessary, speaking just for my brokerage we only ask for 10k down for deals within the 250 - 350k price range. I would look in appreciating markets, speaking for Austin specifically we have a lot of investment from the largest companies in the world, (i.e. Google, Tesla, Samsung, Apple, Disney) with a ton of tax benefits. Our market is also very friendly to multi-family because of the cost of SFR. If there is anyway I can help feel free to connect.
- 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
we are mostly agreeing! I am not saying that BRRRRing in Detroit isn't possible even under today's conditions. It's alive and well everywhere - I'm doing it in Pittsburgh. But's it's tougher now than it was for a brand new investor 5 years ago. And based on the facts OP has provided us, it doesn't seem like a great fit for him at this time.
Say he'd said "while I'm busy with work I have some time I can dedicate to a project right now, and I plan to make a few trips in person to the market I want to invest in to stand up my team." that would be great! ...but he didn't say that. (Maybe he'll weigh in soon on our spirited discussion and tell us what he thinks!)
all i'm talking about is the risk level of different strategies. OOS BRRRR in 2023 with limited time and limited experience = higher risk. certainly viable and possible and rewarding if done correctly. but higher risk. that's all. a narrow point.
- 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
you allow for 10K down on a non owner occupant, out of state, brand new investor?
- Real Estate Agent · Austin, TX · Member since 2023 · 57 posts · 27 votes3yWe do a tiered down payment system
Quote from @Nicholas L.:
you allow for 10K down on a non owner occupant, out of state, brand new investor?
- 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
not sure what that means. but i don't think a non owner occupant could put 10K down on a 350K property.
- Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes3y
Quote from @Nicholas L.:
we are mostly agreeing! I am not saying that BRRRRing in Detroit isn't possible even under today's conditions. It's alive and well everywhere - I'm doing it in Pittsburgh. But's it's tougher now than it was for a brand new investor 5 years ago. And based on the facts OP has provided us, it doesn't seem like a great fit for him at this time.
Say he'd said "while I'm busy with work I have some time I can dedicate to a project right now, and I plan to make a few trips in person to the market I want to invest in to stand up my team." that would be great! ...but he didn't say that. (Maybe he'll weigh in soon on our spirited discussion and tell us what he thinks!)
all i'm talking about is the risk level of different strategies. OOS BRRRR in 2023 with limited time and limited experience = higher risk. certainly viable and possible and rewarding if done correctly. but higher risk. that's all. a narrow point.
I think we're going to agree to disagree and I don't want to hijack this thread, so this will be the last from me.
Plugging into an already experienced team and having them handle the process for you can be extremely hands off. I do this with folks all the time.
So people end up visiting, most never do. I'm there myself every 2-3 months and I have a team on the ground full-time.
So I actually think something like this is a perfect fit for Dan.
Happy to keep the discussion going over PM if you'd like but it seems we're starting to go in circles.
- 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
deal.
lets see if OP comes back...
I anticipated a spirited discussion and was not disappointed :-) @Nicholas L. very much appreciate your points. Many of those exact considerations have led to my hesitation in jumping in. Obviously there's nuance but your points are certainly grounded in reality. Investing 70k to get $100/mo - $200/mo CF doesn't seem to make sense (I have this money sitting in a bank paying at ~5% interest) unless there's a cash out/refi play — but again, this is all very new to me :-)
@Travis Biziorek thanks for the additional points and perspective. Sounds like you were once in a similar boat (SF proper, out-of-state, etc) and have found success navigating it all :-)
The reality is that I will 100% be making plans to visit any area I'm planning to invest in to get a lay of the land and stand up a team (should've called that out in the original post!). Given that, does that change the perspective?
I'm very willing to put in the work & time upfront to get things going, but would be relying heavily on a team to manage long-term (really, my time constraint is on the long-term management). The idea of doing major rehab to make things work is daunting given the lack of experience and being OOS. Would certainly be indexing HEAVILY on finding an experienced team.Sounds like you both agree that if going turnkey, I'd be a bit pigeon-holed — can you explain why a bit more (I'm a newbie!)
The goal is to do long-term — not interested in flips, STR, or anything like that.
- 3yAndrew PostellPro MemberLender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
@Dan Riley thanks for posting. Everyone is different, that's for sure. Some of us feel very strongly about our "technique" because it's either made us very successful or we have seen others get burned by doing it differently. So forgive anyone for being to "spirited" about their thoughts.
As far as buying an out of state property with just using a normal downpayment amount I feel that method is fine for some people. It's simple, low risk, doesn't require much work, and can show 12%-18% returns just using 5% appreciation over a 5 year period of time. So even the numbers are fine for it.
It is true that using the BRRRR Method would grant you SIGNIFICANTLY higher returns...but then you have to spend a lot more time on it and have some "different" skills to execute. I have been an out-of-state investor for 15+ years now. Mainly because I lived in NYC and couldn't invest there. So, I invested out of state. Now that I live in a significantly more friendly area, I invest here. Everyone is different but if you feel more comfortable with just putting a normal downpayment then let's go that route.
Oh, and "what areas are best"? I would highly encourage you to think about an area where you know someone. Investing out of state has it's own challenges. If you never see your asset....well, that's a TON of trust to put into a complete stranger. One bad move will erase the small % difference one market is over another. So if you can use people that you know and trust - that's the place you should invest in.
Hope all of that makes sense. Feel free to post anything else you need. Thanks!
- 3yAndrew PostellPro MemberLender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
@Jacob LeBar I'm assuming your real estate agency is providing owner financing for properties? Is that the case here?
- Real Estate Agent · Pittsburgh, PA · Member since 2014 · 822 posts · 255 votes3y
Hi Dan, Many out of state investors choose Pittsburgh PA with strong success. The buy-in is more conducive than other more saturated markets and can generate positive cash flow providing you know the area. Properties and neighborhoods change dramatically. If you're not familiar with Pittsburgh, I always suggest reaching out to someone who does. I've lived here my whole life and know the area and market very well and I'm in and out of properties every single day. I also have a property manager that clients really like. Whatever you choose to do, I wish you the best...Gary
- 3yJoe HammelBusiness MemberReal Estate Agent · Metro Detroit, MI · Member since 2018 · 614 posts · 666 votes
@Dan Riley
Hi Dan,
I’d recommend a little research on Metro Detroit.
With $70k you could buy 2 cash flowing properties.
Metro Detroit has what 99% of REI want. Couple hundred bucks a door cash flow, double digit ROI, and yes the prices appreciate and you build equity.
Anyone who disagrees, is simply missing out. I cash flow $100k a year off 20 doors and have built a ton of equity. Happy to send a screen shot of the portfolio to anyone who wants to see, it just won’t allow me to attach pics to a reply.
Purchase: $80k-$130k
Rent: $1100-$1500 (no rent control in MI)
1% rule: 1%-1.4% rule deals
ROI: 10-14%
Cash flow: $250-$350/door (after all expenses and budgeting for maint, capex, vacancy)
Appreciation: 3-15% (has been double digit for a decade)
Location: C+, B-
These numbers are based on the "sweet spot" in Metro Detroit. These are largely in the suburbs and some markets in the city. You can find higher ROI (on paper) here and probably in other cities…but the probability of actually collecting rent significantly decreases. Where these numbers are found, there is a very high rate of rent actually being paid.
We have over a dozen Fortune 500 companies just in Metro Detroit with huge Healthcare, Auto, and mortgage industry National footprints. Ford, Rocket mortgage, Beaumont hospitals and more. All complimented with Amazon fulfillment centers, google, and more tech manufacturing jobs.
The bad reputation of “Detroit” comes from OOS investors wanting $20,000, D class properties. We don’t buy those lol.
FIRE Realty Team - Keller Williams5380 Reviews - 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
it has to do with what David Greene calls "the velocity of money." if you put your 70K (or most of it) into a turn-key, high quality, cash-flowing rental that doesn't need any work, and you net that $100-300 a month, that's fine. but now your principal is "stuck," in that you have to sell or refinance to get access to it, and if you want to buy another one, you probably have to just save up another lump sum of money to pay for the down payment and closing costs.
now, if you compare this hypothetical turn-key investment to a savings account, you are getting the additional benefits of real estate if you buy the property - principal paydown, potential tax benefits from depreciation, potential appreciation over time, etc. but again, there is risk too - large capex bills that you didn't see coming, issues with tenants, a change to the market you invested in. did i mention risk? it's about risk. savings accounts are very low risk, but with very low upside, and no benefits other than their stability.
back to the velocity of money - I (and others in this thread, I think) are looking for ways to invest that increases the velocity of money (like the BRRRR method.) if you BRRRR correctly, your initial capital comes back to you (although not immediately.)my concern / point with the BRRRR method was just how hands-on I think you need to be in order to 1. be successful and 2. maximize your returns - i'm looking for deals through multiple channels, meeting sellers directly in person, calling dozens of contractors to get 2 bids, etc. if there's a low-risk way to do that remotely, great. i've just found that the highest return is found via being the most hands-on.
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes3y
I'm an investor in the Bay Area. I have 2 properties here and 2 SFHs in the Indianapolis metro area. My first OOS SFH was purchased in 2013 in Class A area in a sought after suburb with great school district. I have great tenants. It has doubled in value since 2013 and current comps show it higher in 2023 than in 2021. This would be the opposite of my Bay Area properties, higher in 2021. However my property taxes have gone up significantly. Indiana is great for primary home owners with low property taxes but as an investor, you lose the homestead (homeowner), mortgage and supplemental exemptions. This is for Hamilton County.
I recently purchased a Class C potentially moving up to B SFH that was turnkey for $130,000 using a real estate agent on the East Side of Indianapolis, Marion County. My tenant is moving in very soon. Projected cash flow is $176 per month (Rent minus mortgage PITI and monthly property management fees). I didn't include capital expenses because the roof and HVAC are 2 to 5 years old and water heater is less than 2 years old according to the inspection. The typical PM fee is 10% a month. Some PMs will go to 9% if managing multiple properties. I bought this property remotely and had 2 trusted investor friends look at it. My realtor works mostly with investors - they're difficult to find but they're a crucial part of your Boots on the Ground Team
I just flew out here to look at more properties and it was a little shocking to see the neighbors' homes next to mine a little run down. I expected this with Class C but maybe a little less so. Class A would fit in your price range $250,00 to $350,000 - there are several nice suburbs but you will probably be in negative cash flow buying a move in ready house, to be honest. My realtor has a team with contractors, lenders, inspectors etc so I'm considering doing a fix and flip to build capital (I know I have to pay capital gains tax) with My exit strategy is to hold it as a rental if it doesn't sell or a possibly BRRRR. If you consider an out of state BRRRR I would highly recommend flying out there. Pictures and videos are much different than seeing a neighborhood and house in person.After talking to an experienced 25+ year investor, I’m rethinking my strategy. His opinion is that being in a negative cash flow isn’t necessarily a terrible thing if the house is appreciating. I’m re-considering buying in California also because of Proposition 13 - our property taxes go up 2% a year unless we do significant renovation or sell (the buyer pays the tax on reassessed value). Other states don’t have this as far as I know so property taxes can go up 10% or 30% since home values have soared across the USA in the last 3 years. I communicated with a few CA investors and I definitely have to research those areas (in high $200k to $300k).
There's no one right decision for every investor since we all have different lifestyles, goals and risk tolerances. Some people think CA is a terrible place to invest (ok not the most landlord friendly) and would have 1031 exchanged the SFH to buy OOS. I don't and think it will hold its value and I can pass this property onto my kids.
I can send you my realtor’s contact info and the 3 property management companies I interviewed in Indy. Feel free to message me with questions. Congratulations on your little one! Good luck!
Here is some info about Indy:
https://www.threaltyinc.com/in... Quote from @Nicholas L.:
it has to do with what David Greene calls "the velocity of money." if you put your 70K (or most of it) into a turn-key, high quality, cash-flowing rental that doesn't need any work, and you net that $100-300 a month, that's fine. but now your principal is "stuck," in that you have to sell or refinance to get access to it, and if you want to buy another one, you probably have to just save up another lump sum of money to pay for the down payment and closing costs.
now, if you compare this hypothetical turn-key investment to a savings account, you are getting the additional benefits of real estate if you buy the property - principal paydown, potential tax benefits from depreciation, potential appreciation over time, etc. but again, there is risk too - large capex bills that you didn't see coming, issues with tenants, a change to the market you invested in. did i mention risk? it's about risk. savings accounts are very low risk, but with very low upside, and no benefits other than their stability.
back to the velocity of money - I (and others in this thread, I think) are looking for ways to invest that increases the velocity of money (like the BRRRR method.) if you BRRRR correctly, your initial capital comes back to you (although not immediately.)my concern / point with the BRRRR method was just how hands-on I think you need to be in order to 1. be successful and 2. maximize your returns - i'm looking for deals through multiple channels, meeting sellers directly in person, calling dozens of contractors to get 2 bids, etc. if there's a low-risk way to do that remotely, great. i've just found that the highest return is found via being the most hands-on.
Makes total sense, Nick. Thanks for the explanation & perspective — super helpful.
Quote from @Gary Swank:
Hi Dan, Many out of state investors choose Pittsburgh PA with strong success. The buy-in is more conducive than other more saturated markets and can generate positive cash flow providing you know the area. Properties and neighborhoods change dramatically. If you're not familiar with Pittsburgh, I always suggest reaching out to someone who does. I've lived here my whole life and know the area and market very well and I'm in and out of properties every single day. I also have a property manager that clients really like. Whatever you choose to do, I wish you the best...Gary
Thanks, Gary! Super helpful. I hadn't considered Pittsburgh TBH (native east coaster but wasn't on my radar until you mentioned it). I'll DM you!
Quote from @Andrew Postell:
@Dan Riley thanks for posting. Everyone is different, that's for sure. Some of us feel very strongly about our "technique" because it's either made us very successful or we have seen others get burned by doing it differently. So forgive anyone for being to "spirited" about their thoughts.
As far as buying an out of state property with just using a normal downpayment amount I feel that method is fine for some people. It's simple, low risk, doesn't require much work, and can show 12%-18% returns just using 5% appreciation over a 5 year period of time. So even the numbers are fine for it.
It is true that using the BRRRR Method would grant you SIGNIFICANTLY higher returns...but then you have to spend a lot more time on it and have some "different" skills to execute. I have been an out-of-state investor for 15+ years now. Mainly because I lived in NYC and couldn't invest there. So, I invested out of state. Now that I live in a significantly more friendly area, I invest here. Everyone is different but if you feel more comfortable with just putting a normal downpayment then let's go that route.
Oh, and "what areas are best"? I would highly encourage you to think about an area where you know someone. Investing out of state has it's own challenges. If you never see your asset....well, that's a TON of trust to put into a complete stranger. One bad move will erase the small % difference one market is over another. So if you can use people that you know and trust - that's the place you should invest in.
Hope all of that makes sense. Feel free to post anything else you need. Thanks!
Hi Andrew, thanks for the note. I've got a few follow up questions — going to DM you!
Quote from @Dan Riley:
Hi everyone, I'm a first time investor looking to invest in long-term out-of-state rentals. I've been wanting to get involved for years and have been spending time researching/reading in the interim. The idea of being a first time investor and out of state has certainly given me lots of pause, however, if I don't go out of state, it won't happen (I live in the Bay Area).
Life is busy with a newborn and a long working hours so my time is strapped which presents another obstacle to getting started.
Target down payment is < $70k which puts me in the $250k - $350k range. Is this a reasonable amount to get started? Any areas you'd recommend looking as first time out of state investor? Any fantastic property managers that've made everything worthwhile?
Would love to connect with and learn from others who have been on a similar journey!
Appreciate the community help and support.
I know dozens and dozens of cash buyers from CA that invest in the Midwest, 10%++ net caps are to be had. BTW I live on the beach in FL and do all my business in the Cleveland markets. Just in the last two weeks I picked up 9 more doors
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