Out of state Investing

Investor · sacramento, CA · Member since 2013 · 39 posts · 13 votes

since here in Sacramento CA , the prices are so high and there are so many cash buyer investors , that there is barley any inventory left for new investors like myself , is it smart to go ahead and buy houses from websites like Auction.com online in other states (i see houses selling on last bids for less than 20K in some states like NC , TN , TX , KY , ... ) without actually looking at poperty itself ?! is there any limit or legal action that prevent a person from investing in other states for buy , flip and hold ?!

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David Hutson

Rental Property Investor · Tampa, FL · Member since 2013 · 404 posts · 421 votes

12y

That's going to take a very long explanation to answer and it comes down to, It depends on you. What risk are you willing to take if the house/s have issues? What research are you able to complete prior to purchasing? Who is going to fix up/manage the property for you and how will you check them out/hire them? If you are very new investor and intend to focus on a new area I recommend you learn as much as you can about purchasing/renovating/managing homes for a few months minimum first. Then find the area that fits the risk/returns/goals that you have set and then VISIT that city to meet the contacts you have found for purchasing/fixing/managing the properties. I, myself, would not purchase from an auction site or realtor unless I knew the area and had the people in place to ensure I would be successful. One option to consider, but with lots of due diligence, is a turnkey company. While the returns don't seem to be as high the quality and management is in place. You still need to research the companies and locations.

I currently own eight properties in CA and agree the prices are going up. August last year I asked myself the same question you posed. I spent a month doing research and then flew out to Memphis, TN for a week, where my wife is from. I chose Memphis because my wife goes there a few times a year and has family there. We met with realtors, turnkey companies, property managers for a quick but very intense tour of the city. I ended up purchasing one home even though my goal was three. I found that after spending weeks researching and physically walking many homes that it still was difficult to meet my goal.

Luckily I found another person selling homes out there. I closed on my 2nd Memphis home this past Friday and am working on the 3rd deal now.

To sum it up, don't rush into another area, do your research and, if possible and you are set on it, visit the area you want to invest in. A $1,000 trip for five days will be much better than a $30k+ disaster. Feel free to message me if you have any specific questions. I'm not an expert but I am also learning. Good luck.

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Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
The good news is every turnkey opportunity is pretty easy to do due diligence on. There is really nothing, in my opinion, that can't be checked up on. People make it out to be a scary risky deal, but if you know what to look for you literally can verify just about everything. I wrote an article on doing due diligence on a turnkey if you look in my posts. Just learn what to look for and you'll be fine to evaluate any company or property offering you something.
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Jason Flynn
Real Estate Agent · Sacramento, CA · Member since 2013 · 62 posts · 15 votes
12y
Ali Boone , When you are buying out of state, are you only buying turn key?
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Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
@Jason Flynn Yep. I want my investments to be as passive as possible, plus when it comes to out-of-state buying, I'd rather piggyback off experts in a market rather than go at it alone. A lot more fire power with teams versus individuals.
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Dawn AnastasiPro Member
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
12y
Originally posted by @Account Closed:
is it smart to go ahead and buy houses from websites like Auction.com online in other states (i see houses selling on last bids for less than 20K in some states like NC , TN , TX , KY , ... ) without actually looking at property itself ?! is there any limit or legal action that prevent a person from investing in other states for buy , flip and hold ?! – What do you mean by saying Without actually looking at property itself? How can you invest your money if you don’t even know what you are buying?

Even if the house was next door to where I lived I wouldn't buy it unless I was able to see it inside and out. If I put down that much money on something (even $10k) then I want to know what I'm buying.

There is nothing against the law in buying a property in another state. There are no limits to how many properties you can buy as long as you have the money to buy them.

The important part is making sure you know WHAT you are buying, and WHERE you are buying them.

I think the #1 fear of people buying out of state is getting stuck with a non-performing asset that will wind up costing them more than what they are able to get out of it.

There is the ability on Bigger Pockets to network with other investors who have successfully invested out of state. Take time to learn what they did, why they invested where they did. Talk to people who had failures as well as those who had successes because then you will see both sides -- what to do and what not to do.
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Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
Hey Sam, there is a couple on hubzu in your area. On the surface they look like great prospects.

Thanks,

Matt
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Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
Sam, if you can post your turnkey option on bp. Let some of these experts grind it out. I think you will be enlightened as to what kind of turnkey you are really getting. It's been my newbie experience that I can personally do better in 15 mins or less as far as price, hood and appreciation. That should not happen that a total newbie can find better deals than experienced firms who are "experts"

Thanks,

Matt
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Marco Santarelli
Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
12y
Originally posted by @Matt R.:

It's been my newbie experience that I can personally do better in 15 mins or less as far as price, hood and appreciation. That should not happen that a total newbie can find better deals than experienced firms who are "experts"

LOL! I've never seen anyone say that.
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Aaron Chapman
Lender · Gilbert, AZ · Member since 2014 · 26 posts · 15 votes
12y
Lots off very good info from those who posted. The majority of the financing I do is for investors and it is very rare to find an investor who purchases strictly within their state. Buying outside the state where they live has become the norm. With the resources/ advice available to you on this site you should do well wherever you end up.
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Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
Marco agreed. However it is not that difficult if turnkey firms add 20% systematically. I am still waiting for one I could not beat in 15 mins. This has been my anecdotal experience.

Thanks,

Matt
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Geo A.
Rental Property Investor · Madrid, Spain · Member since 2014 · 134 posts · 18 votes
12y
@Ali Boone but the property management costs KILL your profits no?

I have been looking for out of state investing for a few months now and whenever I do the due diligence on the property, the property management is always the reason of the property not cash flowing. Every minor problem the tenants have, they charge like $50 to go check it out, and another $100 to say tighten a pipe that was leaking. How can you maintain a positive cashflow with all these recurring expenses that if you weren't investing out of state you could have fixed them yourself for free?
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Sharon Tzib
Real Estate Broker · Cypress, TX · Member since 2013 · 824 posts · 469 votes
12y
"@Ali Boone but the property management costs KILL your profits no?

I have been looking for out of state investing for a few months now and whenever I do the due diligence on the property, the property management is always the reason of the property not cash flowing. Every minor problem the tenants have, they charge like $50 to go check it out, and another $100 to say tighten a pipe that was leaking. How can you maintain a positive cashflow with all these recurring expenses that if you weren't investing out of state you could have fixed them yourself for free?"

@Geo A. actually the fee to go out and fix something, like a leak, is not a PM fee, but rather a maintenance fee. I think if you asked most landlords historically what their overall costs are for their rentals (all-inclusive excluding debt service), depending on age and type of property, they would say somewhere in the range of 40-60%. If you are having trouble cash flowing then, it just means you are not looking in the right area yet where rents adequately cover expenses after debt service. You just need to keep looking-they are out there, trust me.

If you are investing out of state, a PM will not kill your bottom line but improve it, if they are good, by placing well-qualified and responsible tenants, minimizing vacancies, and attending to deferred maintenance as it comes up. For instance, in your example, if left unattended, that $50 service call for a leak could turn into hundreds, if not thousands, of dollars of damage. This is why building in a 10% fee for PM and 5-10% for maintenance/capex when you buy ensures both cash flow and being able to properly respond to issues.
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Geo A.
Rental Property Investor · Madrid, Spain · Member since 2014 · 134 posts · 18 votes
12y
Sharon, I agree, but I am still debating if investing out of state is right for me. Because if I lived close by I could go and fix it myself for free. I wouldn't have to pay a fee every time a tenant moves out (i'll make them pay the application fee), and I would save that 10% PM fee as well.

My dilemma is (a) invest out of state in areas where numbers make sense but when I do the due diligence, a lot of expenses could have been avoided if I managed it myself which isn't possible or (b) invest where I currently live where the prices are inflated and the numbers don't make any sense unless I put a very large chunk down.
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Sharon Tzib
Real Estate Broker · Cypress, TX · Member since 2013 · 824 posts · 469 votes
12y
@Geo A. I'm gonna give you a little tough love here, and I think you may need a bit of an attitude adjustment (said very friendly lol!).

"but I am still debating if investing out of state is right for me. Because if I lived close by I could go and fix it myself for free. I wouldn't have to pay a fee every time a tenant moves out (i'll make them pay the application fee), and I would save that 10% PM fee as well.

My dilemma is (a) invest out of state in areas where numbers make sense but when I do the due diligence, a lot of expenses could have been avoided if I managed it myself which isn't possible or (b) invest where I currently live where the prices are inflated and the numbers don't make any sense unless I put a very large chunk down."

You can't have it both ways. If the fact of the matter is you can't find cash flowing properties, even without a PM and with reduced maintenance costs via DIY, then what are your options? Two I can think of:

1. Invest out of state

2. Don't invest at all

I would much rather start investing then not do anything at all. You need to stop fretting over the expenses that you "could have saved," because quite frankly, it is counter-productive. Just accept the facts of your situation and move forward. I hope this makes sense to you, and you take it in the spirit in which it is intended. As long as the property can cash flow with a PM and maintenance/capex built in, and not having to throw money at the down payment to make it work (which I would never do), just go do it!!
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
While I remain unconvinced about far-away investing, if the only way you can make a property cash flow is to contribute you're labor for free you then the property isn't really making any money. Your labor is. The property is simply a way to "buy a job" and then make money from doing that job. Even if your property is close by, at some point you may want to hand it over to a PM.
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Geo A.
Rental Property Investor · Madrid, Spain · Member since 2014 · 134 posts · 18 votes
12y
@Sharon Tzib well said :) I think I sounded more dramatic that I meant to ;)

let me rephrase:

"but I am still debating if investing out of state is right for me. Because when looking at the property management costs for a multifamily, the numbers are always 70%+ of the income (looked at several properties). With condos, it's not that bad and falls within the 30-40% range.

My dilemma is, with the current cash that I have, whether to invest out of state in condos and make 12% total ROI but actually getting 2 properties (each 12% ROI , $140 positive cashflow monthly) vs. invest in a condo nearby (can't afford MFs in where I live - Boston) and get around 12% ROI and $220 cashflow). Of course although close, buying 2 properties with the cash sounds more appealing however I won't have control over the maintenance costs and could actually make up the difference by fixing things myself."

@Jon Holdman I definitely agree with you that I wouldn't want to do this long term is it would be a tough task. However, I am a first time REI and I think I could learn a lot by self managing my first property where my unavoidable mistakes will probably be less expensive.

thoughts?
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Sharon Tzib
Real Estate Broker · Cypress, TX · Member since 2013 · 824 posts · 469 votes
12y
Ok, well this is a totally different situation than your first reply, @Geo A. . First, let's be clear - it's not the PM fees that are driving your expenses up in a MF, but more than likely the utilities that are the landlord's responsibility, like water (and when you say MF, I assume you mean 2-4 units). Most PMs will discount their fees the more units they service, but in the 1-4 space, it is usually about the same rate (8-10%).

If you can achieve the same ROI regardless of where you invest, then you should go with what makes you comfortable, which to me sounds like control.

Having said that, if condos are all you can afford in your current market, that is one thing. But there are plenty of out-of-state investments you can make that aren't condos where you cash flow. I personally do not like condos because of the lack of control. While your monthly HOA fee generally includes exterior maintenance, like roof, common area maintenance, and some form of homeowner insurance, that fee almost always rises annually, which slowly erodes your cash flow. In addition, HOA's all have a personality of their own, and if you get some jerk in there as President, it can make all of the owner's lives miserable.

I'm sure there's lots of investors who have done quite well in condos, but they are not my cup of tea. Just keep these things in mind if you do purchase one.
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Geo A.
Rental Property Investor · Madrid, Spain · Member since 2014 · 134 posts · 18 votes
12y
MFs are my number one choice but maybe I am looking at properties with outrageous yearly maintenance expenses (from PM paperwork). Do you know what is an avg expense rate for a quad? is it within the 40-60% range like you mentioned or does that increase with more units?

The thing is I looked at 3 different quads that I thought their numbers made sense, and during the due diligence I saw some crazy expenses like 70% which scared me a little.
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Sharon Tzib
Real Estate Broker · Cypress, TX · Member since 2013 · 824 posts · 469 votes
12y
@Geo A. the average I see on multis is 55-65%, but normally the two largest costs come from landlord paid utilities and maintenance due to an older building with lots of deferred maintenance. If you're seeing a building with 70%, I'd venture to say they're paying more than just water and it's an aged building. Without seeing the numbers of what you're looking at though, this is just an educated guess on my part. Separately metered buildings are the best, obviously.
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Engelo RumoraBusiness Member
Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
12y
@Geo A.

Its pretty sad that some PM companies operate in that way.

IMO they shouldn't be marking up maintenance expenses for making one call to their contractor to go and fix.

If investing out of state having a great team on the ground will tremendously help with the minor expenses. I know of operators that won't bother the landlord for minor maintenance and will just send a crew member who is most likely in the area anyway to quickly fix. The reason for this is to keep the investor happy and get continued business.

I worked with an outfit from Rochester, NY that did this.

Thanks for reading.
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Mark UpdegraffBusiness Member
Real Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 704 votes
12y
@Engelo Rumora what outfit in Rochester?

Cheers!

Mark
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Mike HurneyPro Member
Real Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 542 votes
12y
@Sharon Tzib

"... I personally do not like condos because of the lack of control."

Well said!
1 Reply
Geo A.
Rental Property Investor · Madrid, Spain · Member since 2014 · 134 posts · 18 votes
12y
@Engelo Rumora interesting! looks like you found the perfect PM or I am looking at the wrong ones. I'll redo my search and try to narrow down by companies that have their own workers willing to do small stuff for cheap.

thanks!!!
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Sam Hadad
OP
Investor · sacramento, CA · Member since 2013 · 39 posts · 13 votes
12y
All . its funny how i was looking so bad to invest out of state , but when you look at it there is always deals even in states in CA that makes it worth while going for them .

like a lot of people mentioned here its hard to deal with long distance investing when you have no control of your property and its in the hands of a third party .

in my case in came up partnering with another investor and we are doing our first deal here in Sacramento , where we can go back and forth with seller and all the other parties involved , i think its better to stay local at least for the first few deals , to gain more experience and know the market .

thank you all for helpfull comments good luck to you all .
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Marco Santarelli
Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
12y
@Sam Hadad: Good luck on your first investment! Don't be in a huge rush as it may take some time to find a good one when you're in a pricey market.
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Sam Hadad
OP
Investor · sacramento, CA · Member since 2013 · 39 posts · 13 votes
12y
@Marco Santarelli thank you , it is really hard to find but i have talked to so many real state agents and asked them to keep sending me properties , i see maybe 5 good deals out of over 100 properties they send me for buy and hold , but its there .

after i make a good foundation here in SAC town , and gain more experience i would definitely look to out of state too .
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