What Do You Wish You Knew Before Your First Out-of-State BRRRR?

Question

Hi BP community,

I’m new to real estate investing and currently exploring out-of-state opportunities in the $80K–$125K range, with a focus on BRRRR and small multi-family properties.

I’ve been doing my research, but I know there’s only so much I can learn from books and podcasts — the real lessons come from actually doing deals. Before I jump in, I’d love to hear from those of you who’ve already gone through the process:

• What’s the biggest lesson you learned from your first BRRRR out of state?
• Were there any surprises (good or bad) you didn’t see coming?
• If you could go back, what would you do differently before buying your first property?
• Any tips for building a reliable local team before pulling the trigger?

I know mistakes are part of the journey, but I’d like to learn as much as I can from others’ experiences so I can start strong and avoid the common pitfalls.

Thanks in advance for sharing your insight — I really appreciate it!

Christopher

Nicholas L. · Answer

@Christopher Rubio

just like @Travis Timmons, i am going to chime in (since you have a bunch of overlapping threads going) and then i shall also go away.

out of state BRRRR is spectacularly high risk.  if you can fly to your chosen market every week and oversee your project in person in the city where your uncle lives and you went to college, that's one thing.  if you're going to try to Internet it... that's another.

in Pittsburgh, for example, you can buy a $100K property in an OK area.  but, you need to know where to buy, and it's going to need a rehab.  how do i know this?  because i am working on one right now.  i go there every other day to check in on things and keep things moving.

Travis and I are trying to cut through the cheerleading and actually help you.  the market is terrible right now - this cannot be overstated.  there is so much demand that returns have been compressed.  this is the cold truth: unless you have all of the pieces in place to be successful, you're probably better off just putting your money into a savings account.

hope this helps.  good luck.

Travis Timmons · Answer

I'll throw out one more response and will then go away. The quality of neighborhood, property, and tenant pool that you get on a $80-125k property is really bad - especially if it is multifamily. I don't know what markets you are looking at, but I used to live in St. Louis, so I'll use that as an example. $100k properties in that market are simply in neighborhoods that nobody with options or a credit score above 600 wants to live. Tenants will be rough, if there is vacancy between tenants, there will likely be break ins and theft, and it may be tough to get contractors or property managers to take on the job due to the low rent/management fees and hassle factor (and theft for contractors).

And if you get stuck or run out of cash and need to sell the thing, your only hope is finding an out of state buyer that also does not know the area. We're on the other side of the largest period of real estate appreciation in my lifetime just a few years ago, and if you can still buy a property for sub-$100k, it's because nobody wants it. I assure you that there is no shortage of capital or real estate investors in these Midwest markets. Local investors are not touching them because they know what they are getting into. First time, out of state buyers simply do not.

I'm not saying do not buy out of state. I invest locally and as far as 2000+ miles away. I can do it and self manage because they are in A/B areas with a really good tenant base. If you buy in C-D-F markets in 2025 from out of state as a first time investor, there's probably a 90% probability that you are going to sell for a loss within 2 years as I see it.

Feel free to reach out. I have a background in live-in flips, long term, mid term, and short term rentals. I'd be happy to help if you have not grown weary of my cynicism and negativity on this strategy.

Drea Na · Answer

Hi Christopher,

Oh the stories I could share lol! But the main points I want to get across are the below:

1) Run the deal through the BP calculators and make your decision based on the numbers, not your gut, or the fact that you're tired of looking and just want to pull the trigger.

2) Track your numbers from the start - either spreadsheet/quickbooks or some other platform where you are tracking down payment/pricipal and interest - as well as repairs and cap ex expenses, and ensure that you are not co-mingling the funds

3) Have your platforms for checking backgrounds, collecting rents, fixing issues, property management stuff set up and ready to go - it's just helpful to know the platforms you want to use before you need them. Creating systems early is key.

4) As for building your team, I can't say enough about word of mouth referrals from this platform but also from locals in the area - I made friends with 2 or 3 of the neighbors (once I identified the property I was considering) and they were more than happy to share handyman contacts, and even contacts with the city!

5) Finally, check out David Greene's book on Long Distance Investing

Hope this helps :)

Ashish Acharya · Answer

@Christopher Rubio

I’ll explain it more from a tax perspective. The main thing is tracking your costs properly. Rehab expenses that add value or extend the life of the property get capitalized and depreciated, while true repairs can be deducted right away. Any carrying costs before the property is rented usually need to be capitalized too. When you refinance, it’s not taxable income, but you’ll want to keep your basis straight for depreciation and when you eventually sell. Clean records from the start will save you a lot of headaches later.

Understand the REPS, STR loophole, and Active participation tax rules so that you can save taxes. This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

Drew Sygit · Answer

@Christopher Rubio since you're new...

The Real Estate Crash of 2008-2010 caused real estate prices to crash across the country - but didn't affect rent amounts. This caused a historically unique opportunity for investors - they could buy Class A properties and immediately cashflow when renting them out.

This couldn't last forever, and it didn't, as excited new investors drove up prices.

Eventually, Class A property values increased to the point that even increasing rents didn't allow them to cashflow upon purchase.

So, the flood of new investors switched to buying Class B properties.

COVID created a chaotic spike in both the sale & rental markets, attracting even more new real estate investors. According to CoreLogic, in December of 2023, almost 30% of home sales were to investors!

Investment also spiked in Class A Short-Term Rentals (STR) and investors started paying higher and higher prices based upon anticipated STR rental rates, that exceeded sustainability based upon Long-Term Rental rates (LTR).

Now we're seeing investors pouring money into buying Class C rentals - but, many are getting burned.

In our experience & opinion, the main determinant of property Class is not location or even property condition, those are #2 and #3. The #1 determinant is the Tenant Pool.

If you don't believe us, try putting several Class D tenants in Class A apartment buildings and watch what happens. Or try the reverse - rehab a Class D property to Class A standards and try to get a Class A or B tenant to rent it.

Unfortunately, many newbie real estate investors are jumping into buying affordable Class C rentals - expecting Class A results.

In our opinion, Class C tenants have FICO scores from 560 to 620 - where their chance of default/nonpayment is 15-22%. See the chart from Fair Isaac Company (FICO) below:

FICO Score

Pct of Population

Default Probability

800 or more

13.00%

1.00%

750-799

27.00%

1.00%

700-749

18.00%

4.40%

650-699

15.00%

8.90%

600-649

12.00%

15.80%

550-599

8.00%

22.50%

500-549

5.00%

28.40%

Less than 499

2.00%

41.00%

Source: Fair Isaac Company

According to this chart, investors should use corresponding vacancy + tenant-nonperformance factors of approximately 5% for Class A rentals, 10% for Class B and 20% for Class C.

To address Class C payment challenges, many industry "experts" are now selling programs to newbie investors about how Section 8 tenants are the cure. If only it was that easy. Yes, the government pays the Section 8 rent timely, but more and more tenants are having to pay a portion of their rent. Then there are the challenges with Section 8 tenants paying utilities and taking care of their rental property.

Investors should fully understand that Section 8 is not a cure-all for Class C & D tenant challenges, it's just trading one set of problems for another.

We see too many investors not doing enough research to fully understand all this and making naïve investing decisions.

Once you understand the above, you still need to find a property. You’ll have to do what investors did before the Great Real Estate Crash:

• Evaluating 100 properties, to identify 10 to make offers on, in the hopes one seller accepts.
- Yes, this takes a lot of work!
• Network with wholesalers who can bring you “deals”
- Many wholesalers are also newbies who have no clue what a real deal is and are just time-wasters.
NOTE: We often see wholesalers re-marketing MLS properties at HIGHER amounts!
• Start using your own personal network to find motivated sellers. 
- Start posting on your favorite social media site what you are looking for – not once or twice, but CONSISTENTLY for 6 months! Give updates on properties you’ve looked at or analyzed to keep your audience engaged, so when they stumble upon a potential situation, you are the first one they think of.

Good luck!

Adam Bartomeo · Answer

You will wish that you knew a great PM to manage the property. They will make or break the investment.

Christopher Rubio · Answer

@Drea Na thank you. this is great valuable information and insight! the latter of number 1, tell me about it!

What Do You Wish You Knew Before Your First Out-of-State BRRRR?

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