Out of State Investing.

[Andrew Vogelaar]

I have heard that there are places along each coast where investors can't really invest for cash flow due to the housing market. How do they decide where to invest? How do they find boots on the ground and minimize risk? If a person who lived in the mid-west were to offer their services - i.e lead generation, rehabbing the property, finding the tenant, and doing service calls on cash flowing deals, where would these coastal investors and Midwestern investors meet? 

[Samantha Andrews]

I’ve learned some difficult lessons with out-of-state investing, and if I had to do it again, I would seriously consider taking a lower cash flow return to invest closer to home.

On paper, out-of-state investing can look very attractive. The numbers often work better in lower-cost markets, and it can be tempting to chase higher cash flow, better cap rates, or the possibility of scaling faster. But the biggest challenge is that you are completely dependent on people you don’t personally know and systems you cannot easily verify.

The hardest part was realizing that no matter how much research you do, spreadsheets and phone calls only tell you part of the story. You can analyze a market, interview property managers, and talk to contractors, but there is still a big difference between knowing about a property and actually being there. Small issues that seem minor remotely can become major problems when you are hundreds or thousands of miles away.

The biggest lesson I learned is: trust, but verify. You need to physically see the property, meet the people managing it, understand the neighborhood firsthand, and have systems in place before problems happen. Saving money on travel is not worth the risk of making a six-figure investment decision without boots on the ground.

I also learned that cash flow is only one piece of the equation. A property that produces an extra few hundred dollars per month is not necessarily a better investment if managing it requires constant oversight, unexpected travel, stress, and time. Your time and peace of mind have value too.

I would also caution you to be careful with out-of-state turnkey providers. We invested with a turnkey company that had a strong reputation, but the experience after the purchase did not meet expectations. The reality is that turnkey providers are paid when the property is purchased, so the transaction is their primary focus. They do not and cannot guarantee the long-term ownership experience. In hindsight, you may be better off finding and evaluating your own properties rather than relying on a turnkey provider’s inventory and projections.