Out of state investing
Member since 2026 · 8 posts · 10 votes
Out of state investing
Most Popular Reply
Hi Braedon from Arizona-
You asked about investing out-of-state and if a property manager is worth the expense even for smaller properties.
Great question! I always recommend investors use a property manager even if they live in-state and underwrite their investments factoring the cost of the property manager.
A good property manager is one of the most important members of your investing team. They should not only be keeping your property occupied and working with tenants to reduce turnover but improving the property and rents to maximize your return on investment. A property manager also helps keep your real estate investing as passive as possible so you can do other things and scale your portfolio without getting burned out from doing the property management work yourself. They also keep you compliant with local and national rental and housing regulations.
This is especially important as an out-of-state investor.
To Your Success!
36 Replies
- Lender · McKinney, TX · Member since 2026 · 19 posts · 7 votes3d
Braeden, on your budgeting question, the simplest way is to build it into the numbers line by line before you make an offer: the monthly fee (often 8-10% of collected rent), a leasing fee each time the unit turns (commonly half to a full month's rent, which you can spread out by assuming a tenant stays about two years), any renewal fee, and then your usual vacancy, repair and capex reserves on top. Add the mortgage payment, taxes and insurance, and if the rent still covers everything with a little left over, the deal works with a manager. If you're financing, the lender will look at the full payment against the rent too, so running it this way up front saves surprises later.
- 3dNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
boy, you got a bunch of flowery, cheerleading, AI nonsense. everyone except @Marcus Auerbach and @John Clark , and now me.
what kills cash flow is investing out of state in the first place... because there isn't any cash flow right now, anywhere, if you actually factor in all costs associated with investing and don't pretend they don't exist.
but don't take my word for it - talk to these folks.
crushed in Alabama:
crushed in Cleveland:
a surprise crushing in Michigan:
and more general absolute crushings.
- Real Estate Broker · Cleveland, OH · Member since 2023 · 254 posts · 85 votes3d
PM don’t kill profit. The ignorance tax does.
If 10% PM kills it, was it ever really there?
Poor investment IQ kills deals. Plain and simple. Respectfully.
I have OOS in CA/Israel making double digit returns in CLE, while local investors are taking L's.
PM and distance ain’t the problem
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2d
I am calling BS: you are comparing the best deal from an OOS investor with a bad deal from a local investor. In 2026, even on a great deal, cashflow will rarely exceed 10% of rent. The PM wipes that out.
But that is not even the real problem: operational inefficiencies will cost you another 20%. And meanwhile most OOS investors don't realize that their property deteriorates to the tune of 5k or 10k a year with deferred maintenance and degrading condition more than eating up their $76/mo cash flow. They find out years later when the bill arrives.
Taking advantage of overseas investors is even easier: every HVAC contractor will quickly realize that an overseas investor has no idea what a forced air system is - and charge accordingly. Just a random example.
- Real Estate Agent · Detroit, MI · Member since 2016 · 148 posts · 65 votes3d
Braeden, everyone above is right that you underwrite the management fee from day one — a deal that only works if you self-manage from another state isn't a deal. But from where I sit in Detroit, working with out-of-state owners, the fee percentage isn't what usually decides whether remote ownership works. It's the two things the fee doesn't cover: how fast a vacant unit gets turned and re-rented, and whether anyone local actually verified the property before you bought it.
A manager at 8% who leaves a unit sitting for 45 days between tenants costs you more than a manager at 10% who turns it in two weeks. And before management even starts: get eyes on the property that aren't the seller's or the listing agent's — real video of the mechanicals, the roof, the basement — and run the rent against what's actually achievable on that street, not the pro forma. Most bad out-of-state purchases I've seen were lost at the purchase, not in the management.
- 3dAlim AbrahimBusiness MemberReal Estate Consultant · Oklahoma City Metro · Member since 2026 · 7 posts · 1 vote
Braeden, a property manager doesn't kill your cash flow if you underwrite for it from day one. It's a line item, not a surprise. The right property manager could protect you from bigger losses in many cases, whether your rental is in the next neighborhood, or a thousand miles away.
It's not common, but you can find properties that already have a tenant in place that was placed for you, and a property manager you've vetted and trust. When the seller also covers the monthly management fee for the first two years, and the leases carry 3% annual rent escalations, the rent-increase conversation with the tenant has already happened. The math starts to lean your way.
What really hurts owners with a small number of doors is expenses: repairs and unit turns. New construction helps a lot there. When a property is designed right, there isn't much to fix, and turns are cheap.
Bankers Invest- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2d
A regular turnover on a SF costs us at least 6k: 2k in lost rent and 2k in re-leasing cost and at least 2k in repairs.
But if the tenant has been there for many years, 2k often does not cut it - new carpet, fresh coat of paint add up fast and a few odds and ends add up fast.
And there are random things like removing an old tree that lifts up the concrete driveway. Was about 3k to get that tree cut and lifted out, then 1k to break and remove the concrete, then stump grinding and removing the big root that was lifting the slab, then 4k for pouring new concrete - and that was only a section of the driveway.
The more complex repairs are, the more they involve different contractors to be coordinated, the more it hurts not being personally present to oversee and coordinate. Most of our portfolio is 1960s Sf homes, so new construction would definitely avoid these types of issues..
- 2dDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
A common issue, so Copy & Paste info below:
You’re ALWAYS better off investing locally, where it’s easier to:
· Learn the market
· Network to find deals
· Network to find contractors
· Be more hands-on
· Driveby property to keep tabs on it
· Network to find a decent Property Management Company (PMC)
Next best location is somewhere else you lived, where you have an existing network of family & friends to help you as accomplish the above list as needed.
If you invest OOS, your biggest challenge won't be finding properties to meet your goals on paper, it’ll be successfully building a knowledgeable & trustworthy local team.
The biggest mistake we see OOS investors making in our market, over and over again, is not fully understanding Neighborhood/Property/Tenant Classes and how they impact your probability of success!
They all run their ROI numbers assuming Class A results – when buying Class B, C & even D rentals.
Then they’re shocked when their performance expectations aren't met😞
If you choose to invest OOS, and have little to no landlord experience, we highly recommend targeting Class B Neighborhoods/Properties/Tenants. If you target Class C, you better be prepared emotionally & financially for plenty of challenges.
You can find Class B properties in the Midwest to BRRRR, but it will take more digging and YOU will need to understand how to analyze & identify them - because a lot of agents, wholesalers, PMCs, etc. will try to sell you Class C or D misrepresented as Class B:
· Many of them don't know/care what Class the properties are, so they're incompetent.
· Others know exactly what they are doing, so should be labeled as crooks!
EITHER WAY YOU LOSE!Why is Property Class so important for investors to understand and apply in their investing strategies?
Because the Property Class dictates the Class of the tenant pool that the property will attract.
The Tenant Class greatly impacts rental income stability and property maintenance/damage by tenants.
Both Property Class and Tenant Class will affect what type of contractors, handymen and property management companies you should target and be willing to deal with a property.
The Property Class will also impact the maintenance & renovations you do to, “Maintain to the Neighborhood/Market”.
Why is that important?
Well, if you buy & renovate a property in Class D area to Class A standards, what Tenant Class will actually rent it?
Or, if you put several Class D tenants in a Class A four-plex, what do you think will happen to the property?
What do you think will happen if you rehab a Class D rental to Class A standards?
So, if you fail to apply the correct assumptions to a property, your expectations won’t be met, and it may even be a financial disaster.
We use the following to rank Property Classes, in order of importance:
Property Tenant Pool: closely linked to location, but not always.
Property Location: closely linked to tenant pool, but not always.
Property Condition & Amenities: it’s important to, “Maintain to the Neighborhood/Market.”
Key metrics for each Property Class:
Class A Properties:
Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years.
Tenant Default: 0-5% probability of eviction or early lease termination.
Section 8: Class A rents are too high and won’t be approved.
Vacancies: 5-10%, depending on market conditions.
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.Class B Properties:
Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
Tenant Default: 5-10% probability of eviction or early lease termination.
Vacancies: 10-15%, depending on market conditions.
Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation.
Section 8: Class B rents are usually too high for the Section 8 program.Class C Properties:
Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability.
Tenant Default: 10-20% probability of eviction or early lease termination.
Section 8: Class C rents usually meet program requirements, proper screening still recommended.
Vacancies: 10-20%, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.
Class D Properties:
Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”.
Tenant Default: 20-30% probability of eviction or early lease termination.
Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection.
Vacancies: 20%+, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.Where did we get our FICO credit score information from?
Check out this chart:
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%
Make sure you understand the Class of properties you are looking at and the corresponding results to expect.
For example, Metro Detroit has 132 cities and the City of Detroit 183 Neighborhoods, which we’re analyzing and classifying to make better investing decisions.
Horror Stories from those that did NOT Understand What they were Buying:
https://www.biggerpockets.com/forums/48/topics/1137397-baltimore-a-path-to-never-ending-pain
https://www.biggerpockets.com/forums/432/topics/1231840-sell-at-a-loss-or-rent-at-a-loss
https://www.biggerpockets.com/forums/311/topics/840134-memphis-turnkey-tenant-turnover-costs
https://www.biggerpockets.com/forums/963/topics/1195280-experience-of-oos-investing-in-cleveland-after-15-years
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