In state or Out of State investing

13 Replies

Hi, I am about to start investing in real estate. I live in San Diego, CA and the cost of living is way higher than most states. For those who live in California, how much do you recommend my first rental property should cost. 

I also plan on buying rental properties in Arizona. I have been told to start with the state i live in because i can keep an eye on it. If there is anyone here that has rental properties in other states, please give me some tips. Thank you

If you are going to be doing rentals make sure your research the market you are going to be investing in.

Contact local agents and property managers that are already in that area

Make sure the cash flow will be there

Starting off long distance with little to no experience can be tough and an expensive lesson.  

Start off small locally then grow your portfolio

First, you might want to do a search on "out of state investing" here on BP (the search bar is in the upper right hand corner). There have been tons of threads on this, and you'll find a bazillion different opinions. It will give you lots of food for thought on how to best proceed.

Hi Marlisa,

As a California native and having lived in San Diego I feel your pain. There is some wisdom to the "start in your state" advice however many people can't start in San Diego. And if you have to go far enough to be able to afford it then you really can't keep an eye on it anyway. You're not going to drive from CV to Riverside a couple times a month just to drive by your property, are you?

We started in Sacramento, mainly because it was cheaper but even that has gone up a lot in the past few years. We have moved most of our investments out of California. What part of Arizona are you planning on buying in and why? There are definitely challenges that come with investing out of state and there are plenty of posts on BP that address this topic. However, there are also challenges with investing in California, including the high cost in most cities which makes cash flow almost impossible, and as the leading "bleeding heart" state all of the landlord/tenant laws favor the tenant. Getting a tenant evicted in California is a nightmare compared to most other states.

My advice would be to look at markets you are familiar with, both in California as well as outside, and research those markets. Invest where the numbers make sense. You may know the market in San Diego and Arizona real well but investing there may also make your RE investing career a very short one. Not that it can't be done, it's just very difficult given the current market conditions in a lot of areas of those states.

Best of luck!

@Marlisa O.  

Welcome to BP! 

I currently live in Orange County, Ca that are SFR; I invest in the Inland Empire, which is where I grew up. I know the area from living there for my adolescent years, and that gives me the local knowledge to invest in good areas verse bad areas. I also am able to afford real estate in those areas without going over my head, or having negative cash-flow.

That being said, I know that California compared to other states is very high priced, and if it's advantageous to you and your situation to invest outside California, then I would make sure that you get in touch with some trustworthy people in the states that interest you, and build relationships with those people to gain the local knowledge to apply towards investing in good areas. In my eyes investing in good areas is the key! Of course make sure that the numbers will benefit you, so that you will be positive with your cash-flow! 

Good luck, and I hope you find what you are looking for! 

Peter 

Marlisa, 

Like Gerald stated, I'd suggest that you conduct more research on the market you're going to be investing in. 

When I first started out investing in real-estate years ago, I had 23 of 50 rental properties that went vacant. I then gained a full comprehension as to the complexity of being a landlord. I wish someone had educated me that it's better to be a lender than a landlord. 

Good luck with everything!

Barry

I think Vegas and AZ are good options. I like Southern Colorado for max cash flow and steady appreciation. For example the same homes in Vegas would be triple the cost with same monthly rents as compared. However the difference in appreciation currently is about 6% higher in Vegas. 

 The boots on the ground is critical to your success.  You will need the following trusted folks on ground before you purchase.

An agent who has investment experience to guide you on rents and hoods. The agent I use has 20+ rentals and talks me out of deals consistantly. She has saved me from many headaches and saved me thousands of dollars with her savvy advice.

Then inspector, attorney, handyman, landscaper/gardener, plumber, electrician, hvac guy, PM and photographer/video. A good handyman can save you tons. You want to have all this in place first. Try to stay away from serious rehabs remotely is a good rule too.

You should spend months researching the area before you buy. That way you will be an expert on the values and will recognize the deals as they come up. Murphys Law can kick in if it is next door or 1000 miles away and you need to have the plan and peeps in place either way. 

Thanks,

Matt

Originally posted by @Barry Power:

Marlisa, 

Like Gerald stated, I'd suggest that you conduct more research on the market you're going to be investing in. 

When I first started out investing in real-estate years ago, I had 23 of 50 rental properties that went vacant. I then gained a full comprehension as to the complexity of being a landlord. I wish someone had educated me that it's better to be a lender than a landlord. 

Good luck with everything!

Barry

Barry, do you mind explaining why you think it has been better to be a lender as apposed a buy and hold now that you can look back at it all? 
Was just curious. 

Where did you focus your energy on the lender side of things (hard money, notes)?

Thanks in advanced.
Just trying to understand the lending side of things. 

Originally posted by @Barry Power:

Marlisa, 

Like Gerald stated, I'd suggest that you conduct more research on the market you're going to be investing in. 

When I first started out investing in real-estate years ago, I had 23 of 50 rental properties that went vacant. I then gained a full comprehension as to the complexity of being a landlord. I wish someone had educated me that it's better to be a lender than a landlord. 

Good luck with everything!

Barry

 I am curious too Barry on where, when and why? I am guessing midwest as to where.

thanks, 

Matt

Cost of the property should be irrelevant for an investment property compared to the returns you expect to see on it. Those are what matters. The price of the property should be fitting to those returns. Like if you cash flow $200/month and you paid $100,000 for the property, that's a decent deal. But if you paid $400,000 for that same $200/month, that's not good. Well, more accurately stated, any positive return is a good one, but try to maximize your returns based on how much you put in.

Ali Boone, Real Estate Agent in CA (#01911993)
310-957-2101

Marlisa,

Welcome to BP!

I'm in the same position as you and second @Jean Bolger  in her suggestion that you search out of state investing and make "distance" one of your keywords to get wealth of information that will be very helpful to you. I would also add the recommendation to TAKE YOUR TIME. Buy and hold is a long term strategy which means you will own the property for a long time. so it needs to be selected with that in mind.

Best wishes for you endeavors!

Pyrrha

There are a lot of different perspectives on this issue. If you're thinking about investing out of state, @Ali Boone  may have some insight for you. She's been successful in this area and has written many articles on this subject for the BP blog. 

Best of luck! 

@Account Closed  

at the end of the day with little cash your not going to get very far as a note investor or lender... This is what draws so many to out of state properties the cheap price of entry. And if you buy from one of the west coast marketing companies who is just fronting and pitching properties for TK providers your going to pay far more than what the property is really worth and you will get buried in the deal before you really start.. who cares if it makes you a few bucks a month 100 or 200 if you can never sell the asset for what you paid for it. and the cash flow disappears in year 2 and 3 that's what your faced with with most out of state investing unless you cut out the over priced marketing people and buy direct with a direct team... And have the best team in place with track record. 

but if you have CASH being a lender is far better than being a landlord.. the return is much more predictable, and as long as you know what your doing ( many note investors get burned just like people buying out of state) but if you get good notes... you will have a much better success rate over time.

now investing in markets that will appreciate is another matter.. but when you talk about low end rentals being a note investor will be much better in the long run  if done correctly. and your not paying huge mark ups like you do when you used LA based marketing companies.

Thanks for the clarification @Jay Hinrichs  . 
I could see how using an out of state company to buy and manage your properties can hurt returns. Especially since you dont have that much control over many factors (locations, rent prices, exit options, fees). 
One could also make the argument that if you are doing your own out of state buy and hold investing, that you will no doubt have more control & some tax benefits, but that is a different topic thread all together. 

I do see many big benefits of lending side of things. It really peaks my interest... 
Thanks again. 

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