Is it okay to buy and hold in a different state?

Question

Hi! I posted a question in a different post about how it's more difficult to find a property with a more favorable monthly rent/purchase price ratio in the Triangle Area, NC specially close to the Reasarch Triangle Park (RTP). On average, I'm seeing a ratio of 0.6%.

This got me to thinking about other cities I've lived at or have families in. For example, I have a cousin (and her family) who is very dependable who lives in the Richmond/Sugar Land, TX area. It seems like there, I can buy properties with a monthly rent/purchase price ratio of closer to 1%.

Now even if I bought where I live (Traingle Area, NC), I still plan on using a property manager.

Should I really focus on buying where I live and try to patiently wait for a good deal? Or is it okay to accumulate buy and hold properties in a different state if there is someone who lives there that I can count on? What are the consequences of having properties in a different state?

Jay Hinrichs · Answer

@Greg V.   great point of visiting the properties once a year.. I think this is very much overlooked when running pro forma's on out of state in vesting.

Especially for those in CA.. were they are usually investing somewhere around or east of the Mississippi River.   and especially if they only have one or two properties.  The travel to the market many times eats up 5 to 10% of additional cash flow that is never projected in the returns equation... So if you have 1st month rent placement fee.. 10% management and in 10% vacancy 10% maintenance then 5 to 10% for travel.. Etc etc. you can see how those that maybe do not get the same return at home but can handle the properties themselves.. can save 20 to 30% of annual fixed cost's thereby making their local purchase's more appealing than they first thought. Not to mention the real risk of getting a house totally trashed.

Agree 100% with you regarding management.. changing managers can and usually cost money for the investor.. finding the new one. dealing with tenant issues during a change etc etc.

Terry Hershberger · Answer

@Christopher Rayala

I invest and hold most of my properties in a state different from where I live. It can work rather well. First, you must have market knowledge about the area you choose. Then, I would find one of the top realtor/brokers in the area to get on your team. Next a good handy man can make a huge difference. Maybe someone highly referred by another investor or your new realtor/broker friend. Family in the area that you can trust is also important. Luckily, I have my mom who now has been working for me for the last 9 years. I travel there about 3 times a year for two week visits for my business there. You will need systems in place and lastly you will want to network and build relationships on every trip. Oh and don't forget to screen your tenants extremely well as houses don't generally create problems, it's the tenant that you choose that can give you issues.

Hope this helps you!

Happy Investing!

Elizabeth Colegrove · Answer

@Christopher Rayala

We invest in out of state buy and hold rentals. We also  self-manage them successfully. I find it allows us better control over our properties and also saves us a ton of money . Self-management our rentals has become an very important part of our business strategy. I started a website/blog all about our experience with tips on how to do it. My husband is military (navy) so we move around a lot. Our first pure rentals were in Charleston, SC because the numbers worked compare to Virginia Beach. Than we moved to California so we have 3 houses back east. We invest in class A rentals, so our clientele tends to be professionals. We have a 14 page lease that outlines the expectations. We have certainly had "moments" but it has been totally worth it.

Chris C. · Answer

Could you invest in another area of NC? Something within driving distance? There was a BP podcast a couple weeks ago with an investor from Chicago who is doing this.

Jay Hinrichs · Answer

@Christopher Rayala   then you have to rent a car... Motel room  meals out.. etc etc.

I know when I go from PDX to the south be it atlanta or whatever it cost me 1500 to 2000 per trip.. of course I buy a first class ticket so my air fare is a little, but I get a free checked bag :)  Its one months rent in most markets to visit your property but if you have multiple properties then things get cheaper  but still a cost

Mitchell L. · Answer

It all depends on on the trust and quality of a property manager you have in that state.. Someone who will look out for your interests..

Angelique F. · Answer

I live in IL but just purchased my first investment property in IN, strictly due to IL taxes being high as the sky.   So, for me it makes more sense as an investor to go invest outside my home State.  Now, the 10% + I'll end up paying for a property manager, well, to me it'll be money well spent. ;)

Christopher R. · Answer

Thanks @Terry Hershberger for your encouraging post. I'm just very tempted by Sugar Land TX. The numbers just look good.

@Jay Hinrichs , thank you for pointing the "unseen" cost of travel. It seems like it costs around $315 dollars to fly to Houston from Raleigh. I should try to include this in my cost analysis.

Is it okay to buy and hold in a different state?

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