Out of State Investing

59 Replies

Since CA doesn't seem like a very efficient option, I've taken to exploring my options out of state. Just from browsing the forums it seems many members recommend places like TX, GA, AZ, Vegas etc. However,  I thought it might be better to invest in a state I have ties to already. I travel 2-3 times a year to Chicago and 3-5 times a year to Seattle. However, it seems Chicago/IL is very tenant friendly and there seems to be a consensus that it is more difficult to come across good cash-flowing properties on the west coast (i.e. WA). Anyone have more insight into these two states or some advice on out of state investing in general?

Michigan.  Investors are having a field day.

Joe Villeneuve
REcapSystem
A2REIC

Where are you in CA?   We are investing in the following markets in CA: Antelope Valley (Palmdale and Lancaster), Santa Maria and Bakersfield.   These are 3 of the top 20 markets we are investing in the U.S. over the next 5 quarters (15 months).  Contact me if you want to talk. 

The real question ERic, is what are you investing for?  Flip, hold, etc...?

Joe Villeneuve
REcapSystem
A2REIC

@James Wise Thanks for the tip! Not really sure how JV's work, but I'll keep that in mind.

@Michael Evans  I'm from the LA area. I actually did look into Bakersfield before thinking to explore Washington/Illinois/out of state, but it just seemed like the numbers weren't as great.

@Joe Villeneuve  I'm looking mostly for multi family properties for cash flow purposes, not to buy and hold.

Hi Eric,

I live in a good cash flow market and here are a couple of things that I have learned along the way that I posted in a previous thread:

When dealing with rentals, I believe the property management company is the most critical component. In 2003, my wife and I purchased 8 duplexes in our local area and then tried to find a property manager. After failing to find competent property management, we starting the process to sell after 6 months. We did not want to property manage ourselves and never intended to be the property manager.

In 2008, I had some commercial projects closing and needed to invest that capital. After reviewing the options, I determined that the best investment that I could find were the SFR's in my local area. With our previous experience, I did not care if someone was giving houses away if we did not have competent property management.

We then commenced to interview a number of property management companies prior to ever beginning a search for homes.

We have had much better success with this strategy. We now have so much confidence in our team that we have not even looked at the last 100+ homes that we have purchased.

The criteria that I review for an investment area ONCE I have found an honest and competent property management company are:

1. Price to rent ratios

2. Crime rates

3. Landlord laws

4. Insurance rates

5. Property tax rates

Good luck with your search.

We invest in single family homes in Hanford and Lemoore. I  love it. We don't use a property management team but buy houses that we can do it ourself. On the other hand we are buy and hold for long term cash flow.

 Make sure you are looking at property taxes and insurance too of the area. Charleston was/is a great area. My problem with it was the fact the escows are more double other area. 

Hello @Eric T.  ,

Congratulations on making the mental leap to buy where you can make money. Too often people choose to buy in their own area just because it is physically close despite the (lack of) return. So you know my bias, I am a Realtor in Las Vegas and my practice is almost exclusively remote investors (other states or countries) so I obviously see no problem with remote investing provided you trust the team.

If financial independence is your goal then I recommend that you vet every property by the following criteria:

• Sustained profitability - With real estate your minimum horizon is at least 7 to 10 years so a buying based only on the current market situation is likely to leave you in a very bad situation in a few years.
• Located in an area likely to appreciate over time.
• Landlord friendly laws and taxes.

Combined, these three requirements are not easy to fulfill. Below is a high level view of the process:

Below are the steps I would follow:

• Choose a city that has experienced sustained growth and is likely to continue to grow. Here is a map showing growth trends of major cities.  
• I would limit the locations to major cities with airports so you can easily get there. Also, I would choose a place where you would like to visit because (check with your accountant) trips to check on your properties are probably tax deductible and you might want to check your properties as part of a vacation.
• State/city/county income taxes. Most states have a personal income tax which can significantly impact your return. Nevada, Texas, Washington and Wyoming are among the few states with no personal income taxes.
• A location where annual maintenance costs are reasonable. Higher costs are sometimes due to climate or construction issues. For example, in heavy snow country you will have to include snow removal costs and more physical damage to driveways and the structure. Also, older properties tend to have more maintenance.

Once you have your top 5 cities, the next thing you need to know for each of your candidate cities is the type, configuration, location and rent range of the best rental properties. How can you find this information? Talk to local property managers. Property managers deal every day with tenants, maintenance issues, renting vacant units, local laws, evictions, etc. In short, every thing you need to know. Talk to 4 or 5 mid-sized local property managers in each city you are considering. Before you start making calls, develop a list of questions and ask the same questions of each property manager. (I have a set of property manager interview questions, drop me an email if you or any one else would like a copy.) Tell them that you are new to investing and are looking for a property manager to work with. After only a couple of interviews you will begin to have a very good understanding of the local market and what type of properties rent best and how long they typically take to rent. Remember that the property managers only make money when they collect rent so they want rentable properties too. The specific information you need includes:

• Type: Condo, high rise, single family, duplex, single story, two story, etc.
• Configuration: Two bedroom, three car garage, mud room, etc.
• Location: Usually a very specific area. For example, west of 23rd St and south of the river, etc.
• Rent Range: If the majority of the population to which you want to rent are willing and able to pay $1,000/Mo to $1,300/Mo. you should only be looking at properties that you can purchase, rehab and profitably rent in the same rent range.
• Property laws, taxes and regulations: This is a catch-all category of local/state issues that affect landlords: eviction process and costs, rent controls, state/local income taxes, etc.

You should now have a very good idea of what properties rent best and how much they rent for. The next step is to determine what such properties cost. The property manager may be able to help you here but if not you can use Zillow. Find recently sold properties that match the type, configuration and location you learned from your property manager interviews. Once you know typical costs, it is time to determine whether you can make a profit.

In my practice I am almost constantly making what I call an investigate/forget decision. I do this so often that I created an online tool which enables me to instantly estimate a break-even price (where rent equals recurring expenses). Below is a screen shot of the tool. If you (or anyone else) are interested in using this tool, drop me an email and I will send you the link. There is no charge or obligation for using the tool.

In the example above I entered the estimated rent and other factors and tapped Estimate. The result is that if the property were purchased for $185,000, the rent ($1,200/Mo.) would equal the recurring costs (debt service + taxes + insurance + property management fees + monthly fees). This means that if I thought I could get the property for $165,000 I would investigate further. If I thought I would have to pay $185,000 or more for the property I would forget this one and look for another. Remember that this tool is only for making a quick investigate/forget decision, not a purchase decision.

At this point you will know whether you can make an acceptable profit in a certain market. If yes it is time to dig deeper and start looking for a local Realtor that you can trust. If not move onto the next city.

Eric, I hope the above will get you started. Feel free to contact me if you have questions. 

Best Wishes,

No company avatar mediumEric Fernwood, Las Vegas Real Estate Investment Group | [email protected] | 702‑358‑8884 | http://www.LasVegasRealEstateInvestmentGroup.com

@Chris L.  Thanks for the advice! What do you look for when you interview property management teams then?

@Chris L.:

"...We then commenced to interview a number of property management companies prior to ever beginning a search for homes.

.. We now have so much confidence in our team that we have not even looked at the last 100+ homes that we have purchased..."

Chris your feedback above was very interesting to me.  Do you mean that your lesson was to find the PM before looking for the Investment?  Also, from your reply, it sounds like you never even ventured down the path of managing the properties yourself.  Is that correct?  If so, how did you know that the PM's weren't any good for your first batch of properties?  I am planning a similar path and would like to avoid managing the properties myself, but keep hearing the advice that I need to do it myself, first, and then I'll know what jobs a PM should be doing and whether they are doing them well.  But if they aren't doing their job well, I would think that it will become obvious by the results I see (if I am even loosely paying attention to my investment!)

Also, Chris, your last note I quoted above sounds a little like turnkeys.  Is that your approach?  And is it your PM that is finding you the properties?  I'd like to hear more about your process now that you have 100+ homes under your belt.  Thanks.

Eric,

I do not have a list for a property management company but I would be happy to discuss my thoughts on the phone with you.  There might be some others that have a list made already.  I will try to capture some thoughts down for you on a later post as well.

Keith,

I will try to make this quick.  We had managed our own properties in 2003 and 2004 until we sold our duplexes so we had some idea of what we were looking for in a property management company.  

Two important items to note when we got re-started in 2008:  we had plenty of our own capital and we had the experience of owning rentals previously.

So, before we ever looked at any properties in 2008, we interviewed multiple property management companies and selected one of those companies.  We then proceeded to acquire properties.  We utilized three realtors at that time to meed our demand for properties.  In 2008, most of our acquisitions were foreclosures that needed an appropriate rehab.  We had to time our purchases so as not to overwhelm our rehab crews.

In 2011, we transitioned to a new property management company.  Our present property management company is now able to handle sourcing of properties, the rehab, and of course tenant placement.  I do acquire some properties with tenants and have actually purchased several packages of performing rentals and utilized a portfolio loan from a local bank.

Please let me know if you have any other questions.

Chris

Hi @Eric T.  

Just to echo what other have said, it's vitally important that you get your team set up before trying to buy a property.  Yes, your property management company is probably the most important for buy and holds, but their are others that you'll want to connect with as well.  Laying that ground work is important so you have resources to draw upon when you start putting offers in.

When  you mention "multifamily" properties did you mean small (<5 units) or commercial (5+ units)? 

@Chris L.   - now you have everyone's curiosity piqued!  What's your market(s) and what type of properties do you pick up?  Also wondering what your buying criteria are...

Thanks

Medium logo 01Larry Smet, Boomerang Capital Group | 1‑800‑266‑6345 | http://www.boomerangcapitalgroup.com

Chicago has some great options there right now. You would be looking more at south-side, just a warning, but I know companies who specifically target the better areas of the south side and they don't teeter the war zones. I know a lot of people successfully investing there for sure. West coast, yeah, unfortunately nothing much out here for cash flow.

Medium hipsterinvestment logo black300dpiAli Boone, Hipster Investments | [email protected] | 310‑957‑2101 | https://goo.gl/x52ZKJ

Larry,

I invest in Ft Wayne.  Although I live here, I really could live anywhere.

I invest in SFR's generally 3/1's or greater. I purchase based upon the neighborhood, purchase price plus rehab cost, and the expected rent.

Pretty straight forward really.  

Chris

Hi Larry,

It really is pretty boring with the right property management team.  Returns are 12-15% with cash purchases and 20%+ when I leverage with a loan.  Not terribly exciting but keeps me from needing a job.

Chris

Well Chi town or Vegas would be my pick. Catch a Cubs game or a Vegas event. Not sure what your budget is but you could still do Cali 1 to 3 hours drive stuff. I like Vegas more as taxes are rock bottom

thanks,

Matt

@Chris L.  Interesting, I've been looking into other areas the past few days and Indianapolis was one of them. Anything particular about Ft. Wayne that makes it more attractive than the Indianapolis metropolitan area?

@Eric T.  I don't know much about the Fort Wayne market, but the Indianapolis market is definitely a great one to look into. Have you looked at specific areas of Indy? 

Hi Eric,

I have owned property in Indianapolis and Ft Wayne.  I like the Ft Wayne market predominately because of the property management team that I utilize.  Ft Wayne has not had the national and international exposure like Indianapolis so the price to rent ratios are generally better.  

As I stated earlier, the most important criteria for holding rentals to me is the property management company.

Eric,

Indianapolis right now is a booming market for real estate investors. From a California perspective, the pricing is extremely low so you can get more for your dollar. Midwest states are known for this.

With a triple A bond rating, more and more companies are relocating to Indianapolis to build. This in turn brings more employment opportunities. Some of the largest employee-based corporations are expanding and building new facilities given the bond rating and being able to access money at lower rates. And, you know what this means. More people, more needing housing.

So if you are looking for places to invest, you may want to consider Indianapolis.

Medium berkshire law logo copyJynell Berkshire, Berkshire Law LLC | [email protected] | 3177521276 | http://www.berkshirelawllc.com

Hi Eric,

I agree with you, As a southern California person, i have had to go out of state to do my investing. It was great 4-8 years ago in the downturn of the economy in Riverside County, but now, the properties have increased in value too  much to pursue buying more here.  I have homesin multliple states, (Tx, UT, NV, AZ and IN)  Currently, the best bet for me is Indiana.  I do have a company out there that fixes, rehabs and places a tenant in the home for you. We prefer investors who have invested before, but everything is done for you. Properties have excellent cash flow and range from $35K-110K (for the ones we do) 

Hello world, my first post....how exciting!!

@Eric T. I feel like we are in the same boat. I am in the very beginning stages of real estate investing doing research on different strategies on analyzing, purchasing, and managing properties. I live in Orange County, CA (way too expensive here or anywhere in the LA Basin, especially to start out) but I am originally from the East Texas area. I have been looking there since I am familiar with the area and have family there who I visit often and could check on the property. Haven't found anything that fits my criteria yet and is in a good enough neighborhood but it doesn't seem like too bad of a market. 

If you haven't already I would check out Podcast 025. They have some interviews with some first time investors; one of which buys an out-of-state property. I feel like there were some good tips there. Also, Podcast 074 says its about first time investors but I have yet to listen to it.  

I would be interested to know how your first one goes when you find a market/house/PM that fits your criteria. 

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