Out of State Investing

59 Replies

What are the best ways to research about a neighborhood if you know nothing about it?  Do you just google the area and see crime rate statistics? Do you talk with people?

@Nicole B. you can ask the pros on BP for their opinion of neighborhoods you are considering, you should also network and talk to property managers and/or realtors in your target neighborhoods.

Originally posted by @Nicole B. :

What are the best ways to research about a neighborhood if you know nothing about it?  Do you just google the area and see crime rate statistics? Do you talk with people?

 First you connect with someone with "boots on the ground" that is actually investing in the areas you are interested in.  I know about markets I don't invest in, but if you were interested in those markets, I would refer you to someone in the market you're looking at...that I know is actually active in that market.

Learn about the market, and the micro-markets in that area.  Learn the property profile that works in that market...or simply if the one you want to use works at all in that market.  Every decision you make should be market driven...including the rehab.  The market makes your decisions for you, you can't force a market to work.  It either does, or it doesn't.

Analyze the markets to find the right size, cash flow, profit, budget, opportunity cost (available for sales), sales and rental comps, etc...Micro-markets will tell you specifically where each of these will work. Too often I see a REI grab what is thought to be a great deal because it's so cheap, and lose because they assumed the other properties in the larger market would dictate this property to work. What happens is the "deal" is a potential flip that is in a hold micro-market. As near as two miles away, that would have been a great flip...not so much where the house was actually located...even though it may have been in the same zip.

I search schooldigger.com, (schools = value), city data to learn the median home price & income; check vacancy rates, landlord tenant laws then find a quality property manager if you are keeping buy and holds. Start with the end in mind and work your way backward. Just like flipping. You get the ARV then subtract repair cost, then profit margin to determine your purchase price. You are working your way backward. Learning a market you don't know is just like that. When I 1031'd my CA profits out east I studied on realtor.com (been almost 10 years so maybe better resources now) to find areas that were low priced with high rents and low vacancy rates. Make sure there is a good employment base around the area. Then study the neighborhoods to see if they are mostly investor owned. Stay clear of those. You want to be in a limited investor area (otherwise too much competition when you have a vacancy) and owner occupied neighborhoods tend to take better care of their properties and see higher appreciation.

Just my opinions but that's what I did when investing out of state.  Your property manager is key.  If you don't like them change, and do it quickly!  Don't sign with anyone that has termination penalties or that doesn't list your property on the mls.  

Another enlightening thread on BP. Thank you all for contributing. I am an first time investor in the making. I live in LA and am looking for out of state properties MF for buy and hold. Lots to study, lots to learn.

@Eric Fernwood your post was outstanding. I would love to get both your PM interview questions and your estimator tool. Thank you!

@Eric Fernwood I'd love to get your PM interview questions and estimator tool as well. Than you so much in advance!

@Eric T.

You've got the right idea. I saw a housing outlook report very recently, I think from Marcus and Millichap, that showed Chicago as the most undervalued major market in the country... but the property tax is way high and it's extremely tenant friendly. Also, rent to value is a bit low unless you go to rough neighborhoods.

I was super interested in Indiana when I pulled the trigger on out of state investing, and I started with indianapolis. I found better rent to value in other parts of Indiana though, that are less saturated with investors and actually sub-markets to chicago.. so the rental demand is high. The nice thing is the second you cross the indiana border the taxes are cut in half (or more) and landlords reign supreme in court. Not that you'll have to evict as often, a good property manager will inform the tenants of the laws and their expectations early on.

I'm a CA investor too. I feel your pain. I bought my own home and one more here during the low market, then quickly went midwest to crash proof my money (at least as much as I feasibly could).

I only started a year ago and it's gone very well. If you ever want to hear my story, let me know! 

@Eric T. Watch economic and demographic trends, political issues, etc.

Mid to long term I wouldn’t want to be in Chicago personally.

@Nicole B. if you want to learn an out of state neighborhood decide what the bad neighborhoods are (this is easy, look at recent sales with super low prices).. find out what the rents are in those neighborhoods... then use the estimated rents on a typical property, maybe a 2 or 3 bedroom house to compare against the rents in the BAD areas. 

Example: I invest in Indiana.

-A small 3 bedroom house in a D-class part of my market rents for $750/mo-$850/mo in good condition.

-I know an area where a small 3 bedroom home rents for $1000-$1100 is a C neighborhood.

-$1200-1350 is usually a B neighborhood (and the houses are usually a tiny bit bigger in these areas)

-$1500ish is an A neighborhood. 

Now there are other ways to determine neighborhood class - schools, crime rates, demographics... etc... but if you're actually SERIOUS about investing in a market you're going to be getting your best info from talking to your team anyways. It sounds like your research is preliminary right now... so don't overthink it. Find a place where you like the laws, the taxes, and of course... the rent:value ratio... then go out and find referrals for a good investor friendly realtor and property manager. Emphasis on GOOD. Spend more time on this than you do researching the market. If the ROI is feasible, don't stress school ratings. You might not even be renting to tenants who are affected by that.

I make a killing in C neighborhoods. My vacancy and maintenance rates are just like they would be in B neighborhoods because my property manager is a rockstar, and I get killer deals.

Hope this puts a twist on the typical advice you'd get! Take more action to learn!

I talk to the people that are in the market.
The property manager you use will give you an idea of better areas that they prefer to rent in.
(they have to post notices and do showings at the building, so they will advise fairly)

The broker with property listed may give you some advice, though they are selling property so some things may be more positively evaluated.

Google street view can tell you a lot.  Is there graffiti nearby?  Is there a vacant lot no one has felt like developing nearby?  

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