Buy and hold out of state a good idea?

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Buy and hold out of state a good idea?

Matt Castillo
Dublin, CA · Member since 2015 · 6 posts · 1 vote

Hi everyone I am looking to get started in real estate investing and have been searching for my first buy and hold property. I live in the San Francisco bay area and it seems that it is pretty tough to find a cash flow property around this area, especially in my price range (150,000- 250,000). I have seen some properties in the Stockton area but have read on this website and other forums of all of the horror stories with other investors in that area so I am a bit skeptical about buying my first investment property there. 

However I have been doing some research in the Tempe/ Phoenix area in Arizona where I went to college, and it looks like a good market for buy and hold properties. I am a little worried however about renting out a property when I am not in state. I am happy to hire a property manager as well but also am aware that its not always easy to find a good one from reading other posts on the site.

So my question to the community is : Would you recommend renting out a property out of state? and if you have done this before What have your experiences been like in doing so?

Thanks in advance!

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Joe Bertolino
Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes
10y

No, check out Sacramento.  Plenty of deals that cash flow if you can put in some effort,  send out a mailer, etc.  Buy distressed with cash/HM rehab, rent and refi.   I got two deals this week (one closed,  one in escrow) that have $30k+ in equity on the day I close.  One cash flows over $400/mo with the current 8.5 year tenants in place and the other will cash flow $400+ per month after rehab.  Deals are out there in Northern CA.  

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  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
    10y

    @Matt Castillo this topic has been discussed many times.  People who live in higher-priced areas look to invest out of state because they can buy a cash flowing investment for less.

    You'll get two sides of the camp -- those who recommend to stay in your own backyard, and those who will tell stories of success investing out of state.

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  • Matt Castillo
    OP
    Dublin, CA · Member since 2015 · 6 posts · 1 vote
    10y

    @Dawn Anastasithanks for the reply! I will check out some of the other posts.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    Caution is the name of the game and picking the right area and team.. then PM will make or break any buy and hold be it local or out of state.

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  • Account Closed
    Registered Nurse (ICU) · San Jose, CA · Member since 2014 · 496 posts · 332 votes
    10y
    Matt Castillo It has its ups and downs and is not for everyone. I have been doing it for the past year and now realize how risky it is. My properties are fine and well managed now but it took some bumps in the road to get there. It's easy for people to take advantage of you as an out of state investor. If you do decide to give it a shot let me know if I can help. Good Luck.
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  • Ryan Landis
    Residential Real Estate Broker · San Mateo, CA · Member since 2013 · 585 posts · 264 votes
    10y

    @Matt Castillo try checking out the threads just about investing out of state or at a distance as people will do it for more reasons then just feeling like they are priced out of their local market (i.e. if they believe in the economic factors of a certain city, etc.).

    It sounds like you are looking for cash flow, not just a lower price point? Having gone to school in the area will help you navigate/better understand where you want to have your money tied up.

    If you do go down the out of state route, just remember to factor in any travel costs in acquisition and PM selection. Also, you need to make sure your communication expectations are VERY clear so that you know what is going on (you cannot just drive up the street and see the overgrown grass).

    1Reply
  • Dick RosenPro Member
    Property Manager · Gilbert, AZ · Member since 2009 · 1k+ posts · 451 votes
    10y

    @Matt Castillo my best advice will be to do due diligence on your PM as much or even more than the subject property! Phoenix/Tempe/Mesa seem to be the popular areas in Arizona right now.

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  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    10y

    I agree about checking all the other forums about this topic. There's no shortage of them! I'm probably going to write a blog on the BP blogs in the next couple weeks about the same topic, if you want to check in over there too. 

    The only thing I will say though is, and this pertains to both local and non-local states, is be sure you are totally up on running the numbers. Most of the Arizona markets don't necessarily pan out for monthly cash flow right now. So be cautious there.

    And then as also mentioned, the PM is the make or break. I live in LA and have always invested out-of-state (which of course puts me on the "yay" side of it...but not everyone is) and I'll tell you, the only times I've really lost money were always due to a PM sucking.

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  • Matt Castillo
    OP
    Dublin, CA · Member since 2015 · 6 posts · 1 vote
    10y

    @Account Closed thanks for sharing your experience ill let you know what i decide.

    @Ryan Landis I am not opposed to looking for a lower price point either. Honestly just looking for the best investment opportunity I can find in the area. When you say lower price point are you referring to a fix and flip or more so a property that will "hopefully" appreciate in value? 

    The reason the area appeals to me is that I am familiar with it and travel there a few times a year as it is but you do bring up a good point about factoring in the additional costs.

    @Ali Booneok thanks for the heads up I will make sure to double check my numbers. I am still a complete newbie with all of this so I will be extra cautious. Are there any markets that you are invested in that you would recommend I look into?

    Thanks for the help!

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  • Ryan Landis
    Residential Real Estate Broker · San Mateo, CA · Member since 2013 · 585 posts · 264 votes
    10y

    @Matt Castillo I was referring to price/rent ratio (or another more common way people on BP analyze a similar take is the X% rule). I am not too familiar with the Temple/Phoenix market, but on your $150-200K purchase price, what is an average rent? It is not just that the Bay Area has a high price point. Often, the Bay's rent relative to that price point is not as high as other markets across the country. It is a minor clarification point but I was just trying to get clarification on why you were looking at that particular market.

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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    10y

    Can be risky for sure. If you have an issue you are halfway across the country. On the flip side you are able to build a portfolio you otherwise would not have been able to build.

    Highly recommend flying out to the area. See the neighborhoods, meet the local teams, go inside the houses. This will you Give you a very clear idea of what you are buying.

    1Reply
  • Denny Robert
    Rental Property Investor · St. Louis, MO · Member since 2013 · 194 posts · 100 votes
    10y
    Matt Castillo, I live in Tempe and bought a fourplex this year. It is a good deal for the area, but not a great deal. I think right now you could do better in the Midwest or Texas. However Tempe is a fairly close flight, and you might still have somewhat of a network here that could be helpful. I went to ASU as well, and staying connected with old classmates has helped me several times. If you decide to come this way let's get coffee.
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  • Tammy Wise
    Oakley, CA · Member since 2014 · 38 posts · 11 votes
    10y

    My personal concern about out of state Turnkey is that I may be too late to the game now. I wonder if it's just better to wait it out and save money until the Market turns again. Thoughts???

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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    10y
    Originally posted by @Tammy Wise:

    My personal concern about out of state Turnkey is that I may be too late to the game now. I wonder if it's just better to wait it out and save money until the Market turns again. Thoughts???

     I think those looking to get into out of state rentals and expecting to make some huge equity upside are going to be disappointed.

    The reason I believe one should look out of state is to build a portfolio of properties that they otherwise would not be able to do at home due to a much higher market entry point.

    I think the real benefit with these out of state portfolios (that is often overlooked) is being able to enter at a low market price point and be able to benefit from principle pay down. 

    1Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    10y

    The Midwest is the closest to the West Coast I would get. The numbers often work nicely there. Chicago is a big city option.

    In terms of numbers, I wrote this a long time ago....might help!

    https://www.biggerpockets.com/renewsblog/2013/01/1...

    1Reply
  • Michael Aromando
    Real Estate Professional · Saint Louis, MO · Member since 2015 · 22 posts · 8 votes
    10y

    @Tammy Wise:  There are deals in EVERY Market cycle.  Develop your success formula, identify your target location and find the properties which meet your standards.  If you can hit singles and doubles in good times, you'll be knocking it out of the park during market corrections.

    @James Wise:  Well said.  The Midwest is a great place for Buy & Hold investors to purchase properties at a fraction of the cost of Coastal Locations.  And they can receive substantially higher returns.

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  • Derrick Craig
    Memphis, TN · Member since 2013 · 969 posts · 524 votes
    10y

    @Matt Castillo

    Proper due diligence on market and PM will be key to your success in out of state investing

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  • Li Yin
    Investor · San Francisco, CA · Member since 2015 · 12 posts · 1 vote
    10y

    @Matt Castillo I also live in San Francisco Bay Area, and looking into out of State investing. I have been running numbers across major metro, cities and neighborhoods using Zillow data. It's a good place to start. And also cross referencing published lists of top real estate investment areas, I would say there are some areas that do keep pop up. 

    I am planning to dig deep into a few areas and investigate, meaning actually look at listings, analyze the numbers and talk to people in each area, which may take a while, because being out of State requires you to really study the area vs. knowing your neighborhood which is a given. In any case, my point is, I am happy to connect and discuss because I am sure we'll come across similar challenges.

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  • David Kyo
    Investor · San Mateo, CA · Member since 2015 · 43 posts · 24 votes
    10y

    As a fellow Californian I'm following the thread with interest.  Great info so far.

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  • Matt Castillo
    OP
    Dublin, CA · Member since 2015 · 6 posts · 1 vote
    10y

    @Ryan Landis I was looking into that area specifically because I lived there for 5 years and am somewhat familiar with the area. When I went to school there I was living in a 4 bedroom house that my friends parents had purchased for 180,000 and we were paying 1800 in rent per month total. So I guess that would be about 1%. Being from Northern California as well do you have any markets you would recommend I take a look at? I appreciate your reply!

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  • Matt Castillo
    OP
    Dublin, CA · Member since 2015 · 6 posts · 1 vote
    10y

    @Ali Boone thanks Ali that article did help and I will def be doing my research for the Midwest.

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  • Ryan Landis
    Residential Real Estate Broker · San Mateo, CA · Member since 2013 · 585 posts · 264 votes
    10y

    @Matt Castillo I have done well in Sac/Placer. I know there are people on BP that have also done well in the East Bay (Oakland/etc.)

    I was speaking with my property manager recently and she thinks the Sac market is a bit "wild" in terms of what things are selling for and what her owners are doing (i.e. selling/thinking about selling).

    Others I am sure can chime in on the cities/neighborhoods that surround the Bay (i.e. Vallejo, etc.). Again, the areas I am listing off you can drive to within ~1.5 hours so it just depends on what you want when thinking about how active/passive/etc. you want to be.

    Hopefully that helped. Something to think about is what cities get hit the hardest during down turns. Not that I am saying a correction is happening tomorrow, but real estate is cyclical so many will avoid cities where during downturns the rent stops coming in.

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  • Jo-Ann LapinPro Member
    Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
    10y

    What a loaded question. Remember those areas in AZ most likely you will rent to a younger perhaps college audience which means that they are real heavy on the subjects. Do you travel to that area a lot? Being an out of state investor does pose some challenges. If you have a good reserve account and are in this for the long haul and can buy at the right numbers then you  should be looking into that as an investment.

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  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    10y

    Awesome! Let me know if you need any help. I've been doing out-of-states a while and pretty up on market fundamentals and all that jazz.

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  • Dana Yobst
    Carrboro, NC · Member since 2015 · 29 posts · 4 votes
    10y

    Hi, I am new here and have read a lot of opinionated threads.  I am also from the bay and have pretty much decided to leverage a turn key company to invest out of state.  i know i could make more money doing it myself but i'm intimidated by the process and have little time to explore and research all the details of areas I don't know.  I'm looking at Chicago for multi-unit and memphis (more for single family).  I'm trying to figure out the best approach - use a turn key company that buys and rehabs and sells (advantages seem to be more assurance of product and cash flow; disadvantage seems to be paying such a premium upfront that there may be a loss when i sell) OR a company that does all the analysis and has property management (advantage - fair market price on property; disadvantage - i'm not getting much except a short cut in research and numbers crunching).   thoughts?

    the other main question i have is around cash flow versus appreciation. i'm looking for a safe stable investment and it seems cash flow is better for that since appreciation is an unknown.  Advice? 

    THANKS!

    1Reply
  • Douglas SkipworthBusiness Member
    Rental Property Investor · Memphis, TN · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    @Dana Yobst,

    I think you hit the nail on the head between (1) turnkeys and (2) turnkey alternatives.  You just have to decide what's most important to you.  The good news is there are lots of members on this site that will give you their opinion.

    Feel free to private message me for my $0.02.

    Best of luck to you!

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