Out of State, Pros and Cons

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Out of State, Pros and Cons

Robert Crossley
Newport Beach, CA 路 Member since 2017 路 29 posts 路 8 votes

(accidentally posted in general) 


So I would like to generate as much feedback as I can on this and I sincerely apologize if a lot of this has been covered in earlier posts. I am a newish investor in Southern California I have two Multi Family units out here and I want to expand my investments but the costs and cap rates here are prohibitive. Liquidity isn't really an issue as much as bang for my buck. I have done a lot of research into out of state markets but have held off due to some worries about management, lack of info, etc.

Could some of you with experience provide me with any feedback ranging from the best areas to look into, the best strategies (I am open to anything from more rentals to flips and beyond) and of course the possible pitfalls with out of state investing. Any insight on the best way to get started or turnkey companies you have used would also be greatly appreciated!

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David Faulkner
Investor 路 Orange County, CA 路 Member since 2015 路 2k+ posts 路 3k+ votes
9y

Pro: It is cheaper. Is this really a pro though? Does that necessarily mean the risk is lower? Does that necessarily mean you can make more money? Why exactly is it cheaper?

Pro: Higher day one cash faux.

Con: You need to hop on a plane (or long car drive) to visit your property, which leads to ...

Con: You are less familiar with the market.

Con: You are 100% dependent on complete strangers to make or break your investment for you and keep your best financial interests at heart above their own.

Con: Can't easily verify work is being completed in a quality or timely manner.

Con: If problems do arise, it will take you longer to find out and they will grow larger in that time.

Con: If something goes wrong that your team can't fix (or in all likelyhood caused) then it is harder to for you to step in to fix it, stabilize the asset, and recover.

Con: Lower appreciation and rent growth ... if you think this is speculative and not consistent, then review the last 50 years of price trends in the market you are in now vs the out of state market you are considering.

Con: Lower tenant quality. Typical tenants in SoCal have the finances such that in any other market they would likely be home owners ... I seriously doubt that this is the case in most out of state rental markets, unless perhaps you are looking in class A neighborhoods.

Con: You can't as easily or practically as a newbie buy under market value and force appreciation.

Con: You can't obtain favorable lending terms through house hacking.

Con: You have to pay everyone to do everything for you, which not only cuts into your profits but also robs you of learning the business hands on.

Con: Lots of cons ... con men and women telling you everything that you want to hear to sell you the dream and take your money. As an out of state investor, you put a huge target on your back for these kind of operators.

In summary, investing out of state is a fantastic idea ... you should totally do it.

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  • Matt R.
    Sherman Oaks, CA 路 Member since 2013 路 3k+ posts 路 2k+ votes
    9y

    I don't mean to be the dream stealer here. Most Rei should pretty solid moving forward but I do see many TK sellers selling bottom of the barrel stuff and that bothers me. Getting back to returns Pasadena vs turnkeys...Do yourself an investor flavor and compare these numbers 5 years (60 months) vs one month as most these tk sellers try to BS you. 

    I won't mention how rents doubled same time...or I just did my bad馃槉

    1Reply
  • Matt R.
    Sherman Oaks, CA 路 Member since 2013 路 3k+ posts 路 2k+ votes
    9y
    Originally posted by @Michelle Mapp:

    Matt R.   That may be the case but to assume that everyone can invest in Pasadena or Southern California is a bit extreme or to assume that they can take the negative cash flow while waiting on the appreciation.  I don't disagree with you that if your game is appreciation and you have the capital on hand to buy in Southern California then some of the smaller markets would not make sense.  But luckily there is room for everyone in real estate and there is no one way to accomplish your goals!  

     Fosho Michelle, it is no casual stuff out here. We are talking thousands of dollars or hundreds of thousands. The competition is warranted. Good luck finding a motivated seller willing to forgo profits although 1 out of 500 it happens still. 

    0Reply
  • Raluca G.
    Boston, MA 路 Member since 2017 路 26 posts 路 2 votes
    9y

    What is the property management company wants to run the numbers for you? I would want to run my own. Can I do that? If I tell them that this is how I prefer to do it?

    0Reply
  • Tim Ryan
    Investor / Mentor / Contractor 路 Arcadia, CA Buying Out of State 路 Member since 2015 路 654 posts 路 622 votes
    9y
    Robert Crossley good question. I only buy multifamily out of state and I live in the Pasadena area. So much to say here. Maybe let's connect and discuss further by email or in person. David Faulkner has so many "Cons" on his posts - which are all real. But I have been successful in answering and solving all of them. I would not change the way I live in LA and invest thousands of miles away...
    2Reply
  • Matt R.
    Sherman Oaks, CA 路 Member since 2013 路 3k+ posts 路 2k+ votes
    9y

    See below

    0Reply
  • Matt R.
    Sherman Oaks, CA 路 Member since 2013 路 3k+ posts 路 2k+ votes
    9y
    Originally posted by @Tim Ryan:

    Robert Crossley good question. I only buy multifamily out of state and I live in the Pasadena area. So much to say here. Maybe let's connect and discuss further by email or in person. David Faulkner has so many "Cons" on his posts - which are all real. But I have been successful in answering and solving all of them. I would not change the way I live in LA and invest thousands of miles away...

     The dude I know who can pull this off works for every penny times 10. If that is not you...that's amazing and congrats! Getting David to divert one red cent would be more amazing. 

    0Reply
  • Tim Ryan
    Investor / Mentor / Contractor 路 Arcadia, CA Buying Out of State 路 Member since 2015 路 654 posts 路 622 votes
    9y
    Matt R. If I understand you, your post is saying it's an enormous amount of work to pull off "out of state" successful investing. And... you nailed it. That's my "secret formula". There is no alternative. So those not able or willing to work hard (and travel often) should not try it. And BP Posters should not tell them they can by Listening to Podcasts and asking a few questions. Lol, now I'm getting pessimistic like David Faulkner ! Many ways to make money in RE. I do several. This post was about out of state and multifamily which is something I know everything about. So, if you want Easy and Passive, this is not it. Unless you do TurnKey (TK) which I won't recommend.
    2Reply
  • Matt R.
    Sherman Oaks, CA 路 Member since 2013 路 3k+ posts 路 2k+ votes
    9y
    Originally posted by @Tim Ryan:

    Matt R. If I understand you, your post is saying it's an enormous amount of work to pull off "out of state" successful investing.
    And... you nailed it. That's my "secret formula". There is no alternative. So those not able or willing to work hard (and travel often) should not try it. And BP Posters should not tell them they can by Listening to Podcasts and asking a few questions.
    Lol, now I'm getting pessimistic like David Faulkner !
    Many ways to make money in RE. I do several. This post was about out of state and multifamily which is something I know everything about. So, if you want Easy and Passive, this is not it. Unless you do TurnKey (TK) which I won't recommend.

     Right on, anythings possible. Davids been around that investment out of state block. I can paypal you $100 if he parts with a penny. Good luck! 

    1Reply
  • Tim Ryan
    Investor / Mentor / Contractor 路 Arcadia, CA Buying Out of State 路 Member since 2015 路 654 posts 路 622 votes
    9y
    Matt R. Haha, ok but I don't need Davids money nor do I ever convince someone to do anything.
    1Reply
  • George P.
    Property Manager 路 Livonia, MI 路 Member since 2011 路 4k+ posts 路 1k+ votes
    9y

    Out of state is great until it's not.  Then u lose your mind and your shirt.  He's right.... Just one pro and a book worth of cons! 

    1Reply
  • Matt R.
    Sherman Oaks, CA 路 Member since 2013 路 3k+ posts 路 2k+ votes
    9y
    Originally posted by @Tim Ryan:

    Matt R. Haha, ok but I don't need Davids money nor do I ever convince someone to do anything.

     Fosho, I am glad it worked out better for you. It is always possible to beat the odds. 

    0Reply
  • Rhett TullisBusiness Member
    Property Manager 路 Oklahoma City, OK 路 Member since 2013 路 1k+ posts 路 617 votes
    9y

    now I don't guarantee these stats are correct, they are from neighborhoodscout but if you look back to 1990 we have pasadena beat, if you look at 10 years we win again if you look at 5 years you win.  I guess the issues I see are this.

    -LA metro is more volatile that OKC (or input other smaller cities) it has a great upside but a huge downside when prices move.

    -Lots of upside potential and downside (last house I sold in pasadena went for 500k it is currently valued at around 350k per zillow so buyers are in a bad spot now)

    -there is also the underlying assumption that the market of (input the large city you like) will be able to keep going up.  It seems that this cannot hold though when so much of ones income goes to buying a home, i have seen stats of 40% needed for LA and around 11% in OKC.  (makes me recall scenes from The Big Short) 

    -so if appreciation is about the same, cash flow is higher and cost of entry is lower what then?

    -also I can spread my 500k between 25 to 40 properties here whereas it is in maybe 5 there?

    again I have been a buy and hold person in both markets and see good in both but just trying to see both sides of things.  

    -i too agree though that out of state investing is very difficult which is why i do not do it but i am just comparing these 2 markets.  

    -i did see someone recently that said they live in LA and stay in another town they invest in for a week or so a month.  at the prices of some smaller cities this is totally doable if you are in investing full time.

    [email protected]405-283-6522
    Integrity Oklahoma
    WebsiteView Page
    3Reply
  • John Kunick
    Investor 路 Broken Arrow, OK 路 Member since 2016 路 210 posts 路 314 votes
    9y

    I am not trying to discourage any investors/investments. Only think you should look at any/every deal and evaluate vs. your goals. For long-term ROI investors, the OK market is just hard to beat because the cap rate is so low and the laws favor landlords.

    1Reply
  • John Kunick
    Investor 路 Broken Arrow, OK 路 Member since 2016 路 210 posts 路 314 votes
    9y

    BTW, and I admit this up front, I'm not considering appreciation and this is buy and hold.  But, I know a lot of CA and FL investors that lost everything when the housing market crashed.  That did not happen in OK.  The appreciation is more modest - as are the risks.

    3Reply
  • Michael Lee
    Investor 路 Coppell, TX 路 Member since 2008 路 2k+ posts 路 646 votes
    9y

    Hello and welcome to PB?  You have comfort with a TK offerer. How long have they been doing it?  Domtheymprovide the customer service and is it good.  Do they fix it right the first time?  What is thought about that location in the future. Don't ou have an occupied unit when you purchased?  Does the property manager keep you informed?  Do they keep you informed about any or big problems that are expensive?  All being good answers will reduce your traveling there. Do you get positive cash flow when ptrdicted?  I would recommend Mempis Investments or Mack Investments to do business out of state.  Do not get mislead by promises.  

    Good luck to you!

    0Reply
  • Gary Swank
    Real Estate Agent 路 Pittsburgh, PA 路 Member since 2014 路 821 posts 路 255 votes
    9y

    @Robert Crossley Hi Robert. I have seen many of my clients invest in Pittsburgh PA because of the affordable housing it offers combined with a solid return on investment. Perhaps the hardest things that out of town investors have to overcome is that fear that you are not close to the action or that you don't know that city's potential well enough to invest in it. And that is totally understandable. Surrounding yourself with strong people with proven track records in the areas you are interested in investing is key. So interview people in those markets, reach out and get recommendations from Biggerpockets members or from other means. And above all else, do your research and crunch the numbers. No one ever said you had to do it alone. We are all here to help.....I wish you the best in expanding your portfolio.....Gary

    1Reply
  • David Faulkner
    Investor 路 Orange County, CA 路 Member since 2015 路 2k+ posts 路 3k+ votes
    9y

    You can cherry pick time periods where appreciation is about the same, but no way, no how, is the appreciation about the same or even the same ball park over the long haul (which is the time frame that a B&H investor should care about). If this were true, then the cost of entry would be about the same ...

    The logic keeps getting more twisted ... kinda like saying tenant quality is higher is not a fair comparison because tenants in CA make way more money than they do in other states. That kind of twisted logic ...

    To volatility ... yes there is high volatility of prices, and I love it! It allows me to get in at bargain basement prices every 10 years or so and achieve more than double the high long term average appreciation rates while it recovers.

    To cash flow ... day 1 cash flow is not the same as cash flow over the long haul (which again is the timeframe that b&h investors should care about) ... rent growth and capex (which is higher as a percentage of cash flow and property values for lower price points) need to also be considered.

    ...and still nobody has even attempted to come with sensible rebute to the many other cons listed ...

    Do NOT misunderstand me ... I am NOT saying that Oklahoma City or any other out of state market is a bad market ... by all accounts it looks like a great market for locals to invest. This is ultimately not a discussion of which market is better IMO. What I am saying is that it is worse for some things and better for others, but the things it is better for get absolutely trumped by the cons encountered from investing from a distance.

    0Reply
  • Account Closed
    Investor 路 West Los Angeles, CA 路 Member since 2014 路 230 posts 路 239 votes
    9y

    @Robert Crossley

    Disclaimer: I have nothing to sell you

    So you just put a major target on your back for every turnkey marketer or someone looking to fund their crappy deal with your money.  Hence the "call me & let's chat".  What it really means is how can I get your money as quickly and easily as possible.  

    So to your question yes you can make money out of state.  I know an investor who does.  It goes like this:  he studies the market inside and out.  He hops on a plane to view the properties in person and meet with his trusted broker.  After all due diligence checks out which he does himself not relying on others opinion,  he writes a check for 25MM buys a commercial building.  You see investing out of state is an advanced strategy not a beginner strategy as every bp poster with something to sell you wants to have you believe.  Does the above investor buy in Los Angeles? Absolutely!  

    I invest in my back yard.  So far I found it beats the pants off out of state cash faux.  Reread @David Faulkner post.  Then get together with local investors and make deals happen.  You've already done it twice you can do it again.

    Good luck

    1Reply
  • Robert Crossley
    OP
    Newport Beach, CA 路 Member since 2017 路 29 posts 路 8 votes
    9y
    Thanks Jeanette Adler . Full disclosure, I don't respond to call me let's chat posts :) I made this post simply for feedback and the expertise of other in and out of state investors. If and when I decide to work with somebody it's usually a result of me liking something they said and contacting them personally and after that if something looks good I'll start an in depth diligence process.
    0Reply
  • Robert Crossley
    OP
    Newport Beach, CA 路 Member since 2017 路 29 posts 路 8 votes
    9y
    Also my version of out of state investing may be very different from others. I have a very fluid schedule as I own my own business and have thankfully racked up 2 million + miles on my Amex. So I have the ability to travel as much as possible at very little upfront cost (although I suppose not using the miles for other things could be considered a cost). OOS investing for me wouldn't be a matter of looking at something online and cutting someone a check, it would be more about finding an area I really really like, doing exhaustive research on any possible partners I'd considering working with and spending a considerable amount of time in that area vetting projects in people. I know that doesn't cut out all risks but I do feel like it helps
    0Reply
  • David Faulkner
    Investor 路 Orange County, CA 路 Member since 2015 路 2k+ posts 路 3k+ votes
    9y
    Originally posted by @Robert Crossley:

    Also my version of out of state investing may be very different from others. I have a very fluid schedule as I own my own business and have thankfully racked up 2 million + miles on my Amex. So I have the ability to travel as much as possible at very little upfront cost (although I suppose not using the miles for other things could be considered a cost). OOS investing for me wouldn't be a matter of looking at something online and cutting someone a check, it would be more about finding an area I really really like, doing exhaustive research on any possible partners I'd considering working with and spending a considerable amount of time in that area vetting projects in people. I know that doesn't cut out all risks but I do feel like it helps

    Investing with a multifamily apartment syndication may be a better option for you ... I still think that staying local is a better bet for all the reasons previously mentioned, but if you ultimately disagree and invest out of state it is a better model IMO. You would still need to do all of the hands on due diligence you describe, and if you talk with the provider they may perhaps let you "ride shotgun" on the deal to learn as you invest. This buys you scale with somebody with experience doing it, and if the private placement is constructed properly the provider's financial interests should be much better aligned with yours as an investor, whereas with a realtor, contractors, PMs, etc. out of state it is possible for them to make more money even as you the investor lose your behind on the deal. You will still give up control and there are still plenty of risks and you still can lose a bunch of money investing in apartment syndications, of course

    1Reply
  • Tom Ott
    Equity Raiser and Turnkey Provider 路 Cleveland, OH 路 Member since 2016 路 4k+ posts 路 1k+ votes
    9y
    Originally posted by @Robert Crossley:

    (accidentally posted in general) 


    So I would like to generate as much feedback as I can on this and I sincerely apologize if a lot of this has been covered in earlier posts. I am a newish investor in Southern California I have two Multi Family units out here and I want to expand my investments but the costs and cap rates here are prohibitive. Liquidity isn't really an issue as much as bang for my buck. I have done a lot of research into out of state markets but have held off due to some worries about management, lack of info, etc.

    Could some of you with experience provide me with any feedback ranging from the best areas to look into, the best strategies (I am open to anything from more rentals to flips and beyond) and of course the possible pitfalls with out of state investing. Any insight on the best way to get started or turnkey companies you have used would also be greatly appreciated!

    Well best of luck to you with your out of state investing! When you live in a market that does not generate enough ROI than investing in markets with much better returns is a great idea. Thee are many different markets out there to get started in.

    Please look at:

    The Best Types of Markets for Profitable Turnkey Properties

    That might help you out more. 

    0Reply
  • Sara Cunningham
    Investor 路 Chesapeake Beach, MD 路 Member since 2013 路 273 posts 路 37 votes
    9y

    Firstly I must admit I work with Rhett Tullis personally. He happens to be my Property Manager. I am a long distance investor who lives in D.C. and in Italy prior to that. Having a great Property Manager is the secret for me. I worked with a company previously that were OK but not great. Integrity do a really good job. I also met Rhett through Bigger Pockets. 

    This the other point I wanted to make was I started investing while still living in that market so knew all the neighborhoods well. I am a buy and hold investor since in my opinion that market doesn't have a lot of appreciation. I buy blue collar 3 bed 1 bath and I have certainly had a lot of ups and downs but it's worth it to me. It's not my main income but it will be part of my retirement income. Just my two cents

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