Looking to invest out of state, need help

12 Replies

Hello everyone, I was hoping to get some general advice about how to pick a handful of cities to analyze for my first investment acquisition.

I have put together a small pool of investors and we have ~150k in seed capital.  However, due to the fact we all live in southern CA, that honestly wont get a whole lot even if we leverage it and the returns are so low most deals honestly dont make a lot of sense.

So we have decided to look out of state, but want to at least put some research and analysis into the decision.  I was hoping to get some ideas from some members here on what type of criteria would be most important.  My thoughts so far:

Population growth

Rent growth

Income growth

Employment growth

Any idea about other metrics and which would be the most useful for choosing a target metro region? Many thanks.

Ps. I already asset manage a small portfolio of about $3M in assets remotely so I do have a solid operational understanding of multifamily real estate, but this would be my first acquisition and first asset out of state so any advice or thoughts would be greatly appreciated.

@John Pearson

I recommend talking with an investor that has successfully invested in a similar fashion to the way your looking to go.  I have been investing out of state for close to a decade now and it's definitely pretty involved at times.  Having someone guide you initially will alleviate you from making certain mistakes especially since your dealing with other people's money, you want to mitigate the risk as much as possible.  Let me know if you have any questions.

@John Pearson - I am lost.Are  you are managing $3M assets remotely for others? I guess with that experience you should have answers to all the questions for OOS investment, if not don't risk money.

Good Luck

Vivek

Originally posted by @Vivek Khoche :

@John Pearson- I am lost.Are  you are managing $3M assets remotely for others? I guess with that experience you should have answers to all the questions for OOS investment, if not don't risk money.

Good Luck

Vivek

 I am lost from your response.  Why would someone with operations experience have all the answers to acquisition criteria?  Asset Management is not at all the same as Acquisitions.   

I am looking for advice on what macro level criteria people have found successful in choosing target markets.  Can you help me with that?  I don't need advice if it is worth it to risk money.

Originally posted by @Steve Kontos :

@John Pearson

I recommend talking with an investor that has successfully invested in a similar fashion to the way your looking to go.  I have been investing out of state for close to a decade now and it's definitely pretty involved at times.  Having someone guide you initially will alleviate you from making certain mistakes especially since your dealing with other people's money, you want to mitigate the risk as much as possible.  Let me know if you have any questions.

Thanks Steve, how did you initially determine what areas to look at when you decided to invest out of state?

Every time I hear "out of state investor", I just assume they're from Cali - the market here seems to make no sense anymore (and yes, I'm a Ca based OOSI too)

In general, ALL the major west coast cities are very overvalued right now - generally, purchases there would be speculation of future appreciate, rather than good reliable cash flow - that's gambling, not investing. Midwest, and south-east regions of the country are giving the best CCR now. There is a recent blog post on this topic:

https://www.biggerpockets.com/renewsblog/cities-rental-investingdata/

Here's what I look for, in the order of importance (to me anyway)

1) low crime

2) cities/town where you can find properties that will meet the 1% rule (monthly rents are at least 1% of the purchase price). Stick with C to B class areas (blue collar to lower middle-class people who take good care of their properties), you'l get the best return with the least headaches here. 

3) solid job growth, and a diverse economic base, i.e. you want lots of companies employing people, not an area where the lions share of jobs comes from a single sector or small handful of companies. 

4) good population growth

@John Pearson

I find the deals THEN I research the areas before I proceed.  There are various free web sites that tell you all about the area.

Originally posted by @Steve Kontos :

@John Pearson

I find the deals THEN I research the areas before I proceed.  There are various free web sites that tell you all about the area.

 Thanks Steve, but how can you analyze all deals if you are looking all over the country at once?  Don't you have to at least narrow down your geography  to a manageable level first?

I have access to CoStar and REIS through work, so I have excellent data analytics.  

Originally posted by @Ryan D. :

Here's what I look for, in the order of importance (to me anyway)

1) low crime

2) cities/town where you can find properties that will meet the 1% rule (monthly rents are at least 1% of the purchase price). Stick with C to B class areas (blue collar to lower middle-class people who take good care of their properties), you'l get the best return with the least headaches here. 

3) solid job growth, and a diverse economic base, i.e. you want lots of companies employing people, not an area where the lions share of jobs comes from a single sector or small handful of companies. 

4) good population growth

Thanks Ryan.  All of that makes sense. How are you sourcing your deals?  

@John Pearson

Great question.  For us we only go to landlord friendly states.  This already narrows the playing field down to just 8 states.  Then I pick 3 states that interest me most (this could be based on the economies, resources I have tied over there, etc.).

Hopefully that helps.

Originally posted by @John Pearson :
Originally posted by @Ryan D.:

Here's what I look for, in the order of importance (to me anyway)

1) low crime

2) cities/town where you can find properties that will meet the 1% rule (monthly rents are at least 1% of the purchase price). Stick with C to B class areas (blue collar to lower middle-class people who take good care of their properties), you'l get the best return with the least headaches here. 

3) solid job growth, and a diverse economic base, i.e. you want lots of companies employing people, not an area where the lions share of jobs comes from a single sector or small handful of companies. 

4) good population growth

Thanks Ryan.  All of that makes sense. How are you sourcing your deals?  

 @John Pearson I have found most of my OOS deals through online searches (Redfin & Loopnet), but I've been investing OOS of years & now have a decent network built up, so I'm getting more & more referrals through the network too. Investors generally own more than one property, so if they have one for sale, they may have others (not on market) that they are willing to sell. I've had luck in this area as well. In fact, one investor from whom I brought a 4plex in Florida has become a good resources for me, generating leads, contractor referrals, market info, etc. We had a very honest & clean transaction when I first bought from him, which he appreciated, and we made an effort to continue to grow this relationship. 

Updated 11 months ago

I also picked areas relatively close (withing few hours drive) to where my wife and I have family, so when we travel to see family, it can be combined with trips to see our properties, meet with our management team, have coffee with other folks in the network, etc.

Originally posted by @John Pearson :

So we have decided to look out of state, but want to at least put some research and analysis into the decision.  I was hoping to get some ideas from some members here on what type of criteria would be most important.

Hey John, 

Another option is to find someone that you will need as a team member, that is doing the kind of deals you would like, and ride their coat tails. Without trying to sound like I am self promoting I will use my experiences here on BP as an example. 

A few weeks ago I had someone from Washington (mind you, I am in Connecticut) reach out to me because they saw some of my posts here on Bigger Pockets. They thought I might be a good person to touch base with, considering they were contemplating new markets, and I am a realtor / property manager. We chatted for a bit, discussed their goals, and I felt like I could really help them out. Now, a few weeks later, we are under contract on a property that will yield the results they were looking for all along. 

To be quite frank, I haven't been doing this for a long while, however, most of my clients have found me through similar scenarios. 

Hope that provides a new angle for you to consider!

Filipe

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