Intro + Out-Of-State Investing

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Intro + Out-Of-State Investing

Mark Grozen-Smith
Investor · San Francisco, CA · Member since 2017 · 39 posts · 9 votes

Hi! 

I'm pretty new here and just getting into the industry. After listening to dozens of hours of the podcast and reading a couple books, I think it's time for me to get to work! 

While keeping my day job, I'm aiming to get a side business going with a couple multifamily properties, ideally all in the same area. The challenge is, I live in San Francisco and, while I have a good amount saved up, it doesn't seem very feasible to get great numbers out of this area. 

At this point, I'm looking in Austin Texas because I have a friend from there who knows the area pretty well. It seems to be a rising city that's still in my price range. But I wanted to post here and ask what people's thoughts are on this plan. I'm starting research now, I intend to visit so I can get some boots on the ground experience with the neighborhoods, and then I want to start getting to know an agent or two so I can get a market ally and an inflow of deals.

What are the major challenges I'm signing up for by starting with out-of-state investing? Does anyone have strong opinions on any parts of Austin, particularly with respect to multifamilies? What would you say are my first steps to getting more ready for investing here?

Thanks! Happy Monday,

Mark

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Andrew Johnson
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
8y

@Mark Grozen-Smith So a couple of thoughts, neither good nor bad, just to consider:

1.) I invest out-of-state and believe that you have to visit your properties.  Both when you buy them and periodically just to see how things are going.  I, personally, wouldn't outsource this to anyone else.  I use a PM but I still go and visit, kind of like "trust but verify" just for real estate.

2.) You're trading one "super hot market" for another in my opinion.  Austin, Seattle, Nashville, Denver, etc. are all in the same boat.  The main caveat is that the entry cost is lower in Austin than San Francisco.  But to know which is "better" you'll probably have to further define what "get great numbers" means to you.  Is it cash-flow?  Is it potential for appreciation?

3.) Texas pseudo-trades no state income tax for high(er) property taxes.  If you're an out of state investor you don't get the benefit of not paying state income tax but you're still on the hook for the high property taxes.  And unlike California there's no Prop 13 and Texas is pretty aggressive about reassessing property taxes.

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Mark Grozen-Smith I went t school a couple hours from Austin and can confirm it’s a rising city, with a lot of demand. The main reason I’m replying though is I started as an out of state investor and continue to plan on buying out of state. The fact of the matter is my dollar goes a lot further out of state than locally. I chose the Memphis and Cleveland markets but that’s just me. The main disadvantages you have out of state is you need good systems and people you trust. The first property I bought was turnkey and the second wasn’t. I’d recommend going to go see the property you buy but after a while that’s probably not necessary. Biggest thing about investing out of state is your systems and a good property manager. Pm me if you want to talk more
    4Reply
  • Tom Ott
    Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
    8y
    Originally posted by @Mark Grozen-Smith:

    Hi! 

    I'm pretty new here and just getting into the industry. After listening to dozens of hours of the podcast and reading a couple books, I think it's time for me to get to work! 

    While keeping my day job, I'm aiming to get a side business going with a couple multifamily properties, ideally all in the same area. The challenge is, I live in San Francisco and, while I have a good amount saved up, it doesn't seem very feasible to get great numbers out of this area. 

    At this point, I'm looking in Austin Texas because I have a friend from there who knows the area pretty well. It seems to be a rising city that's still in my price range. But I wanted to post here and ask what people's thoughts are on this plan. I'm starting research now, I intend to visit so I can get some boots on the ground experience with the neighborhoods, and then I want to start getting to know an agent or two so I can get a market ally and an inflow of deals.

    What are the major challenges I'm signing up for by starting with out-of-state investing? Does anyone have strong opinions on any parts of Austin, particularly with respect to multifamilies? What would you say are my first steps to getting more ready for investing here?

    Thanks! Happy Monday,

    Mark

    Welcome to the world of REI! Investing out of state is a great option for people in live in markets such as CA. There are a lot of markets around the country where you can get an amazing ROI!

    Best of luck to you!

    0Reply
  • Mark Grozen-Smith
    OP
    Investor · San Francisco, CA · Member since 2017 · 39 posts · 9 votes
    8y

    Thanks Tom & Caleb! Love the support!

    1Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    8y

    @Mark Grozen-Smith So a couple of thoughts, neither good nor bad, just to consider:

    1.) I invest out-of-state and believe that you have to visit your properties.  Both when you buy them and periodically just to see how things are going.  I, personally, wouldn't outsource this to anyone else.  I use a PM but I still go and visit, kind of like "trust but verify" just for real estate.

    2.) You're trading one "super hot market" for another in my opinion.  Austin, Seattle, Nashville, Denver, etc. are all in the same boat.  The main caveat is that the entry cost is lower in Austin than San Francisco.  But to know which is "better" you'll probably have to further define what "get great numbers" means to you.  Is it cash-flow?  Is it potential for appreciation?

    3.) Texas pseudo-trades no state income tax for high(er) property taxes.  If you're an out of state investor you don't get the benefit of not paying state income tax but you're still on the hook for the high property taxes.  And unlike California there's no Prop 13 and Texas is pretty aggressive about reassessing property taxes.

    5Reply
  • Jennifer Slaughter
    Real Estate Agent · Fort Collins, CO · Member since 2016 · 246 posts · 142 votes
    8y

    Welcome @Mark Grozen-Smith! Challenges investing out of state can easily be overcome by setting up expert teams to care for all aspects of your investment.  Once you have narrowed down to a couple markets and you've analyzed enough properties to know that your expected returns are feasible, you can start putting together a team.  When you are interviewing professionals, talk about your "why" and share your goals, make sure you are a good fit and these potential team members can grow with you.

    I have set up teams in different markets, feel free to PM if you want to talk more in depth.

    What part of SF are you in? I grew up in the Bay and I'm going back next week for the holiday.

    2Reply
  • Mark Grozen-Smith
    OP
    Investor · San Francisco, CA · Member since 2017 · 39 posts · 9 votes
    8y

    @Jennifer Slaughter Definitely good advice. Getting a good team together is common theme I'm seeing in my research haha. 

    I live around Noe Valley but work down in South Bay (I said I work in tech right? haha). Love this area, but don't love the prices as you can expect!

    1Reply
  • Mark Grozen-Smith
    OP
    Investor · San Francisco, CA · Member since 2017 · 39 posts · 9 votes
    8y

    @Andrew Johnson This is definitely what I intend to do. Visiting before buying at least for my first few properties, hiring PM, and checking in for myself every 6-12 months! 

    Your mention of the property taxes and "hot market for hot market swap" is a good point.... I guess the hot market  feels like security that the market won't fall out from under me, Austin will always have pretty high demand. And the lower price point means I can afford 20% this year.

    I'm definitely looking for cash flow - modest flow is fine, just not losses - and mortgage pay down. I don't wanna get into appreciation because that feels like a good way for me to lose my shirt! There's enough bitcoin to go around if I want to speculate.

    0Reply
  • Steve Kontos
    Investor · Great Neck, NY · Member since 2016 · 679 posts · 467 votes
    8y

    @Mark Grozen-Smith

    You have received some great advice from everyone here so far. I have been investing out of state for a decade now and the one thing I would add to all the comments is that you should probably go to some local REI meetings and try to shadow someone who has successfully invested out of state already. I say this because it's good to dip one foot in first before just jumping in.

    3Reply
  • Jennifer Slaughter
    Real Estate Agent · Fort Collins, CO · Member since 2016 · 246 posts · 142 votes
    8y

    @Steve Kontos, I think that is great advice.  I'm always really impressed when new or hopeful investors show up and ask questions.  It is amazing how you can learn and grow with a bit of humility.

    1Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    8y

    Hey Mark! Well one thing to know, regardless of whether you buy locally or non-locally....are the numbers. Austin hasn't offered much in terms of cash flow for quite a while, so you may have to dig deep to possibly find something. So keep the numbers in mind.

    For general out-of-state stuff, it all just depends on how you do it. This is a super old article, but still outlines the basics-

    https://www.biggerpockets.com/renewsblog/2012/12/2...

    So figure out how you want to do it, then analyze numbers and choose the market, then dive in.

    Not sure that helps, but good luck!

    0Reply
  • Mark Grozen-Smith
    OP
    Investor · San Francisco, CA · Member since 2017 · 39 posts · 9 votes
    8y

    @Steve Kontos That's a really good idea. Finding someone in person I can learn from would definitely be good. I'll try to find a REIA around here I guess!

    @Ali Boone I haven't gotten deep enough into the numbers to see a lack of cash flow. That's not great news...but I guess I'll look at it and look around! If I can't find anything reliably in the black, I'll have to look elsewhere. 

    Thank you both for your suggestions!

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    8y

    Keep me posted! I'd love to buy in Austin if anything had numbers that work. Just haven't heard of anything.

    0Reply
  • Jason Carter
    Rental Property Investor · Culver City, CA · Member since 2012 · 403 posts · 246 votes
    8y

    Hey @Mark Grozen-Smith, I was just in Austin last weekend. Ali's right, cashflow is very hard to find in the city but you might find something in the suburbs/surrounding towns. There's crazy construction going on in a lot of the outlying areas. There's really construction everywhere you turn in Austin or so it seemed. I haven't shopped there in years, but you may find something a little further out. If you need a good property manager there, let me know.  

    0Reply
  • Mark Grozen-Smith
    OP
    Investor · San Francisco, CA · Member since 2017 · 39 posts · 9 votes
    8y
    @Ali Boone (can you really not tag from mobile?). What do you interpret as cash flow? Is there really a challenge in finding positive cash flow at all? Or are you thinking above a certain threshold? Same question to you Jason! Appreciate your support folks :)
    0Reply
  • Mark Grozen-Smith
    OP
    Investor · San Francisco, CA · Member since 2017 · 39 posts · 9 votes
    8y
    Haha just noticed you’re both from LA! You’re probably experts in out-of-town investing!
    0Reply
  • Kevin Kite
    Investor · Los Angeles, CA · Member since 2016 · 69 posts · 46 votes
    8y

    Hi @Mark Grozen-Smith,

    I feel your pain.  I was living in LA (Calabasas) and started investing in Kansas City because of entry price point.  Eventually LA wasn't worth the cost of living so I took a transfer with my job and specifically targeted Austin for real estate.  Ever since I have stopped investing in KC to actually do something where I lived.

    I have learned a few things since moving here.

    1.  Although the Midwest has great cash-flow, you can make more money through appreciation (run your numbers).

    2.  When you invest for appreciation its a greater risk.  If the market turns you are stuck upside down with negative cash-flow.

    3.  Considering #1 and #2, I don't see Austin slowing down anytime soon.  I believe around 125 people move here daily and its a hot bed for Tech companies, start ups and other businesses.  The City is fun and has appeal to boot.  So I would consider Austin a safer appreciation bet.

    I still own my Kansas City properties and have no plans on selling but I am planning all of my future in Austin.  If you still want the cash flow in the Austin area you can find it in the suburbs but the appreciation is not near as great.

    If you need help getting started here feel free to reach out... and good luck in whatever you decide!

    1Reply
  • Mark Grozen-Smith
    OP
    Investor · San Francisco, CA · Member since 2017 · 39 posts · 9 votes
    8y

    @Kevin Kite, I think you're making sense, so it's a trade off really. I'm only 23, so building wealth in (hopefully appreciating) equity isn't a bad play. 

    Thanks for your input. You are exactly who I need to learn from! This platform is really great.

    1Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    8y

    Hi Mark, I wrote an article a while back on out-of-state investing that you might find helpful: https://www.biggerpockets.com/renewsblog/2014/12/23/investing-out-of-state-essential-items-to-vet/

    Podcast Guest on Show #121
    1Reply
  • Charlie BrownPro Member
    Real Estate Agent · San Francisco, CA · Member since 2016 · 39 posts · 17 votes
    8y

    Hey Mark,

    Here are some good Local Bay Area REI Groups that I can recommend.

    Virtual Investors Group (VIG) | SF Real Estate Investors (tends to focus on out-of-state investing)

    BAWB - Real Estate Buying & Investing  (local buy/sell focus, but great speakers with various topics)

    Bay Area Real Estate Moguls (local multifamily investing)

    I understand wanting to look out of state as well and you've received some great advice here on this thread. There is a wealth of information on this site, but it comes down to some simple questions: 

    What is your goal?

    What is your HOLD time horizon?

    How much work/involvement do you want to commit? (Not Acquiring the property, but Ongoing) 

    I'm happy to have a conversation via phone or a coffee meet sometime to give you my perspective as well.

    Charlie

    0Reply
  • Mark Grozen-Smith
    OP
    Investor · San Francisco, CA · Member since 2017 · 39 posts · 9 votes
    8y

    @Andrew Syrios Great article. It really seems pivotal to have a solid core team to work with. Not surprising! But great to know how important that really is

    @Charlie Brown Thanks so much! I joined all of those and I'll show up at an event soon. Can't make it on Thursday, but next month's meeting hopefully!

    0Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    8y
    Originally posted by @Mark Grozen-Smith:

    @Andrew Syrios Great article. It really seems pivotal to have a solid core team to work with. Not surprising! But great to know how important that really is

    @Charlie Brown Thanks so much! I joined all of those and I'll show up at an event soon. Can't make it on Thursday, but next month's meeting hopefully!

     Thanks Mark. Yeah, the keys are the core team but also where you're buying. Some areas look better than they actually are, so make sure you're not buying in a war zone.

    Podcast Guest on Show #121
    1Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    8y

    @Mark Grozen-Smith Although cash flow is better in Austin than CA, it's not great. Austin, like Dallas has a booming economy with great job and population growth, however, that doesn't necessarily translate to a good market for rentals. The problem with TX markets is that Texas property taxes and insurance is among the highest in the nation hits your cash flow hard. Unless a market fits your objective goals, I wouldn't choose one just because you have a friend their that knows the areas. That doesn't do you a lot of good if those area's don't cash flow well. For cash flow, you can do much better in some of the midwest markets like Indianapolis and Kansas City. They might not be booming like Austin, but both do have good population and job growth combined with low prices, strong rents and more favorable taxes and insurance rates. You might want to check them out.

    0Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    8y

    I like Minneapolis because we have decent cashflow, a good job market and reasonable expenses.

    [email protected]512-888-9122
    The Moorhead Team5142 Reviews
    WebsiteView Page
    0Reply
  • Jody SchnurrenbergerPro Member
    Investor · Asheville, NC · Member since 2017 · 506 posts · 404 votes
    8y

    @Mark Grozen-Smith, WELCOME TO BP!  I hope you learn lots and stay long.  :-)  You've got some great advice on here and I plan to read those blog posts, myself.  ;-)  

    Two things I'd add is when you are checking on your properties, 1. bring a notebook to take notes on needed repairs and other such things and then 2. repeatedly call your PM to ensure they get done.  I have one of the best PMs in my city (in AL where I'm now an OOS investor), but they still slack around sometimes.  I'll call several times over several months sometimes before something is completed.  My city is smaller, so we don't have a ton of PMs to pick from, but just saying, stay on them to ensure things get done.  

    0Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    8y
    Mark Grozen-Smith I started investing in 2009 in seattle which is similar to Austin because they get a lot of the SF overflow tech jobs. Not much cashflow there but great market. You are not going to cashflow in any class a b c+ area in the west coast.
    0Reply
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