Building a Rental Portfolio Out of State

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Building a Rental Portfolio Out of State

Jagpreet Singh
Queens Village, NY · Member since 2017 · 19 posts · 25 votes

Hello Bigger Pockets Community,

I’ve posted on here before regarding this same topic but due to personal matters, I had to delay the process. However, I am here now and ready to make a move!

Objective: To purchase out of state rental property(ies). I live In NYC and the home prices here are insane. Buying out of state will allow me to have a good price point entry and be able to see decent returns. Specifically, the type of location I’m looking into is up and coming cities, younger population, strong work force, good rental market, and in solid areas. Not looking for gamble purchases, yet. Maybe one day I can get into flipping houses but that is down the line.

Financials: I have about 45k to put down, very good credit. Ideally, I would rather have a renovated property so I can literally just buy and put on the market to rent and create passive income. I would have to hire a rental management company to take care of the place since I live in NY, such as rent collection, evictions, repairs, etc. Once the property is bought, I will be trying to visit the city more often and check up on my investments.

Timeline: Not rushing this but ideally I’d like to have an investment within the year, preferably 6 months.

Can anyone guide me along the process on how I can get started in going after this goal? First step, second step, etc. Last time I posted, I seemed to get a lot of agents from various cities. I’m open to hearing any tips that fit my goals listed above.

Thanks

3Reply
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David K.
Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes
8y

@Jagpreet Singh, I have invested into 5 properties in 2017, doing exactly what you are looking to do.

It is easier than you think - find a reliable TK provider and off you go.

The only caveat to remember is that once you exhausted your 45K, what is next? 45K will be enough for down-payments for 2 single-fam houses. Expect each of the houses to generate about $150-200 per month for you if all goes well. 

What is your long-term strategy? If you are looking to "park" extra 45k somewhere to generate some extra passive income and that is all then it is easy and ok, but if you want to continue building and growing then you need to consider this..

Good Luck! 

5Reply
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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Jagpreet Singh basically what you’re describing is a turnkey company. Someone who buys, rehabs and then sells the property to you while staying on after the transaction to be the PM. You can go this route (I have) but you will pay a bit of a premium for it. 45k gets you 2 or so properties in a lot of these markets. The other thing you can do is simply find a local agent, buy a property and hire a local PM. I’ve done this to but it’s more time intensive. Popular markets for this sort of thing are Cleveland, Milwaukee, Indianapolis, Memphis Jacksonville etc. I’m in Memphis and Cleveland.
    4Reply
  • Cornel Smith
    Real Estate Agent · Queens Village, NY · Member since 2017 · 91 posts · 57 votes
    8y

    @Shawn Ackerman

    2Reply
  • Shawn AckermanPro Member
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    8y

    @Cornel Smith Thank you for the alert boss!!  @Jagpreet Singh I am also based out of NY and invest strictly OOS in the mid-west.  PM and I can share a bit about what we do.  Also @Steve Kontos Is local to NYC and invest strictly OOS. All the best on your REI journey!!!

    4Reply
  • David K.
    Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes
    8y

    @Jagpreet Singh, I have invested into 5 properties in 2017, doing exactly what you are looking to do.

    It is easier than you think - find a reliable TK provider and off you go.

    The only caveat to remember is that once you exhausted your 45K, what is next? 45K will be enough for down-payments for 2 single-fam houses. Expect each of the houses to generate about $150-200 per month for you if all goes well. 

    What is your long-term strategy? If you are looking to "park" extra 45k somewhere to generate some extra passive income and that is all then it is easy and ok, but if you want to continue building and growing then you need to consider this..

    Good Luck! 

    5Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    8y

    @Jagpreet Singh I'm sure you've heard lots of reasons why you shouldn't buy out of state but when you live in a high cost market like you do, you don't have a choice if your goal is cash flow. Researching markets at a macro level is easy. You'll want to look at population growth, job growth and incomes in several metro markets. This info is readily available through the U.S. Census Bureau and Bureau of Labor Statistics. The American Fact Finder through the Census Bureau is a good tool. It can be very difficult for a beginner to manage a rehab out of state so you probably want to consider working with a reputable turn key company. Most of the risks associated with out of state investing are risks that you have locally. The one risk unique to out of state is not knowing the neighborhoods. The biggest mistake I see out of state investors make is not knowing the neighborhoods and buying in bad areas. This can easily be mitigated however by working with reputable people, visiting the market and understanding prices and rents in the area. If median rents in a decent area that fits your criteria are $900 and something rents for $650 i's a pretty good indication of what kind of area it is. If your goal is cash flow then you probably want to focus on the Midwest. I like Indianapolis and Kansas City in particular. Feel free to reach out if I can help.

    3Reply
  • Ross Denman
    Real Estate Consultant · Whitestown, IN · Member since 2014 · 549 posts · 933 votes
    8y

    TK companies are a good way to go, especially if you need immediate cash flow and can't handle any holding costs. Most of my clients prefer capturing equity though and TK companies keep all of the immediate equity.

    What about purchasing vacant homes in good condition that are being sold a little under market. Here are a couple that literally crossed my desk last week. I'm not advertising them as I am sure that they will be gone in the next few days, but you can check out the addresses and do some due diligence to see what kind of opportunities that I am talking about.

    MLS# 21542389 - 4 Days on Market

    Warren Township - 10th St and German Church area (B- Area)

    10832 Tealpoint Dr - 3/2.5/1468/2 CATG/ Built 1997 - Rent range of $1,100-$1,250

    Asking price - $98.9k

    This house starts making sense if you can be all in around $93k and finance with 20% down.

    MLS# 21542123 - 5 Days on Market

    Warren Township - 38th and German Church area (C+ Area)

    3662 Rock Maple Dr - 3/2/1296/2 CATG/ Built 1996 - Rent Range $950-$1,100

    Asking price $94.9k

    This house starts making sense around $89k with 20% down for financing.

    These properties should yield 10%-15% after financing and they will appreciate better than your lower asset class properties. Of course, you will be buying vacant properties that may need a little clean up so you may be paying for a couple of months of mortgage payments, utilities, insurance, HOA fees, etc with no income on the property yet.

    It really depends on your specific situation, but I recommend either working with at TK company or finding MLS assets similar to the ones listed above.

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

    I've always gone the turnkey route myself, as people are suggesting for you to do, but you certainly don't have to and you can do it on your own outside of turnkey companies if you want. Here's details on both options-

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

    If you do decide to go the turnkey route and get to the point of then trying to decide what market to buy in, here's info on that-

    https://www.biggerpockets.com/renewsblog/2015/12/2...

    Feel free to reach out anytime if I can help with anything!

    0Reply
  • David K.
    Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes
    8y

    @Shawn Ackerman, this seems innovative but still very confusing for me. 

    Let me see if I understand: So if the property's true value is 100k, you try getting it for 70k cash, with tenants in and no financing for the first 45-60 days. Then get the delayed financing. The appraisal is for as-is property, say for 70K so the loan is for 70k - 17k (25%) down-payment = 53k..

    I still have to pay 17k + closing cost for the property. Even if I am able to salvage the closing costs by rolling them into notes (have very fuzzy understanding of this), i still pay the 17K. Then once the tenants leave and it is time to deal with turn over expenses, So, I still don't see how 45k gets me much more than 2 TK's?

    0Reply
  • Shawn AckermanPro Member
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    8y

    @David K. almost but not quite. 

    Appraised Property value-$100k

    Purchase Price- $70k

    Lender will delay finance in 45-60 days a max $70k +lender closing costs(not to exceed the purchase price+lender closing costs)

    Lender gives you a loan for $70k. 30yr fixed + Lender closing costs(which are around $2200 for our lender). Total loan amount $72.2k. In this case you will be into the property for 0$  

    Your cost for acquisition is closing costs if that’s how your agreement is written with seller. Otherwise no out of pocket cost other than the appraisal report of $450-$600. Infinite returns on a deal like this. 

    1Reply
  • David K.
    Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes
    8y

    @Shawn Ackerman, if this is the case, sign me up - If i can get an investment property for basically free then I am in any time.

    Perhaps we can discuss this - thank you!

    0Reply
  • Jagpreet Singh
    OP
    Queens Village, NY · Member since 2017 · 19 posts · 25 votes
    8y

    Thank you everyone for the feedback. It seems most people suggest the mid-west areas. I have to do some research on the cities mentioned above. Another thing I'm noticing is people talking about Turnkeys. I've seen A LOT of mix reviews about using turnkeys. Is there something I should DEFINITELY look for when trying to find a turnkey?

    0Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    8y
    Jagpreet Singh let me know if you need a list of due diligence question when selecting a turnkey provider.
    1Reply
  • Mubeen Naithy
    Fremont, CA · Member since 2017 · 26 posts · 2 votes
    8y

    @Shawn Ackerman Isn’t there a federal lending limit to the number of properties that you can delay finance or refinance? I believe that number is 10. What options are available once you hit that limit?

    0Reply
  • Shawn AckermanPro Member
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    8y

    @Mubeen Naithy Fannie Mae and Freddie Mac which are one of the largest mortgage purchasers in the U.S. will allow you to have a maximum of 10 loans(including heloc and helo) until they will not buy your mortgage from your lender. If you work with a lender(conventional) who does not sell their mortgages to fannie or freddie or another limiting mortgage purchaser with these sort of guidelines then the lender will set the maximum amount of loans they can do with you. Moreover, to answer your question, one way to midigate limiting your ability to scale using fannie/freddie would be to partner with someone you trust i.e. a spouse who is bankable.  In this scenario you max out your 10 loan limit and they can also do the same allowing you to increase the amount of consumption to 20 loans. You cannot co-sign on any of the loans.   they will have to be executed in the name of 1 party. Any combined signors will count as 1 loan for both parties if co-signed.  In addition I suggest seeking a portfolio lender whoncan package many properties together into 1 mortgage.  Just my $0.02🤘🏾

    2Reply
  • Mubeen Naithy
    Fremont, CA · Member since 2017 · 26 posts · 2 votes
    8y

    Thanks for the insights Shawn!

    1Reply
  • Justin Stamper
    Investor · Orlando, FL · Member since 2012 · 822 posts · 303 votes
    8y
    All super interesting replies . Shawn Ackerman I would love to talk to you more about your business. Seems like a great way to build a portfolio but I am still curious about the process start to finish. This year we have started renovating rental properties in Cleveland, Ohio and have started supplying some clients and wholesalers with “turnkey” properties that we renovated and placed qualified tenants in. The “turnkey” niche has such a stigma to it that I would like to change, the same way we changed the wholesaling stigma in our hometown of Orlando. I know 45k would be possible to get one or two properties from us, let me know if you want to talk more about it. We don’t have a huge track record but we do have a ton of experience in renovating/investing/etc and are excited to be working in the Mid West.
    2Reply
  • Federico Gutierrez
    Realtor · Cleveland, OH · Member since 2015 · 2k+ posts · 857 votes
    8y

    $45K for a down payment in Cleveland is plenty to get you started in your Real Estate Portfolio

    0Reply
  • Bo Kim
    Rental Property Investor · Los Angeles, CA · Member since 2016 · 141 posts · 123 votes
    8y

    @Jagpreet Singh I was in the same boat and went turnkey. 

    0Reply
  • Austin Chegini
    Orlando, FL · Member since 2018 · 1 post · 0 votes
    8y

    Hey Jagpreet,

    Have you looked into companies like roofstock.com? Or has anyone reading this worked with them? 

    They give you access to properties all over the US and breakdown many of the financials for you. I haven't worked with them yet, but the reviews I've heard are fair compared to any other TK company. 

    Like others have said, you can look into property management in the market want to invest in and talk to the managers about your situation. If you consider Orlando, message me and I can help you out.

    Best of luck! 

    0Reply
  • Erik H.
    Monticello, IN · Member since 2015 · 44 posts · 9 votes
    8y

    Hey @Jagpreet Singh ,

    We see new properties show up every week for the Orlando, Fl area. Our free REI watchdog system, finds everything from miss listed multi family, turn key investment, and 20% under value homes for that market. From our data Orlando seams to have a good mix of properties for all types of investors and income types.

    Happy Hunting !

    0Reply
  • Jagpreet Singh
    OP
    Queens Village, NY · Member since 2017 · 19 posts · 25 votes
    8y

    Thanks for the feedback guys. Any recommendations on reputable Turnkeys to look into? Obviously established companies with a proven track record?

    0Reply
  • Jon Q.
    Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    8y
    Originally posted by @Jagpreet Singh:

    Hello Bigger Pockets Community,

    I’ve posted on here before regarding this same topic but due to personal matters, I had to delay the process. However, I am here now and ready to make a move!

    Objective: To purchase out of state rental property(ies). I live In NYC and the home prices here are insane. Buying out of state will allow me to have a good price point entry and be able to see decent returns. Specifically, the type of location I’m looking into is up and coming cities, younger population, strong work force, good rental market, and in solid areas. Not looking for gamble purchases, yet. Maybe one day I can get into flipping houses but that is down the line.

    Financials: I have about 45k to put down, very good credit. Ideally, I would rather have a renovated property so I can literally just buy and put on the market to rent and create passive income. I would have to hire a rental management company to take care of the place since I live in NY, such as rent collection, evictions, repairs, etc. Once the property is bought, I will be trying to visit the city more often and check up on my investments.

    Timeline: Not rushing this but ideally I’d like to have an investment within the year, preferably 6 months.

    Can anyone guide me along the process on how I can get started in going after this goal? First step, second step, etc. Last time I posted, I seemed to get a lot of agents from various cities. I’m open to hearing any tips that fit my goals listed above.

    Thanks

    No. 

    DON'T...

    Don't invest with a turnkey company.

    Don't think that real estate investing a "silent" investment. It is not.

    Don't think that it is an easy "side hussle".

    DO.

    Do spend a lot of time to determine your exact investment goal (specific, measured, time activated) and include a vision statement of your life in 5 - 10 years. Then...

    Do, develop an investment strategy that will help you meet these specific goals.  (forget about what everyone else is doing, they have different goals....but learn what you can from them).

    Do invest in your education, surround yourself who are investing out of state and generating high returns (I'm talking 20%+ annually).

    Do focus on adding value however you can.  You generate high returns by adding value, either through rehabbing/improving property, high quality management OR both... changing legal structures, capital structures, etc.

    Do develop a way for you to self-manage out of state property.

    Do treat your real estate investing as a business. You are offering a product (housing)  and a service (property management). Maximize both.  Attract and retain the very best tenants, then treat them well... they will pay you handsomely for it!

    I wish you the best.

    1Reply
  • Jagpreet Singh
    OP
    Queens Village, NY · Member since 2017 · 19 posts · 25 votes
    8y

    @Jon Q. Thanks for the feedback. I was looking into Turnkey options and I did find a mix review on if it was worth it or not. I think the most difficult thing is the management of the property. Easier said than done. Do you have out of state investments and if so, how did you manage your first property with things like finding a tenant, collecting rent, having a reputable construction company to handle sudden issues?

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

    @Jagpreet Singh

    I highly recommend attending @Shawn Ackerman networking event on the 21st.  You need to meet people who are investing out of state successfully and learn the ropes.  I will be at the event as well so we can also talk.

    0Reply
  • Shawn AckermanPro Member
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    8y

    @Steve Kontos Thank you boss!!! Looking forward to getting together with you man!!!

    1Reply
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