Scaling Up Out-of-State

21 Replies

Hello All,

I have a few questions regarding scaling up in an out of state location. I currently reside in Long beach, California and in that past months have came to the realization that finding cash flowing properties is much easier in an out-of-state location. 

Although Turnkey doesn't always get the best rep around the REI world, it seems to be a perfect fit for me due to my career demanding 55-60 hour work weeks, so I can't be hands on 24/7. The downfall to this is the slow scaling process that I would have, only 1 property a year will be attainable, unless I'm completely missing something.

My question is if anyone utilizes an out-of-state BRRRR method, I've searched around for this answer and most people say OOS BRRRR isn't a great idea, but the BRRRR method allows for rapid scaling compared to Turnkey.

I appreciate all the advice, 

Will

Will,

In order to BRRRR, you need to be able to run a rehab. Based on your schedule, how are you going to do that remotely? Is it your intent to try using bank financing to buy out of state property that then needs rehab? If not, that would suggest that you would use cash. If cash is your answer, I would look at becoming a private lender before I would buy a turn key out of state. Very little work with as good or better returns.

Happy Investing

Derek Dombeck

@William Richardson Im in LA and also do out of state. working on my 2nd cash flow MFR now. Where are you looking?

I think that turnkey rentals are a great option and I can help you get started.

The risk of doing a BRRR out of state with a 60 hour work week is going to be impossible and you're going to put $50k at risk into one deal which can go south.

It's much safer to invest in a turnkey when all the risk has been taken out of the deal and you have the bank on your side!

Well there's another option.... there's some turnkey companies who do BRRRR structures. So it's like a BRRRR+turnkey option. They still do all the work for you, but you fund the purchase of the distressed property and the rehab. But then appreciation is forced as with a normal BRRRR and that's all yours.

I've heard of a few companies over the years offering this but it can be extremely risky because you are the one holding the risk. So I never worked with this model in the past (because of that risk), but the company I work with now on it has a lot of guarantees in place to mitigate those risks for the buyer and I had a lot of luck with them in the past few years selling regular turnkeys, so I've been willing to work that model with them.

Happy to share my info. But it's definitely a way to combine the best of both worlds!

Originally posted by @William Richardson :

Hello All,

I have a few questions regarding scaling up in an out of state location. I currently reside in Long beach, California and in that past months have came to the realization that finding cash flowing properties is much easier in an out-of-state location. 

Although Turnkey doesn't always get the best rep around the REI world, it seems to be a perfect fit for me due to my career demanding 55-60 hour work weeks, so I can't be hands on 24/7. The downfall to this is the slow scaling process that I would have, only 1 property a year will be attainable, unless I'm completely missing something.

My question is if anyone utilizes an out-of-state BRRRR method, I've searched around for this answer and most people say OOS BRRRR isn't a great idea, but the BRRRR method allows for rapid scaling compared to Turnkey.

I appreciate all the advice, 

Will

 Investing OOS can be great when you live in a market like CA, or if you work as much as you mentioned. Sometimes you just don't have any time to run a full scale investment in another market! There are a lot of markets in the Midwest right now where you can find some amazing ROIs due to how affordable the properties are. 

Try looking at:

The Best Types of Markets for Profitable Turnkey Properties

and

5 Things to Consider When Choosing a Turnkey Rental Property Location

@Tom Ott  

Thanks for the informative links! Great info! What confirmed pre-boom markets are you investing in right now?

@William Richardson in 2015 I sold my two seattle rentals and got 9 out of state in Birmingham Atlanta and Indy. I think it’s a good plan. Just don’t buy more than 4-5 because you should transition to syndications or bigger deals ASAP.

Originally posted by @William Richardson :

Hello All,

I have a few questions regarding scaling up in an out of state location. I currently reside in Long beach, California and in that past months have came to the realization that finding cash flowing properties is much easier in an out-of-state location. 

Although Turnkey doesn't always get the best rep around the REI world, it seems to be a perfect fit for me due to my career demanding 55-60 hour work weeks, so I can't be hands on 24/7. The downfall to this is the slow scaling process that I would have, only 1 property a year will be attainable, unless I'm completely missing something.

My question is if anyone utilizes an out-of-state BRRRR method, I've searched around for this answer and most people say OOS BRRRR isn't a great idea, but the BRRRR method allows for rapid scaling compared to Turnkey.

I appreciate all the advice, 

Will

 Welcome to the site Will.

Utilizing BRRRR out of state is pretty unlikely. Markets are hot right now. Gone are the days of tons of foreclosures chillin' on the MLS. Prices are high & demand is at an all time high. It is unlikely that deals that good would make it all the way out to you before the locals would snag them. On top of that locals can afford to pay more than you as they can feasibly fix the properties quicker & cheaper than you can.

Investing out of state shouldn't be looked at as a way to quick your day job or generate capital quickly. Rather it should be used as a relatively painless way to part your existing capital while utilizing leverage to essentially quadruple your cash investment with before calculating for cash flow & appreciation.

My best practices for investors who want to invest our of state are as follows.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

@William Richardson thanks so much for asking this question, I've been thinking about scale in general, and am considering OOS as well. 

All the folks this in this thread have provided some great advice, thanks to all! 

@Ali Boone I'll ping you outside of this to understand what you're doing and what your experience with turnkey BRRR is.

@William Richardson

You should take a look at David Greene’s articles . He’s also written a book specifically on investing out of state , which I haven’t read but have heard good things about . He’s also been on the biggerpockets podcast.

He lives in CA also and is a full time realtor and does out of state BRRRRs .
Having the right team /systems in place of course is essential.

I could see it being challenging especially working 55-60 hour work weeks like you do , but not impossible.

https://www.biggerpockets.com/renewsblog/author/davidgreene-2/

@Lane Kawaoka I would love to connect with you. I am at the phase of my investing cycle that you just described. I have 3 high equity/low mortgage properties in CA. I would love to scale 2 of them into bigger investments. My ultimate goal is mid size (25-50 unit) apartment buildings.

@William Richardson I started off with my OOS investing in 2012, in relatively passive turnkey. Since then I have done a range of investing including BRRRRs and flips out of state. I agree with other posters in this thread that the challenges and risks of doing a BRRRR out of state are enormous and time consuming. Best left to people that have the time to devote to manage a team at a distance. And I would caution you about thoroughly vetting ready made teams that do BRRRR "turnkey." Whatever guarantees or promises they may offer they are only as good as the company and the people who stand behind them. And I have seen some pretty bad players in this realm.

I do BRRR and full rehab out of state. Lots of naysayers in this thread speaking about what's easy and what's possible.

mine is 95% passive, I don't' see the properties and I don't' talk to my team that much

it's EASY

@James Wise is uncharacteristically wrong here, sorry bud. Saying buying a foreclosure of MLS isn't possible, I'm doing on a regular basis

OOS BRRR is easy, possible, and passive. You need a GREAT team and you need to be fearless. If I can do it, it ain't hard.

Originally posted by @Alexander Felice :

I do BRRR and full rehab out of state. Lots of naysayers in this thread speaking about what's easy and what's possible.

mine is 95% passive, I don't' see the properties and I don't' talk to my team that much

it's EASY

@James Wise is uncharacteristically wrong here, sorry bud. Saying buying a foreclosure of MLS isn't possible, I'm doing on a regular basis

OOS BRRR is easy, possible, and passive. You need a GREAT team and you need to be fearless. If I can do it, it ain't hard.

 I'm going to stick firm in my original assessment that it's not a practical scale-able business model. Can you randomly get lucky a handful of times, sure I suppose. More than likely an out of state investor doesn't though. This is my My $.02 on the topic. Take it for what it's worth. When deciding if my insight is good or not one should probably factor in that I have sold $100M over the last couple years....Mostly all single & small multi family rentals to out of state investors.

Originally posted by @James Wise :
Originally posted by @Alexander Felice:

I do BRRR and full rehab out of state. Lots of naysayers in this thread speaking about what's easy and what's possible.

mine is 95% passive, I don't' see the properties and I don't' talk to my team that much

it's EASY

@James Wise is uncharacteristically wrong here, sorry bud. Saying buying a foreclosure of MLS isn't possible, I'm doing on a regular basis

OOS BRRR is easy, possible, and passive. You need a GREAT team and you need to be fearless. If I can do it, it ain't hard.

 I'm going to stick firm in my original assessment that it's not a practical scale-able business model. Can you randomly get lucky a handful of times, sure I suppose. More than likely an out of state investor doesn't though. This is my My $.02 on the topic. Take it for what it's worth. When deciding if my insight is good or not one should probably factor in that I have sold $100M over the last couple years....Mostly all single & small multi family rentals to out of state investors.

scalability with SFR is limited in itself, I'll agree there 100%

and I'm not going to agree with you just because you've done more than me ;)

I simply said your statement "the days of buying good deals off the mls" is incorrect.

always happy to have differing opinions though

All,

First off, as a first time poster, I want to thank everyone for their time and advice. It's pretty amazing to see all the care and generous information that everyone shares on this website. I look forward to connecting with you guys as I dig deeper in this Real Estate world.

@Derek Dombeck

As of now, I plan on putting 20%-25% down on OOS turnkey properties, but now that you mention the idea of Private Lending I will definitely look deeper into this. Thanks!

@Mike Alt

Honestly, I haven't gotten as far as choosing a market. I'm still fairly new to the REI world and currently finishing up Brandon Turner's book on Rental Property Investing. I'm still learning the techniques and basics of the game before I narrow down to specific markets, but I would love to get some insight on some great markets to check out if you have any suggestions.

@Antoine Martel

I'll be in contact with you soon for some details! Thanks for the helping hand.

@Ali Boone

Funny thing, during my reading I often times will search something on Biggerpockets and your posts constantly pop up around the Turnkey discussions. Thanks for the insight and I look would love to get some more information on your strategy. 

@Tom Ott

Thanks for the links! Solid Info.

@Lane Kawaoka

Thanks for the advice Lane, I'll do some research on syndication. My initial goal was to get 10 mortgages to accumulate as many properties early on, but Ill definitely look into this. I'm still trying to carve out a plan, everything is pretty new to me.

@James Wise

Thanks for the tips James!

@Chirag Shah

No Problem Chirag, thanks for chiming in! I am just excited to see the amount of people who are willing to help us newbies out, I look forward to connecting.

@Joseph M.

Looks like I've found another book to take a look at, thanks for the suggestion. 

@Larry F.

Thanks for the advice Larry, cheers on the OOS success with BRRRR. At this point, I'll likely start with something safer OOS and possibly explore the idea of OOS BRRRR once im more comfortable with a market that's not in my backyard.

@Alexander Felice

Cheers on the successful OOS BRRRR, im glad to hear that some poeple including yourself are having such a good experience out of state. What was your timeline on developing your team and how did you go about vetting them?

MLS deals depend on the market. Some markets don't have the activity others do. There will be reasons markets have activity vs markets that don't have activity. That's a simple deduction.

The easiest way to buy a turkey property without having much involvement that legally guarantees rent is to put a house under contract with the contingency to close once a Section 8 tenant moves in so you have a year of guaranteed rent.

If you buy with other guarantees from providers such as rent guarantees, buy backs, etc., you risk committing securities fraud. You can't make guarantees in Real Estate subject to the future and/or outcomes. That's an illegal practice. 

That's why you always see "estimates or approximations." Nothing is exact in Real Estate. Any statements to the contrary are false however, that doesn't stop people from doing it. They may be ignorant to the law or do it anyway.

Lots of biased, self serving advice on this thread. 

OP: “Should I buy Turnkey or do some other method that allows me to have equity AND get my initial investment back AND have cash flow?” 

Turnkey provider’s: “everything except Turnkey is impossible and extremely risky. Send me your money.” 

Ahhh, I'm kind of excited to hear I'm constantly attached to the turnkey stuff. Or my name at least. Haha.

Sure, reach out anytime!

@William Richardson I think the BRRRR strategy works either for people who have a significant amount of time to devote to running an investment and rehab business or who are doing it on a small scale--maybe just one property at a time. I don't see how you can run a large scale real estate business and work 60 hours a week unless you don't sleep.

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