Buying property out of state for a first-time investor

69 Replies

Hello! I'm happy to be here on the BP forums.

I'm just starting to look at investing in real estate. I live in inland southern California, which is more affordable than the coasts, but still more expensive than what I'd like my first investment to be (around $100k). I grew up in Michigan and am a bit more familiar with the metro-Detroit suburbs, where starter homes are more within my desired price range.

My question is for those who started investing in real estate, did you stay local? It definitely seems easier to manage an asset when you can drive to it, not to mention are in the same time zone. Do you think it's a mistake to think about investing so far from where you live, given my lack of experience at this point?

Thanks!

Hi @Courtney M. and welcome to the world of REI. I live in Long Beach and invest in Indianapolis. It is not easy and it can be time consuming depending on what you're looking for. I for one would not start with dumpy neighborhoods. I'd buy homes in good areas with good schools.

Also if someone is trying to sell you something don't trust anything they say, verify it all. 

@Courtney M. Welcome! I have spent several years of my life in Michigan. A different price point in many areas that is for sure. At any rate, I would stay local to learn the business hands on before you venture out of state. You have plenty of good price points in your area or within 60 miles of where you are. Are you going to be flipping? This is a very good way to learn acquisition costs, carrying costs, hard money, rehab costs, closing costs, which Realtors to use and not to use, making offers and reality of offers being accepted and why or why not accepted etc. You get the point. I like being able to physically walk a property to see what others do not see and to get my own feel for the property.  You really are in a good location, I would stay local for sure if I were in your shoes. Good luck and keep us posted.

Nope I started out of state and chose a market I’d never even been to before. Then I did it again in a different market.

No matter what market you’re in, scale is important. I’ll have 20 properties in around 5 years from starting.

Thank you everyone for your feedback!

@Dylan Vargas , perhaps I need to cast my net a little wider. The area I'm in has seen a lot of growth from OC (lots of new build communities) and many people THINK it is affordable (and certainly look down on it as it's not OC, LOL) but SFH are around $200k - yikes! I have about $20k ready to invest and I'd like to do it sooner rather than later.

@Jeb Brilliant , thank you! I actually grew up in an area with a desirable school district, so I keep gravitating back to that. I have a trip to Michigan planned in the near future so I may do some tours and kick the bricks, so to speak.

@Caleb Heimsoth , I hope to scale pretty quickly as well! 20 properties in 5 years is amazing!

Courtney, Investing out of state can be difficult when first starting out, if you want the good deals. You can do turn key properties by going with a turnkey provider, just make sure to do your research. Theyll do everything for you, it's really easy. The downside is you wont learn as much. I highly recommend investing locally first, the learning process is priceless. I personally manage locally and invest out of state, so the experience is valuable.

Recommend the book Remote Controlled Real Estate Riches. Cheesy title, good content. I live in SF Bay Area and invest in Phoenix.
If u have someone in Michigan who can help, great. Otherwise evaluate each market and find which one u like best. Economy, jobs, appreciation are important to me.

@Courtney M. It is definitely difficult to manage properties that are far out from where you live. Regarding some of your statements and comments, are you looking precisely to be a landlord or are just looking to start in real estate investments? If it's the first one, I think the important thing is to study the market, be certain of your goals and what is your expectation out of this first property. 

There are other options as well like:  Have you considered private note-lending with an experienced team? There are still many opportunities to generate 12% annualized returns in 1st lien positions. I am in several note-lending opportunities currently. Also, becoming completely passive with real estate investing is an option. Real estate syndications are a great way to earn solid returns while not having to actively do anything. Let me know if this helps and if you'd like to discuss further.

-K

Originally posted by @Courtney M. :

Hello! I'm happy to be here on the BP forums.

I'm just starting to look at investing in real estate. I live in inland southern California, which is more affordable than the coasts, but still more expensive than what I'd like my first investment to be (around $100k). I grew up in Michigan and am a bit more familiar with the metro-Detroit suburbs, where starter homes are more within my desired price range.

My question is for those who started investing in real estate, did you stay local? It definitely seems easier to manage an asset when you can drive to it, not to mention are in the same time zone. Do you think it's a mistake to think about investing so far from where you live, given my lack of experience at this point?

Thanks!

 Investing OOS is very real for many investors! Being from the Midwest, I am sure you remember what the prices are like out this way! You can get some very affordable properties that rent decently. Try looking into the Midwest! 

@Courtney M. Investing out of state can be a little tricky- as you mentioned; however deals are scattered across the country/world and confining yourself to local markets might be "shooting yourself in the foot" so to speak.  I think doing plenty of due diligence and coordinating with great people you trust to do the work in that area are paramount for your success, and investing out of state could give you great experiences.

Doug

@Courtney M. , I understand your position well. I live in Southern California but grew up in MI myself. I ran into a very similar problem when I started, even if I could afford one house out here, how would I scale that? There’s definitely a lot of unknowns investing out of state, but I feel the risk is still lower, considering the starting Investment is quite a bit lower. Even if you invest local to learn, you’re going to run into hurdles you have to solve on the fly. And worst case you loose a tenant for longer than anticipated, or have cost overruns as a percentage, it’s still a smaller hit in holding costs in MI. Also, I’ve found that not being near my properties has forced me to develop the systems and network to maintain versus having the option of doing it myself, which can be limiting.

Regarding turn key companies, I’d be careful and make sure you do your due diligence, don’t assume they are what they say and that they have your best interest in mind. There are a few companies who are being exposed right now, but of course there are more honest companies out there as well.

Just my opinion, but either way good luck on your first investment and feel free to reach out to me directly with more detailed questions.

Bruce

@Derek Janssen , thank you for the book rec! I've been making my way through the BP podcast eps but that book sounds like it will be hugely helpful. My entire family lives in the area in which I'm considering buying, which is just a bonus in the fact that they could drive by - otherwise I would obviously look to outsource management of the property. I'm back in that area 3-4 times per year.

@Kira Golden , my goal is to hold and create passive rental income. I'm not really interested in flipping.  I have not considered private note-lending, nor have I looked into real estate syndications. If you have more information, I would certainly be interested!

@Bruce Scannell , thanks for your feedback. I have a trip planned to Michigan in August and plan on looking at quite a few properties then. I may also send you a message regarding your experience if you don't mind!

@Courtney M. as many have already said, out of state investing is very common, especially for people in pricey states like CA, NY, and HI. If you're already comfortable about the idea of not be a hands-on investor (not everyone wants to be a landlord) then that decision should be all the easier for you. There are amazing markets all over the country, right now the South and Midwest are great for cash flow, generally speaking. That being said, when you're investing out of state, especially as a beginner, the people you work with should be your number one priority. 

You could pick the best market out there, get a dream property at a great price, and still end up losing money if the people you trust to manage your investment drop the ball. Market is important, but the people are what make or break your investment. 

Whether you go the turnkey route or build your own long-distance team (agent, contractor, PM etc) you need to vet those people like your life depends on it, because your investment definitely does. I always recommend that investors fly out to meet the people they are considering working with, once you've got it narrowed down to your top one or two teams. It's an investment in your investment, and it will pay huge dividends in peace of mind if you take the time to go shake their hands, see the area, and take a look at some of their work (if turnkey, what props have they rehabbed/sold/currently manage, if DIY, what houses has your contractor worked on, what props does the PM manage?).

Out of state investing doesn't have to be scary - most of our clients are from outside AL - but it does take some upfront legwork to ensure you're working with a team that will be there for the long-haul.

Best of luck!

Clayton

Hey @Courtney M. , my business partner and I just made a trip to the midwest to check out a few markets because our market - Las Vegas - is getting unreasonable.  We both agreed that seeing the market in person was a lot better than doing it all online.  In addition, we were able to connect with 2-3 great people in each market and had a chance to meet with each for ~1 hour.  

We've basically eliminated all of the worry about investing out of state since those who we connected with are experienced investors and/or brokers and have worked with contractors, property managers, and lenders in their respective areas.

We hope to begin making offers within the next few weeks after we get through the pre-qualification phase with the lenders they recommended.

One thing the book talks about is buying newer homes.  My oldest rental was built in 1999.  Slab foundation, less maintenance and issues with newer homes.  I also recommend single story.  Costs less to repair if you have a water leak in the bathroom (upstairs).  Also, in Phoenix, 2 story houses are more expensive to cool, so tenants prefer single story.  Single story homes are also more desirable to rent to older couples and disabled folks.  The more people you can rent to the better.  Also, I have found that you don't get much more rent for a bigger home - so 1300-2100 sq ft.

I'm in San Diego and I'm thinking about investing out of state due to the high prices nearby.  There is a turnkey investment company coming to SD soon and hosting a lunch and dinner (Great Maple for lunch and Dukes in La Jolla for dinner).  They operate out of Memphis (https://memphisinvestmentproperties.net/).  The idea is that you buy the house and have them manage everything and basically they just send you a check every month.  They break down the houses pretty well on their site (showing you what cash flow you'd get) and a lot of the houses already have tenants living in them.  The market there is 50% renter and you can buy a home and very reasonable prices.  I'm still doing research into the area but right now it seems like a good deal.  Just wanted to pass that on!

Hi @Courtney M.   Welcome to BP! Investing out of state may open more doors but it's important to have some reliable "boots on the ground" when it comes to evaluating and maintaining property.  We ended up selling most of our properties in Texas because we struggled to find a reliable property manager. 

Investing in CA is more expensive but I think it's worth it to be able to use our own trusted/ reliable contractors.   We recently shopped a flip deal in Palm Desert. It was in the 250k range.  There are deals in SoCal... You just have to save more starting capital to make it work.   There are some excellent hard money lenders in SD and Riverside Counties.  Happy to send you some recommendations. 

Best of luck!  

Originally posted by @Anthony Rose :

I'm in San Diego and I'm thinking about investing out of state due to the high prices nearby.  There is a turnkey investment company coming to SD soon and hosting a lunch and dinner (Great Maple for lunch and Dukes in La Jolla for dinner).  They operate out of Memphis (https://memphisinvestmentproperties.net/).  The idea is that you buy the house and have them manage everything and basically they just send you a check every month.  They break down the houses pretty well on their site (showing you what cash flow you'd get) and a lot of the houses already have tenants living in them.  The market there is 50% renter and you can buy a home and very reasonable prices.  I'm still doing research into the area but right now it seems like a good deal.  Just wanted to pass that on!

The very first two properties I bought (before I even bought my own home) were sight unseen from a company like that in Houston. I manage them now. They're paid off. Bring in about $1400/each in rent and I've only seen them once or twice. They were my 'entry'. So be careful, you might start with a few SFH and get the bug and find yourself leaving your 'real' job and going balls deep into apartments.

Originally posted by @Aly Vizcarra :

Hi @Courtney M.   Welcome to BP! Investing out of state may open more doors but it's important to have some reliable "boots on the ground" when it comes to evaluating and maintaining property.  We ended up selling most of our properties in Texas because we struggled to find a reliable property manager. 

Investing in CA is more expensive but I think it's worth it to be able to use our own trusted/ reliable contractors.   We recently shopped a flip deal in Palm Desert. It was in the 250k range.  There are deals in SoCal... You just have to save more starting capital to make it work.   There are some excellent hard money lenders in SD and Riverside Counties.  Happy to send you some recommendations. 

Best of luck!  

If you ever find a property in San Diego that makes sense as a rental property, let me know.  I'll pay cash.  I live in San Diego and used to look all the time.   I bought a nice home in Houston for $450k.  It rents for $4300/month.  Not quite my "1%" ratio, but good for a nice home in a nice area.   Ironically my neighbor in San Diego just leased his house out for $4,200/month.  Although he paid $890k for it.    So same rent, but 2x the house cost to get it.