Buying property out of state for a first-time investor

69 Replies

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!

 Courtney,

First, welcome to BP!  It is a fantastic site and you are already starting to use it the way it was designed by asking questions.  You've had a lot of responses on here and a few pitches too!  My advice and questions for you are really centered around who you are getting advice from and who you are able to talk to face to face.  Do you have a mentor or someone that is already investing in real estate that you can meet with and get advice from?  If not, make connections here on BP with investors local to you and see who you would like to have a coffee with or sit down and discuss real estate with somewhere.

The Inland Empire has been a gold mine for local investors for both quick turns and long-term buy & hold.  If I were giving you advice, the first thing I would tell you after reading your post is that I simply don't know enough about what your trying to do or what your expected outcomes are to tell you if you should stay local or go to other markets.  California in general may be more expensive, but that does not mean that a determined investor can't find good properties.  

My advice to any investor is to always look locally first, especially if you have the time and want to learn about real estate.  If you only expectation is to accumulate assets and be as passive as possible, then you could literally invest anywhere if it made sense for you.

Lastly, whatever your decision, I would get back out to MI and check it out.  Meet local investors and PM companies and see for yourself how the markets are progressing.  Bottom line, I would get to know other investors and you could even find and connect with some who have invested out of state.  Then you'll be making decisions from an informed, solid standpoint.

best,

Chris

@Courtney M.

Welcome to BP!  It's very exciting to start your investment journey, hopefully you can find some useful nuggets on here to help you along your way.

Be weary of people who try to tell you what's best; I see a lot of people who try to convince others one way or another with a very limit scope of experience.  My personal opinion is that investing should be very subjective.  What works for me may or may not work for most others and vice versa.  Typically I like to give a brief overview of my experiences and the benefits I've gained and let others pick and choose what is useful to them rather than "You should do X because it's the best".  

I started buying real estate in 2012 locally and "house hacked" a single family home for my first deal. The home prices were much less back then, my first property selling for $250k. I used an FHA loan with 3.5% down and was able to live in an upstairs "mini apartment" (it was 2 bedrooms and 1 bathroom, I added a door to the main hallway so it was private, like my own little suite) and rented the other 4 bedrooms out. After about 6 months, I want more and split my 2 bedroom up and rented the other. I was able to repeat this process 3 times and pick up a 4th property in 2015 with an investor (4 properties owned or managed). By renting the rooms out, I was able to collect more than 2x the amount of rent compared to a regular lease. It's more work, but much more reward so I kept at it.

Within a few years, my rental portfolio was earning more than my six figure job so I quit and went off on my own. I currently buy out of state because I cannot get anything locally to make sense. I've tried my hardest to keep it local, but after 2 years of trying, I made the switch to going out of state. Within a year, I was able to buy 3 duplexes that I BRRRRR'ed and the following year I partnered with another investor on a 37 unit building. We are looking at a 48 unit building now along with a few other commercial deals, but who knows where the future will lead!

A few takeaways from my experiences that I like to share:

- If you want to leave your job, DO NOT do it too early.  I wish I had stayed a little longer to get one more property before I left.  It's not impossible to get financing once you are self employed (I just finished several cash out refi, fannie/freddie loans).

- If you have a lot of money and a good income, it's much easier to experiment on your own and learn all you can with your first couple deals.  If you're short on money and don't have a lot of "play money" to invest with, then it might make sense to look for a partnership in the beginning so you don't lose your @$$.  When I bought my first property, I was making six figures per year, I had literally 0 debt other than a student loan for $350 per month, lived well below my means and the mortgage was $1,700 per month.  If my room rental idea flopped, I would have just paid the mortgage the same way I would have an apartment.  I had the extra income to support big mistakes.  If I made very little money, I would have approached it differently because any mistake would have bankrupted me.

- Aside from getting a good deal, the one thing that I can attribute to my success has to be the people around me that helped me out.  For example, the handyman that I used for all of my local remodels literally saved me hundreds of thousands of dollars.  Lots of contractors take money and run, do poor work or charge you way too much.  My contractor did the work for cheap, did it with good quality and minimal supervision.  For the first property or two, he told me what should be done because I had no clue what I was doing lol.  Had he been a shotty contractor, I would have been screwed for sure.  I owe pretty much everything to the people that helped me out.

- Do not underestimate the power of a good partnership.  I did almost everything on my own in the beginning of my investing career.  Who else could do a better job than me, right?  Turns out pretty much everyone lol.  I've been able to grow exponentially with a partner that I trust wholeheartedly.  If I had to do it over again, I wish I had done my first out of state deals as a partnership.  My best estimates are that I would have made at least an extra $50k on the 3 duplexes I did on my own and they would have been rent-ready much sooner and collecting rent faster.

I wish you the best of luck with your investing!  Feel free to reach out in the future if you want to chat or run some ideas back and forth.  I'm fairly local to you, on the edge of Inland Empire in Claremont so I know this market reasonably well (I have my license in CA and can run comps, analyse deals you're looking at, etc. if you need it.)

@Cody L. Coincidentally my fiance' and I were just talking about buying a place in Houston as an investment.  Is there any way you could pass along the name of that company in an email to me if you recommend it?  I like the prices in Memphis but that much distance is a concern for me. 

This post is an amazing wealth of information. Thank you all so much for contributing! You have really given me some great insight and food for thought.

@Chris Clothier , I completely agree I need network with some local investors - I plan on going to this month's IE meetup. I'm not in a huge rush to start investing nor have I completely clarified where I'm going to invest. So I think I will really focus on making connections in the local market first. The midwest markets I'm thinking about are likely to cool down, literally and real-estate wise, as winter approaches, so it probably makes more sense to learn as much as possible and use the next few months to define my strategy.

Not as difficult as it would seem, Just find a team you can trust and is actually doing deals, vs talk. , Good luck 

@P.J. Bremner , I'm really going to have to take this line to heart: "-Do not underestimate the power of a good partnership. I did almost everything on my own in the beginning of my investing career. Who else could do a better job than me, right? Turns out pretty much everyone lol."

I am guilty of doing everything myself in my personal and professional life because of this mindset! Thanks for the advice!

@Courtney M. welcome to BP community I think most of the investors here will help you out with some tips and tricks to speed up your REI. Personally, I strongly believe in OOS strategy (I have to :)). Best of luck and hope it will work out for you.

@P.J. Bremner You have truly inspiring story. Your path is definitely something I'd aspire for (moving on to full time REI). Thanks for sharing. Any additional advice for beginners (putting aside the importance of partnership) ?

@Courtney M.   The IE meetup that takes place in Riverside is really good!  I've gone to it a few times and always meet good people.  It's a great place to network with people who are doing all kinds of real estate - flips, buy and hold, out of state, note investing, etc.  There are certainly tons of "lookie loo"s, but there are enough people in the room that are actually doing deals.  Like @Bob Prisco eluded to, I generally get more out of talking to people who are putting in work, as opposed to those who read/study but never do anything (but talk as though they are the experts, it's hilarious lol).

It's hard to break the "I can do it better" mindset!  The key for me was to find someone who has what I needed and vice versa.  Once you start to build your empire, your time will quickly fill up and you start to rely on others to free up your time.  It's a marvelous, symbiotic relationship : )

Originally posted by @Anthony Rose :

@Cody L. Coincidentally my fiance' and I were just talking about buying a place in Houston as an investment.  Is there any way you could pass along the name of that company in an email to me if you recommend it?  I like the prices in Memphis but that much distance is a concern for me. 

 This was forever ago.  No idea if they're still around.  It's CPS (which I think is 'complete property service' and I think the owner is Glen Dickson. 

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!

 I went to Memphis in April for one of Jason Hartman's property tours.  It was interesting and eye opening.  Steer clear of the $40k properties - constant turn over and ur AC units will get ripped off.  While the cashflow on paper may appear outstanding, it never really materializes with lower income tenants.

I didn't invest in Memphis bc I didn't feel that their economy was robust and diverse enough.  Also, I felt that houses wouldn't appreciate much there.  I kind of felt like they were a one trick pony with FedEx hub being the major employer.  I'm sure there's much more going on there.

@Derek Janssen - I'm actually kind of shocked that you were shown properties in that price point.  You are correct in that the 40k properties are terrible investments for out of state investors and they never produce the results that investors see on paper.  

The biggest question a passive investor needs to ask is not what their return will be, but how the return will be delivered.  A one-man shop or even the stay-smalll-keep-it-all kind of companies are never going to be deliver consistent returns.  They simply don't have the man-power.  Who an investor does business with is much more important that the property itself when asking the question "how will you deliver this return?"

They did not show me the $40k properties - they were around $100k. And you are correct @Chris Clothier - you have to ask "how will you deliver this return?"  

Screening the property management company is the most critical.  I finally had to self manage after going thru 5 PMs.  

@Courtney M. I would look into buying out of state in a secondary market and that is likely not in your area. I was in a similar situation living in seattle.

@Courtney M.

Welcome from a newby myself. Im in Florida and im looking to invest OOS. I have two duplexes and started 3 years ago. We are looking for our third now but im finding properties in our area are a little high priced. We are on a 1/yr purchase plan and will jump to 2/yr when we have enough cash flow. We basically just dump all earnings back to into buying.

I have been researching OOS for a few months on/off looking at market data; crime, median income, home prices...etc. I think that is a good start. But the hardest part for me is finding the right people, i dont know who to trust or who to reach out to OOS that i can trust. 

As for turn key properties; i would be very careful. I have no experience in dealing with any of them or buying from them. BUT i can tell you i have talked and gone thru their numbers and they did not look very good 'for me'. Might be different for you what you call acceptable. 

The cash flow they stated was not at all what my numbers came up with. Do your due diligence when checking their numbers. Run it by yours and stress test the numbers to make sure it still works with higher figures. Dont MAKE the numbers work because you will just screw yourself.

I live in Tampa, Florida and if you like a property and need an assessment of an area/house let me know and i can give you thumbs up/down.

If anyone has an idea on how to find people out of state i would be happy to listen. My main issue is trusting someone to tell me if its a good, area, crime...etc. Kinda stuck. 

Hi Courtney,

Long distance  investing can be challenging  AND expensive. 

It might work if you  partner with someone. Since you are from Michigan/Detroit, I am sure you might be able to find a friend or family member to partner with . You can each pitch in 20% and buy 2 properties. Detroit is a good market to invest at this time.

I live in MA but have properties in IL ( partnered with school buddies)

You can find  turnkey properties from a reseller. Don't believe everything they say -- Trust but verify.

Good luck.

Hi Courtney, 

I'm in the same boat, currently looking at $100k properties around the Colorado River in AZ/NV.   After looking around many places all over the country I decided I wanted to invest somewhere I could drive to if needed, and it's an area I'm familiar with.  We'll see how it goes.

Being from SF, I owned 2 properties in downtown SF.  Sold one, took the proceeds and turned it into 14 doors in Columbus Ohio.  I am about to sell my other condo in SF and taking this proceeds to other market cycles in the country.  I am starting to feel very uncomfortable with the unfriendliness to California landlords, politicians are considering making the whole state rent controlled.  Also in addition,  even for just a simple late rent or vacancy can really stress my cash flow as rents in my area in the thousands.  

I feel like no matter where you own, you need a good property manager, good loan agent, and good contractor, and RE agent.  This can be anywhere.  Even if my properties are near by, I wouldn't be able to manage my tenants as effectively as my managers can nor could I even get the proper handy person to go out to manage issues.  Everything is done by phone calls and emails so I rather invest at a market where numbers make sense and follow the market cycle.  

Good luck and welcome to RE investing. Before you strike on a deal, I would educate, educate, and educate.  Seek help and advice from others.  You will learn alot no matter how you slice this.  

I live in San Francisco and bought my first SFR in May in the Midwest. I visited the market and met with my realtor first then I googled the heck out of the area. I eventually made an offer site unseen a few months later. I finally saw the property during the inspection. I have had not issues so far.

Definitely verify everything people tell you.  Do your own due diligence.

Don't over leverage.  

Hold out for a realtor that you feel very comfortable with.  

It took me 3 years to choose a market and a realtor, with a lot of "analysis paralysis" and stalls in between.  I'm extremely happy with my purchase. 

@Carlos C.

I must admit that I am biased against turnkey providers, not so much based on my own experience in buying from them, but more from looking at the deals they are offering and talking to several people that I know personally that have had bad experiences using them.  Here are some of the main issues that I have with them:

- They try to get full retail for their properties, or even above market.  Out of state investors won't know any better more often than not.  Compounding that last point, most people are used to home prices that are multiples of what they can buy out of state so when they see the lower price point, it's easy to get sucked into thinking anything at that price point is a great price.

- I've yet to see anyone that advertises with the proper amount of reserve savings each month. I typically pencil my deals with 5% vacancy, 5% repairs and 10% CAPEX. It may be a little higher than it needs to be, but these turnkey guys will include a 3% vacancy at best and ignore everything else. Their cash flow numbers are just not accurate over the long haul!

- Literally all of the people that I know who purchased properties from turnkey providers say that the property management SUCKS.  I've heard it being so bad that some decided to self-manage on their own from afar and had much better results... pretty pathetic.

- There is very little upside for the buyers on deals like this.  They pay full retail for a property that has little chance of appreciation (buying in areas where homes trade for $100k or less have much less appreciation).  If the market corrects even slightly, the owners will be buried alive in these properties.  They would have to hold onto them for 10 - 15 years or more to break even, and that's assume they don't have big ticket repairs to make like roof and mechanicals to replace.

My personal opinion, based on the deals that I have analyzed and the performance of the many turnkey deals that I've looked at from others, is that they simply aren't worth the money. While it does take more work and effort to get your own deals going and build your own team, the rewards are significantly greater. You can actually buy more frequently as well. If you have to save up $25k every time you want to buy a turnkey rental, then how many homes can you buy in the next 5 years? What if you were to find deals that would BRRRRR, how many deals could you do? In my experience, if you have enough cash to do one deal at a time, then you can buy and BRRRRR a property every 6 months. Let's assume the deal flow isn't guaranteed, so it takes you 9 months to find a property, BRRRRR it and start on the second property. You could grow your portfolio exponentially faster because you're not saving up $25k every time you want to buy another one. If you make a mistake, you have much more room in the deal to cover it (I don't look at deals unless I have a reasonable expectation of being at 70% ARV all in cost, so I have 30% more room or more than a turnkey deal).

Just something to think about.  Also, as I mentioned before, if you don't have a team built and you don't have the time, it wouldn't be difficult to find someone who is doing well in the market you're looking at and partner with them.  A lot of successful real estate investors have more deals than money to take them all on.

Pls read thru the post titled "Morris Invest & Oceanpointe management company" . That will show you what not to do and why when investing in REI both at home or out of state.

Courtney, I am currently in your same situation.

I am looking for the right city to invest my money in and feel comfortable.

Take the time to look through cities listings and contact realtors and talk with multiple people about the area. Learn about it and you will feel better about purchasing an investment there.

Check craigslist, trulia, etc. to make sure what everyone says about pricing checks out.

Basically, out of state you need a realtor and a property manager that will help you with your new investment.

@caleb heimsoft hey man what’s going on? So I saw a post of yours on this topic and it said you would have 20 houses within 5 years. I love the ambition! Renting or flips?

I ask because I too have big plans. I’m 31 and my goal is to have 50 rental units by age 45. Also very ambitious . I started two years ago and have 4 units but have hit a snag. I payed cash for them and would like to refi and get more, but it’s been troublesome as of yet.

I was curious if you wouldn’t mind talking a bit, I’m curious to know how your doing it or plan to do it? Let me know

Hi Courtney,

I’m disabled (bedridden at this point) and my properties are out of state. I offered on the first sight unseen. The second I haven’t seen to this day. My investments are out of state for a few reasons:

1: I was priced out of the market I currently reside in

2: I had other business relationships in the area I was looking to invest. This meant I had friends who could recommend local professionals or even swing by a property if need be.

3: I invested in Raleigh NC, which has had a growing population and rapid gentrification for many years now. Good median income, businesses moving to the area, downtown being built up all played in. Sometimes a non-local market can be less daunting when you realize your investment will likely do *much* better in that market than wherever is local to you by comparison.

I’d be happy to chat with you if you’ve got any specific questions you’d like answered. I just wanted to let you know it can certainly be successfully done! Knock on wood but I’ve been doing it for 3 years and have tenants who pay & stay and no major issues. I think it comes down to your risk tolerance and your team.

@Courtney M. I know you're probably tired of reading at this point...I think it took me a year to get my first two page post! Investing in RE has nothing to do with the physical structure of the property....it's a by-product of the human element...and humans are unpredictable. The point is that investing in RE is relative...it's personal. What worked for other people may not work for you...and just because someone owns a lot of properties doesn't make them a successful investor.

As an investor, we have limited capital...our decisions have to weigh lots of possible outcomes and opportunities. Ask "what's the best possible investment for me based on all the possibilities...and why."

Data is key...and not Zillow or Trulia data...I mean real data from a local expert. Underwriting real estate is a falsified and controversial path that has lead many investor astray...knowing returns on paper is one thing, but realizing them is another thing.

Feel free to reach out if you run into some snags or what I'm saying makes sense. Good luck!