1st out of state investment - focus on one area?

53 Replies

I'm thinking about making my first real estate purchase, an out of state rental property, and wondering the best way to go about finding and analyzing a property.

Do people who are investing out of state typically pick one area, learn it well, and buy in that area? Or is it more common to do a more general search and focus on the math of a property?

I'm wondering if it's better to spend my time learning about one specific state/city/neighborhood or if that's less important.

It is probably better to pick a city and go from there, otherwise you will have to adjust your calculations each time you try to evaluate something, and you won't have as good a feel for the location of the property as you would if you focused on one market.

Originally posted by @Grant Rothenburger :

@Travis Raila Find 3-7 markets, research heavily, decide on 1, maybe 2 markets to invest in. @Aaron K. Gave you some good things to look for, another is job diversity. You don't want (if you're a buy and hold investor) any 1 company providing more than 20% of the jobs in that market.

 Got it. I like the idea of starting with a short list of possible markets and then narrowing to 1 or 2 to really focus on.

@Travis Raila congrats on taking the first step. I too am searching for my first out of state property. I am beginning with markets where I have some connections so for example Dallas area because my wife's family lives there and central Florida because a good friend who happens to be a contractor lives there. I have begun to analyze properties to see if anything looks promising. I am most interested in long term buy and hold investing.

Best of luck to you and would love to hear what markets you're interested in!

Originally posted by @Andrew Neal :

@Travis Raila congrats on taking the first step. I too am searching for my first out of state property. I am beginning with markets where I have some connections so for example Dallas area because my wife's family lives there and central Florida because a good friend who happens to be a contractor lives there.

Heh, I was also thinking about this strategy (focus on markets where you have a friend/family on the ground). I couldn't decide if this was actually important or just something that seems like it would matter but really doesn't.

@Travis Raila yeah my buddy in Florida has built spec homes, owns a kitchen/bath renovation company and granite yard so he would be involved for sure. In Texas it's similar in that my in-laws have experience in construction. But ya buying somewhere just because it's close to people you know isn't important.

Since this will be the first of your real estate purchases I would suggest to purchase them in the same area. You will get a good feel for the area and can really focus on the numbers there as well. Have you ever thought about turnkey since it will be your first purchase and you are looking for out of state? Turnkey is great because you would have a property management team in place who will handle all the small things for you instead of you having to go check on every little thing the tenant calls about. If you are interested in looking more into turnkey send me over a private message and we can talk more.

Cheers


Hi Travis and welcome to BP!

Take a look at Cleveland , OH market. Pretty good ROI's right now. What kind of an investment are you looking for? Turnkey or Buy and Hold?

Feel free to reach out with any questions.

Good luck and best regards,

Renee

Hey @Travis Raila ! I'm from the Bay Area too and have walked your footsteps, so I wanted to share my 2 cents.

I agree narrowing down your market to 1-2 should be a good start. You should probably decide what your out-of-state strategy will be:  straight cash flow and less appreciation vs. moderate cash flow and more appreciation. Based off that, I think figuring out the markets will be much easier.

Turnkey investing is not a bad option at all for starters. Regardless on which route you choose, IMO, the most important thing is property management. Without a solid one, you are toast. So, vet your PMs heavily. Once you get that right, it'll be a good passive income generator and your first win, which I am sure will snowball to bigger things.

Best of luck to you - it's an exciting journey that's for sure! 

Originally posted by @Travis Raila :

I'm thinking about making my first real estate purchase, an out of state rental property, and wondering the best way to go about finding and analyzing a property.

Do people who are investing out of state typically pick one area, learn it well, and buy in that area? Or is it more common to do a more general search and focus on the math of a property?

I'm wondering if it's better to spend my time learning about one specific state/city/neighborhood or if that's less important.

 Welcome aboard Travis.

This is simple, it's not nearly as hard or difficult as some people make it out to be:

First, your budget. Define this, be it by yourself or by a banker... get your limits set.
Second, find an area that has a vast supply of properties in your target price range. Again, make sure it fits your target price range. If you say your budget is a SFH 100k, don't go somewhere like detroit and flood your self with 10k houses... you aren't looking for 10 10k houses.
Third, understand the city you picked. Pretend you're moving there... get to that level of knowledge. Know the rents, the prop types, the people etc.  Then VISIT, go spend a thurs-mon to get a feel for the life and see with your eyes what life is like. Make sure it matches what you've studied.... and make sure it feels "right".

Then hunt hunt hunt, the more you do it the less you have to do in order to be caught up. You can fine tune your search (area, size, requirements, price etc) and in no time (not really) you'll see every thing for sale in your target area. Then check every hour and you'll be ready to go...

Then once you've mastered it.... go talk to the banks till you find someone who can talk at length with what your trying to do from a numbers stand point. Then ask who'd they want to work with for realtor... then quiz the realtor on your mastery of local area. Ask some questions you know the answer to, then see if that answer matches yours. If it does start getting feedback on house etc etc... 

I would figure out if you want to focus on cash flow or appreciation. Here in the Bay Area we are used to appreciation so it’s easy to get jaded.

Pick an area and focus on it. That’s what I’m doing. I’ve picked Cleveland, mainly for cash flow... and have been doing it slowly. There are plenty of people here in BP that have done 100’s of deals and/or own several hundred units. I own 2 here in the Bay Area and will be closing on my 6th (For a grand total of 8 units) unit in Cleveland next Friday. 

The 6 in Cleveland have all been acquired since November of last year. All are between the 2% and 3% rule and are in C neighborhoods.

Do your due diligence, fly out to the area if you’re not familiar with it. I did.... twice. Meet some PMs and agents while you’re there..., and literally “own” it.

Hey @Travis Raila - do your research and eventually pick your top market. You'll want to learn it very well so you can quickly calculate and analyze the cash flow (if that's what you're looking for). Know exactly how to calculate property taxes, estimate insurace rates, etc. and start analyzing multiple properties a day so you get the hang of it. Understand the neighborhoods, good and bad, by studying crime maps.

Start building a team in your market ASAP as well. I'd probably start with Property managers and agents as they have 1st hand experience in the town. Great individuals "on the ground" are going to be KEY!

Let me know if you have any questions. I started investing out of state in 2016...hit a ton of bumps in the road...but recovered. I'm just across The Bay from you as well and work in SF.

-Tyler

I would argue understanding the area first is key to successfully screening of those you chose to bring in your team. This way allows you to independently come up with opinions and in a way fact check those around you.

It's very easy to be sold an idea...

I decided to research markets, narrowed it to 3, then researched PMs and properties on MLS. Once I had all of this I weighed the pros and cons and chose the city with team, deals, and stats that worked for me. In my case that was Indianapolis but I was also looking hard at Memphis, KCMO, and a couple of cities in OH.

Now that I have the team I want to work with I purchased a duplex a little over a year ago and am looking at my next SFR now. I will probably build 3-5 here before thinking about diversifying.

I have had some bumps along the way so having just 1 property with multiple PMs in multiple markets could be bumpy. An owner with a portfolio normally gets more service and priority than a demanding OOS owner with 1, and lastly multiple properties is already a form of diversification.

Best of luck looking forward to hearing about your first deal. Or for a cool 1 million you can finance a studio apartment in your city and rent it for half of the mortgage: )

Travis Railia the most important thing is to identify your investment goals and how much capital you have to invest.  With that info you can properly evaluate different markets.

Originally posted by @Account Closed :

Since this will be the first of your real estate purchases I would suggest to purchase them in the same area. You will get a good feel for the area and can really focus on the numbers there as well. Have you ever thought about turnkey since it will be your first purchase and you are looking for out of state? Turnkey is great because you would have a property management team in place who will handle all the small things for you instead of you having to go check on every little thing the tenant calls about. If you are interested in looking more into turnkey send me over a private message and we can talk more.

Hey Justin, thanks for the idea of using turnkey. I've thought about turnkey because it seems like a lower risk/lower reward way to learn (especially on the first deal).

What do you think are some of the downsides of using turnkey?  Just lower returns?

I have a few friends who have used Roofstock and HomeUnion - do you have any thoughts on either of these? Have any other turnkey operations you recommend?

Thanks again for the advice!

Originally posted by @Peter Cung :

Hey @Travis Raila! I'm from the Bay Area too and have walked your footsteps, so I wanted to share my 2 cents.

I agree narrowing down your market to 1-2 should be a good start. You should probably decide what your out-of-state strategy will be:  straight cash flow and less appreciation vs. moderate cash flow and more appreciation. Based off that, I think figuring out the markets will be much easier.

Turnkey investing is not a bad option at all for starters. Regardless on which route you choose, IMO, the most important thing is property management. Without a solid one, you are toast. So, vet your PMs heavily. Once you get that right, it'll be a good passive income generator and your first win, which I am sure will snowball to bigger things.

Hey Peter - always great to meet another Bay Area person! Appreciate the advice.

I think my initial focus is on higher cash flow and less appreciation. Turnkey could definitely be an option, do you have any thoughts about how much lower the returns are if you go through a turnkey provider?

I've definitely heard that finding a quality PM team is one of the most important aspects of success. What kinds of questions do you ask to figure out if a certain PM is any good?

Originally posted by @Brian Garlington :

I would figure out if you want to focus on cash flow or appreciation. Here in the Bay Area we are used to appreciation so it’s easy to get jaded.

Pick an area and focus on it. That’s what I’m doing. I’ve picked Cleveland, mainly for cash flow... and have been doing it slowly. There are plenty of people here in BP that have done 100’s of deals and/or own several hundred units. I own 2 here in the Bay Area and will be closing on my 6th (For a grand total of 8 units) unit in Cleveland next Friday. 

The 6 in Cleveland have all been acquired since November of last year. All are between the 2% and 3% rule and are in C neighborhoods.

Do your due diligence, fly out to the area if you’re not familiar with it. I did.... twice. Meet some PMs and agents while you’re there..., and literally “own” it.

Hey Brian, thanks for the detailed explanation - really appreciate it! Awesome to hear about the success you're having in Cleveland.

How did you settle on Cleveland as a market?

Originally posted by @Com M. :

I decided to research markets, narrowed it to 3, then researched PMs and properties on MLS. Once I had all of this I weighed the pros and cons and chose the city with team, deals, and stats that worked for me. In my case that was Indianapolis but I was also looking hard at Memphis, KCMO, and a couple of cities in OH.

Now that I have the team I want to work with I purchased a duplex a little over a year ago and am looking at my next SFR now. I will probably build 3-5 here before thinking about diversifying.

I have had some bumps along the way so having just 1 property with multiple PMs in multiple markets could be bumpy. An owner with a portfolio normally gets more service and priority than a demanding OOS owner with 1, and lastly multiple properties is already a form of diversification.

Best of luck looking forward to hearing about your first deal. Or for a cool 1 million you can finance a studio apartment in your city and rent it for half of the mortgage: )

 Haha, yeah definitely not looking to invest in SF properties.  :)

Really appreciate you sharing your story. Very good point about getting more leverage with PMs when you own several properties in the same market.

I'm curious - how did you initially narrow all the possible markets to your list of 3? And then what led you to choose Indy over the others?

Hook up with a PM that understands REI and a good investor friendly agent and run wild wherever they cover.