Purchasing properties out of state

13 Replies

Hey BP,

My wife and I are newbies in Gainesville, FL. who are looking to get started on our journey to financial freedom! We have already created an LLC and will be looking to purchase our first SFR before end of the year. We both really like the idea of starting out with a turnkey property or two but had some questions before diving in.

1. Since we have created our LLC in the state of Florida, if we want to purchase property outside of the state, would we have to create a new LLC in the state the we are "doing business" in? If not, is there anything that we will need to do with our existing LLC in order to purchase out of state?

2. Since our LLC was created in Florida, would our income be taxed according to the state of Florida or according to the state that the purchased property would be located in?

I am sure that we will have many more questions along our journey and we look forward to making connections and lasting relationships with the BP family. Thanks for your help, in advance and I look forward to returning the favor!

Thanks,

The Floyd family

Hey Jay,

So far, through our research, our current rental market in Gainesville, Florida doesn't produce quite the ROI that we are looking for at the price point that we have found in some Midwest markets. We do plan on purchasing in our local market as well, however, we have yet to find any turnkey properties under $100k. Gainesville is home to the University of Florida so most of the rental market is flooded with students and to be honest, we are not sure that we want to go that route. Any properties that we have found under $80k needs some work to get it rental ready. All being said it looks like we will need to target the market here around $80k to $120k and put in a decent amount of work in order to make it rental ready. We are still educating ourselves and may be off in our assessments here. We would like to be fairly aggressive in building our portfolio and thought it may be a good idea to get some turnkey properties under our belts while we continue to break in to our market that will require a little more leg work. Do you think that we may be spreading ourselves too thin? What are your thoughts, suggestions or ideas?

Thanks,

If you can get properties in the price range you mention I would stick to your area. Out of state is manageable if you have some knowlege which is something you lack now. Remeber roi is a paper number. Out of state can have more vacancy that you don't account for because the higher returns are often is less desirable areas.

If you go out of state and have a property manager you can trust, then you may not need an LLC. Having the property in an LLC in Fl gives it no legal rights in the other state but I think th eproperty manager will allow you to get arounf this. Check with a lawyer.

Hey Trae,

 I too live in Gainesville and I agree that this market is student-Centric. 

I focused on one area of Gainesville and looked at market appreciation, the area is east Gainesville towards Newberry. 

Out of the sample of 30 houses I've looked at there has been a average of 3 sales and home values have almost doubled. 

I this has nothing to do with purchasing a fixer but it is to show that there is a lot of appreciation due to the inflow of people and the creation of jobs due the huge economic driver of the school. 

Hi @Trae Floyd - I started with local rentals getting to 5 multifamily homes (OH) while still having a full time job. It's good to get experience locally, learning about the purchasing, repair, tenant screening and rent collection processes. My wife and i didn't start looking at out of state turnkeys until we felt we couldn't do more with our FT jobs. We ended up using self directed IRA's to purchase TK's (now at 9 in Indianapolis) and then also focused on our local rentals. I was then able to use one of my rentals as collateral to purchase a car wash and leave the corporate world.

For me, taking this approach, allowed me to be more comfortable in purchasing out of state with turnkeys. Now, I’m using one of my Indy purchases as an AirBnB with my turnkey provider to learn the processes to potentially do it in my Ohio market. 

I’d recommend local learning first...

Originally posted by @Trae Floyd :

Hey BP,

My wife and I are newbies in Gainesville, FL. who are looking to get started on our journey to financial freedom! We have already created an LLC and will be looking to purchase our first SFR before end of the year. We both really like the idea of starting out with a turnkey property or two but had some questions before diving in.

1. Since we have created our LLC in the state of Florida, if we want to purchase property outside of the state, would we have to create a new LLC in the state the we are "doing business" in? If not, is there anything that we will need to do with our existing LLC in order to purchase out of state?

2. Since our LLC was created in Florida, would our income be taxed according to the state of Florida or according to the state that the purchased property would be located in?

I am sure that we will have many more questions along our journey and we look forward to making connections and lasting relationships with the BP family. Thanks for your help, in advance and I look forward to returning the favor!

Thanks,

The Floyd family

I may be wrong, but I believe you need an LLC in the state you are investing in. If you are looking outside of FL due to the high cost, then you may want to set up another LLC.

@Trae Floyd before you get too far a long with LLC's you have to consider how you are buying the properties. If you are financing, I don't know of a single conventional lender that will lend in the name of an LLC.

Hi Trae,

Like many that have responded.  I think the best is to look near your home or in State. The main reason many investors look out of state would be from high priced areas in CA or NY. In your case, you can remain in State and still find low priced homes. 

What I have noticed is many new investors look at the prices of properties in other states and cash flow opportunity and automatically think it's going to be easy.  They don't consider everything involved.  

1. It is not easy. You are hundreds or thousands of miles from your property.  You can't just stop by and check on it on a few hrs drive. 

2. You need a team.  You need people there who you can trust and rely on. No, it's not this great PM that you found.  You need a trusted friend or family member business partner.  This is the key part. 

3. Need a reliable list of contractors and vendors that you can go to.  The hard thing is building this list.  I found the only way is trial and error. Sometimes reviews and referrals just didn't work out. 

4. Not only do you have to do homework on the area of focus.  You need to fly to the area spend a good amount of time and drive all the neighborhoods. I would make a list of all the closed sales in the last 6 months of the area of focus and price points you are interested in. You at least get to see what the home and neighborhood looks like per price point.  Pictures only tell you so much.  You gotta see it and it can change your view. 

5. After you factor these things. If the ROI is still worth it. Go for it. You need to be prepared and know exactly what you are getting into.

Originally posted by @Trae Floyd :

Hey BP,

My wife and I are newbies in Gainesville, FL. who are looking to get started on our journey to financial freedom! We have already created an LLC and will be looking to purchase our first SFR before end of the year. We both really like the idea of starting out with a turnkey property or two but had some questions before diving in.

1. Since we have created our LLC in the state of Florida, if we want to purchase property outside of the state, would we have to create a new LLC in the state the we are "doing business" in? If not, is there anything that we will need to do with our existing LLC in order to purchase out of state?

2. Since our LLC was created in Florida, would our income be taxed according to the state of Florida or according to the state that the purchased property would be located in?

I am sure that we will have many more questions along our journey and we look forward to making connections and lasting relationships with the BP family. Thanks for your help, in advance and I look forward to returning the favor!

Thanks,

The Floyd family

You can register your Florida LLC as a foreign entity or you can simply create another LLC in the new state to take title to the new property purchases in that state.