Out of state investing

15 Replies

Like many others on BP I'm new to the RE world and I'm looking for guidance on how to execute a successful out of state deal on a multi-famIly unit so I can achieve positive cash flow that I can use for future investments. This would be my first property owned (personal or investment) so I do have some concerns on what to expect such as: Finding a realtor in the area of investing (east Texas for this specific example), also finding a reputable general contractor if any repairs come up, and any referrals on real estate management companies? I have an investing partner which I trust entirely, we both make a comfortable living but want more in life. We are both located in CA and are curious as to how these out of state deals are done (such as getting approved for the loan, do we need to travel out of state in order to process paperwork for the loan? how many times do we need to travel out of state before the deal is finalized?) I ran the numbers and it looks like it could be a valuable asset and potential good starting point for a first time investor. Any advice or information would be greatly appreciated thanks in advance!

Best advice I can give is to click "Store" at the top of the page and buy David Green's new book here on BP, called "Long Distance Real Estate Investing". It's very good, and will answer all the questions you have. Absolutely worth purchasing.

If you set it up right, you don't need to travel out of state at all. You'll likely want to on your first deal just for peace of mind, but it's not a requirement for any of the steps you listed.

@Robert Arroyo  

You and your partner need to educate yourself on OOS investing by reading books, listening to podcasts, and networking with local OOS investors.  

Since you both reside outside of TX, you'd need to find your "boots on the ground" down there in a form of a team. Do not buy anything until you have a solid team in place ready to undertake your investment on your behalf. The team should include but not limited to: property manager, contractor, property inspector, attorney, realtor. 

Best of luck!

@Robert Arroyo . I would encourage you not to buy in Texas if you live in CA. You are committing to Raising your tax bill much higher then it would be in other states
@Alina Trigub I agree completely about the entire "boots on the ground comment" that is part of the reason why I decided to create a BP account for networking purposes as well as a potential learning tool. Thank you for your advice it is most appreciated!
@Caleb Heimsoth "I would encourage you not to buy in Texas if you live in CA. You are committing toRaising your tax bill much higher then it would be in other states." Forgive me I am still new and learning but when you say I will be "committing to raising my tax bill" what specifically does that pertain to? Is it property tax? Or my taxable income? I have contemplated other areas as well such as arizona, pennsylvania, ohio and other markets in the midwest. May I ask where you would recommend state wise to invest and why?
Originally posted by @Robert Arroyo :
@Caleb Heimsoth

"I would encourage you not to buy in Texas if you live in CA. You are committing toRaising your tax bill much higher then it would be in other states."

Forgive me I am still new and learning but when you say I will be "committing to raising my tax bill" what specifically does that pertain to? Is it property tax? Or my taxable income? I have contemplated other areas as well such as arizona, pennsylvania, ohio and other markets in the midwest. May I ask where you would recommend state wise to invest and why?

CA has one of the highest income taxes in the country.  Texas has some of the highest property taxes.  So you pay high property taxes and high income taxes.  There’s no state income tax in Texas but you don’t get that since you don’t live there 

@Caleb Heimsoth "CA has one of the highest income taxes in the country. Texas has some of the highest property taxes. So you pay high property taxes and high income taxes. There’s no state income tax in Texas but you don’t get that since you don’t live there " I understand now, so it's a combination of both. Thank you for clearing that up for me I really appreciate your advice!

Hi @Robert Arroyo

I am a recent transplant from Southern CA.  I moved my real estate business from CA to Dallas.  I was "late to the party" as prices are up here too.. but real estate still cash flows here and I've purchased SFRs to fix/flip, SFRs to rent, 2-4 units, invested passively into larger apartment syndications, and have also sponsored 2 larger apartment deals totaling 400+ units and now on my 3rd one.  If you have hustle, time, a special skill set, liquidity, net worth, or a combination of any of these three you can start playing in the multifamily syndication space.  Between the different investments I've made here, the most gratifying and lucrative has been larger multifamily by far.  I am in the process of selling all my small stuff.  Ugh.

@Robert Arroyo This is the best resource I’ve found for analyzing out of state markets. You have to pay for specifIc data, however even the pubic data Is helpful. I like using a lot of data sources so if anyone else on here has any to share, please feel free. https://www.localmarketmonitor.com Good luck in your out of state endeavors!

Texas has higher property taxes, but no state income taxes.  Also, talk to your CPA about these tax issues.  Our higher property taxes insulated Tx from rapid appreciation because the property taxes took a bite out of how much a buyer could borrow for a given income, meaning the market price for properties didn't get bid up here like what happened in Los Vegas.  As a business, property taxes reduce the income you have to report.  But again, talk to your CPA.

When it comes to investing not-local, "trust, but verify" should be your mantra.  Cost to monitor increase, so factor that into your budget.

@Robert Arroyo As others have pointed out that building your team is essential. Also, living in Cali and investing TX will give you the worst of both worlds. 

Nonetheless, if you are still committed I would suggest (apart from the above suggestions) on deciding where in East TX you will be investing. A lot of parts are very oil-driven so the "attractive" assets you see today can suffer from dramatic swings in valuation. Also, in smaller markets it will be hard to develop a reliable team. You don't want to buy a headache especially as you are living on the other end of the country.

Originally posted by @Caleb Heimsoth :
@Robert Arroyo. I would encourage you not to buy in Texas if you live in CA. You are committing to Raising your tax bill much higher then it would be in other states

 Can you explain? 

Are you saying “you’ll make so much money that you’ll have to pay a bunch of tax”. That doesn’t sound like a big negative. 

I live in Cali and buy in Texas. I wouldn’t live anywhere but Cali and wouldn’t buy anywhere but Texas.  Don’t see why more don’t do the same 

Originally posted by @Robert Arroyo :
@Caleb Heimsoth

"CA has one of the highest income taxes in the country. Texas has some of the highest property taxes. So you pay high property taxes and high income taxes. There’s no state income tax in Texas but you don’t get that since you don’t live there "

I understand now, so it's a combination of both. Thank you for clearing that up for me I really appreciate your advice!

 I believe in the “if you don’t have something nice to say...” school of thought. 

That said, dont follow his advise.  No reason to move out of Cali unless you just don’t like living here. And yes Texas has high property tax. So that’s factored into the p/l of a property you might look at.  If the numbers still work they still work. 

I’d rather buy a $50k/door property that rents for $800/door in Texas (at 2.5% prop tax) than a $200k/door property in Cali than rents for $1200/door (at 1% tax). The Cali property has 400% higher price for 50% higher rent. So the property tax per $ of rent coming in is still better in Texas. And you don’t have crazy leftist tenant laws that make you want to smash your face in