New Investor Looking Out of State

8 Replies

I am brand new to rei and my local area is very bad so we are looking out of state. We chose Atlanta, GA because we have a good friend who lives there who can help us in a pinch if necessary, and it seems to be a good area for real estate appreciation. With my budget, cash flow will be tight, but should be positive by roughly $36-100/month (more if we have fewer expenses. I am figuring $200/month for expenses outside of mortgage, taxes, insurance, management, and leasing). The house is single family and recently renovated so the expenses should be low for awhile. I explain all this so you have some background for my question... Should I form an LLC (and where to register it?) for out of state investing, or should I just hold extra liability insurance (do I need umbrella policy?) to make taxes simpler? I hear a good lawyer will sue you personally whether you have an LLC or not. Is that wrong?

The other question would be for anyone in the area that has local knowledge. I have a good realtor there who hooked me up with a good property manager and I think I have everything figured to make an offer, but I wasn't sure if anyone knew if the Pittsburgh neighborhood in Atlanta was a place where I can be reasonably confident about finding a renter? The only concern I have is if we can't get it rented at all. 

I am totally new to this so these may be really basic ignorant questions!! Apologies if they are. Thank you for any help/advice you can offer.

Your margin is too tight in my opinion. Your agent needs to be working wholesale off market. You did not say where you live and why you consider your market is not good. Read the book Acres of Diamonds by Russell Conwell. Maybe with the right coach, you live in acres of diamonds. Being new and going out of state causes different headaches then the ones you can drive to in a few minutes or hours. As a thought, Consider Commercial in your area like an industrial park. Easier to manage, longer leases, tenants pay for upkeep thru their CAMs (common area maintenance) fees. 

@Peggy Beauregard

Thank you for your response! I agree the margins are very slim! My question then is this. How do you increase that margin? For this particular house, I save about $20 a month on the mortgage for every $5,000 less in purchase price I get. I’m assuming for this house I’d get it at $190,000 and the house is listed for $205,000. If I wanted to get a better margin I’d have to offer another $25,000 lower to get an extra $100 or margin. No way he would accept that. So is this where wholesalers come in?

The other option would be to buy a place that needs work, but every place I seem to find that could use some work needs more than my budget can allow once I pay the down payment.

So the reason I was ok with a slim margin here was because the area is trending up. So if I figure average appreciation is 3%, that would make the property worth $206,000 (assuming $200,000 valuation today). As an area that is trending up, I would hope it would exceed 3%, but I’ll still assume 3%. So if I make $6,000 in value and only maybe $400-2,000 in cash flow, that still seems like a win, especially since the loan will be paid down by roughly $2,200 in the first year. So if I calculate $400 cash flow, $6,000 in appreciation, and $2,200 in equity, that’s roughly 12.6% return on my investment. That seemed workable to me. I’m in this with roughly a 25 year plan to build a small portfolio for retirement. Let me know if you still think this is an unreasonable calculation! Thanks so much for your advice!

@Tyler Hampton have you seen the house already? Is it turn key or there will be repair required down the road? That’s what you need to be careful about and that’s what’s gonna eat up all your profit. It’s a really dangerous margin you are looking at.

@Jingru Sui I really appreciate the response! I will give you a little more info. My realtor did go look at the property and said it would  just need new blinds and a new handle for a door, but other than that it looked good. I am allocating $200/month towards any home repairs or expenses that come up and will have a reserve of about $20,000-$25,000 in case something major happens. So if we don't have any repairs in a month, we will save $236-$336 that month of positive cash flow (which we won't touch since this is a retirement plan, not access to money soon plan). I would hope that that would cover most minor expenses for any given year, and then we would have the ability to pay for any major issues that might come up with our reserves. Then the hope is obviously to increase rent as time goes on, as well as gain appreciation and loan pay down. I am trying to be as accurate and realistic as possible and certainly don't want to buy a house just to buy a house. Let me know if you still think this is something I should abandon and look for other options! Thanks so much!!

@Tyler Hampton I’m more comfortable after hearing this. Please also hire inspector and have an inspection dd period. This way you have unbiased 3rd party opinions about the condition and how much repair $$ you need to save. Good luck!!

@Tyler Hampton  Your questions on liability insurance and an llc are valid but I think you have a few other concerns before then. 

I can't comment your numbers without seeing them, but I'll say this: My suggestion is to actually see that particular neighborhood in person.

I was there this afternoon. I'm around there a few times a week and I'm personally trying to get a property in the next neighborhood over. There is a lot going on around the neighborhood and more work in progress, but there is also a back story. If your margins are as thin as you say, I suggest you dig deeper. 

@Tyler Hampton based on vacancy data from the census bureau, the two census tracts that roughly comprise the Pittsburgh neighborhood in Atlanta show a vacancy rate of 9.3% for the most recent year. 

This is just over 3% more than the national average of 6.2% vacancy.

I would simply use that 9.3% in my pro-forma for my vacancy assumption instead of the conventional 7% and see if it's still cash flowing. 

I've owned property in the Pittsburgh community for 11 years. Started buying right after the market crashed.

while the neighborhood is gentrifying and the values have exploded and new people are coming into the community to buy a home, the renter pool is still the same.

That means low income families. They may move in with the best intentions, but they don't have savings. Any emergency will be taken care off with rent money, figuring they'll catch up before eviction is finalized.  But then they don't catch up and you will end up having to spend a few grand or more to make the house livable again. Not only will they leave it in a mess, they usually move out while the eviction is going on and you don't have access to the house, yet. In between the houses often get broken into and everything stolen, including wiring 8n the walls. 

since mine are all connected I now only rent to artists. Typucal tenants in Pittsburgh have cost me more money than I ever received in rents. But it was worth it, because of the value explosion. 

I would not advise you to buy property in pittsburgh for rental, unless you have deep pockets to keep renovating a couple times per year.