Rental Property Investor · Redmond, WA · Member since 2019 · 10 posts · 1 vote
While I am still working through the educational and saving phase of my investing journey, the main predicament I am facing for what to do next is where to invest. I am planning to stay around the Seattle area. Is it worth investing in a relatively expensive market and house hacking in order to get a lower down payment and learn the ropes of management or investing in another market to potentially achieve a better return, but outsource management responsibilities?
This seems like a common problem for new investors, any thoughts are appreciated!
Hi there @Milo Mincin!! This is a great question, as you said it, a lot of new investors have this question. The quickest answer is to invest in a market you are more familiar with. This doesn't mean that you can't invest in a new market, it just means you have a little more research work on your hands.
Whether you’re investing out of state or one street over, the number one priority is data - statistical data- on vacancies, maintenance costs, average length of stay, eviction rates and average move out costs, the list goes on. Don’t put your money into a new market without getting a firm handle on the data first.
Do research on the areas the properties are in. A good first step is just looking at the property and the neighborhood on Google Earth and seeing how the property looks, is the house unkempt, how appealing is the neighborhood, etc. If the prop is listed as an A- but a quick Google Earth shows otherwise, it’s time to look elsewhere. Of course, market research is crucial, but nothing beats looking at the props and the areas in person. I usually recommend that folks take the time to visit their top markets before pulling the trigger.
Hi there @Milo Mincin!! This is a great question, as you said it, a lot of new investors have this question. The quickest answer is to invest in a market you are more familiar with. This doesn't mean that you can't invest in a new market, it just means you have a little more research work on your hands.
Whether you’re investing out of state or one street over, the number one priority is data - statistical data- on vacancies, maintenance costs, average length of stay, eviction rates and average move out costs, the list goes on. Don’t put your money into a new market without getting a firm handle on the data first.
Do research on the areas the properties are in. A good first step is just looking at the property and the neighborhood on Google Earth and seeing how the property looks, is the house unkempt, how appealing is the neighborhood, etc. If the prop is listed as an A- but a quick Google Earth shows otherwise, it’s time to look elsewhere. Of course, market research is crucial, but nothing beats looking at the props and the areas in person. I usually recommend that folks take the time to visit their top markets before pulling the trigger.
Find boots on the ground or partners in a market that gives you your return goals. Don't be forced to invest in your backyard even though some factors may be "easier"
My first investment will be out of state, hopefully making a purchase by the end of the year. Read David Greene's book Long Distance Real Estate Investment. You'll realize that there isn't really an advantage to living close to where you invest.
Honestly, i feel it is better to invest in what you know. Also, no one is going to take care of your asset like you will, so to be able to lay eyes on it, possible even self manage it, can only be a good thing
Remember when you invest OOS (turnkey, etc) that you are paying for all the hand holding, the “boots on the ground” etc etc - those folks are making money on you - and that is money you are spending that is not going into the value of your asset.
As you can see I am a firm believer in investing locally - especially for your first investment. Househack, buy a house and flip it, buy a 4 plex - lots of ways to invest in an expensive market. And remember - its expensive for a reason - because people want to live there!!
You’ll have to run the numbers to see what makes the most sense. In general I favor expense reduction via house hacking first if you can substantially lower or eliminate your mortgage expenses on your primary property. I went out of state for my first investment. Don’t expect to make phenomenal returns on the first home - the education itself is the main benefit.
As a first timer i would say to stay in your backyard because you are familiar with it. You are correct that Seattle is an expensive market and buying a duplex is a good investment because you're buying value. You are also collecting rent from one unit and hopefully that rent covers a nice portion of the expenses. I am also a firm believer in Appreciation due to location, location, location! Research the history of home sales in the area that you are interested in so you can have an idea of the rate of appreciation. Its really cool to know that you can command top rents & if you decided to sell it down the road, you can possibly make back every penny you paid into the place plus the house is worth almost double of what you paid! Also, if you ever wanted to expand your portfolio that 1 duplex will give you refinancing access to a nice sum of cash.
I am in the same situation. Living in a Boston but looking to purchase my first property in Orlando and eventually move there. It really does take a lot of time and research and finding a team. I’ve spoken to multiple agents and only 2 has been super helpful and continuously follows up. Get on a mailing list, start running numbers anything you’re unsure about, as your out of state agent or the agent responsible for the property. I find once you start analyzing deals, you start to modify your criteria to see what works in the area, you start learning the area, the cities, the neighborhoods. From that, you start getting more curious, which leads to you looking for answers in google eg: vacancy rate in x area , from that research, you learn something new which leads to you researching something else. Then you find yourself searching for more info in the forums, then you learn something else from another persons response. I also find out more info when I post my deal analysis in the forums.
If you need vacancy rates or list of property management companies, search for them in the forums or google or ask your agent. The book on Long Distance Investing is really helpful as well and The Millionaire Real Estate Investor.
@Milo Mincin If you can make the numbers work on a house hack in your local area, do it! House Hacking is such a powerful tool; in it's ability to get you into properties you may not otherwise be able to afford to live in or own, it lets you rent by the room which can be quite lucrative, and you would certainly learn a lot about management and maintenance.
Also, House-Hack while you can... It only gets harder as you get older. Moving in with a loved on, having kids, the general decline in tolerance of others that comes with age (meaning you become a grumpy old man) etc all make it harder and harder to do as you get older. I say do it while you can.
@Milo Mincin I have only ever invested out of area / state as I live in NYC snd needed to find markets more suited to my budget . I have had no problems touch wood BUT my best advise is .. find the best property manager in the area and build a solid relationship with them . Think of your PM as your business partner . I cannot stress that enough as you can’t run a business out of area without one in my opinion . Do not let being at a distance from your market though , it might not seem ideal but sometimes it just makes the most sense and I have built a strong portfolio investing this way .
Thanks for the tips! Definitely want to do my due diligence with research before jumping in. The google earth idea is great. It seems like a good to get a 'feel' for an area aside from just hard numbers.
I keep hearing about that, it's next on the reading list. I'm starting to see that it definitely is a possibility, just kind of intimidating to do right away. I think I'm also a little attached to the idea of managing a property myself to save money and living in it for the tax benefits, but that doesn't really make sense if a way better return can be achieved elsewhere.
Super helpful! Very true too, the more I do research or reach out in any specific area, the more doors get opened to other ones. Good luck with your ventures!
Thanks! You bet, always trying to find high quality people to work with. What are some reasonable expectations for a remote property manager? Constant communication and notifications when there are vacancies?
Haha you bet. I really want to house hack while I'm relatively young because I feel like my tolerance for 'uncomfortability' is decently high. Do you think renting by the room is a good way to go or is worth the extra privacy to get a duplex and rent the other unit?
As a new investor, I would invest where you are if you are not planning to move in the near future. Get a duplex/triplex/quadplex and house hack it. I would recommend managing yourself at first. This will give you an education in what it is your property manager will provide for you in the future and the experience you need to bring to the table when hiring a property manager or maintenance team. As a young guy, this education will be invaluable to you as you build your portfolio. Being in Seattle, you are in an expensive market but a very stable market with, I believe, some solid appreication. While you house hack the one you live in, pay down your mortgage with the rents you collect, put the rest aside, and build capital while you look for the market you want to invest in.
The most important decision you can make with buying out of state is selecting your team. Your property manager will be your eyes and ears on the ground and you need to have a mutual trust and respect for it to work. Otherwise you will be drinking Pepto by the bottle and spending money traveling because you dont know if they really have it under control. Go to the market you want to invest in and meet the property managers, agents, and maintenance crews, then grow from there. But first, start in your back yard, and get the experience you need to know what you want and where you want to go.