Why are so many new investors looking for out-of-state properties

123 Replies

Every day in the forums it's the same thing. "I'm just getting started and I've analyzed a ton of deals (never seen any in real life) in several markets that are nowhere near where I live because where I live there aren't any good deals."

Here are some things to consider:

- Do you want to learn about REI or just be a passenger on someone else's plane? If you want to learn about REI, you aren't going to learn anything by investing in a first deal out-of-state. You could make money, but you will have no more knowledge of what it actually takes to be a better investor since you haven't seen any deals in person. And your entire investment will be managed and reviewed and maintained by someone you probably don't know very well.

- Why do you think there are no deals around your area? There are, you just don't know how to find them. If your 10-mile radius is overpriced, go up to 30 miles. You can't tell that within 30 miles of anywhere there isn't an up-and-coming area that has yet to hit its peak with deals available. Learn how to find local deals instead of hopping on the train of everyone who wants to sell you swampland in the Everglades for a great price.

- If this is going to be the single biggest investment in your life to-date, which most likely it is since you are new, why do you want to do this out-of-state and out-of-mind? What other investments are like this?

- Ask yourself how many properties you have seen in real life? How many times have you figured out what good electrical looks like and what bad electrical looks like? What about foundation issues? Do you know what markets have a saturation of abandoned oil tanks as possibilities? Even if you plan on investing out-of-area in the future, you should still be seeing 25-50 properties in person before you buy anything anywhere. Why would you take all this money and invest in something you haven't even put the time in to understand in real life.

- Analyzing deals on the computer or in a calculator, with no actual RE experience, is playing video games. You can calculate what a deal in Cleveland looks like based on Internet metrics, but which town is set to explode next? Who is telling you what is B- versus D in an area? Who can you trust there that DOES NOT have an interest in the sale?

Those of us who have been investing for 30 years don't talk about BRRR and we don't use acronyms for everything. I get why they are exciting concepts, but you can't talk investing well online and then expect to walk into an area and have old-school investors and sellers have any idea what you are talking about. The only way to get good as a real estate investor is to do the work in the field.

You have to know what a dump of a house looks like, feels like and smells like so when you look at photos of a crapshow in some random town that is a "steal" you know that it needs more than lipstick to go back on the market. REI, just like the Internet and Instagram, seems easy and looks cool online when you see everyone and their cousin flipping, but most people lose money in real estate. They just aren't here to say how bad they are doing because they hate real estate so much, got bad advice, and were scammed.

Stop looking at every market that is hot because if someone tells you it's hot now, you are one year too late. Find the area within 30 miles of you that is next to the last area where home prices have just gone up. Focus there. Get off the computer and calculator and go see properties, as many as your agent friend will take you to see.

Agree starting local is a better way to go, I think a lot of new investors in places like CA see a $500k price tag and think saving $100k for a down payment is unattainable and they don't want to house hack.  A lot of people who post on here never invest anyway, but give themselves hope with OOS because it feels more attainable.

Preach! 

I have these people contact me several times a week for guidance and most are not nearly prepared for doing out of state deals that aren't fully turnkey. I was one of them once and I decided to jump in the deep end anyway and get my hands dirty investing out of state in the midwest. Though, I'm a risk-taker and worked remotely so I could go back and forth to check in on things as needed. Not that it was a good use of time and money, but it allowed me to jump in. It's worked out so far, but it's been a grind and most don't have the stomach for it. You can certainly make some money buying in less expensive out of state markets, but you can lose it much faster. 

@Jonathan Greene

Great post. I am a newbie investor. I am looking at my local market but also a market I use to live in and have many connections in as well as visit frequently. It is half the price of where I live now. I believe if you have good connections and can find a good team outside of your local market then I think it is not all bad to invest outside of your local market. I think the most important thing is finding a good team you can trust since you will not be there for every step or issue. I think you need that no matter if your investing local or out of state. Again, great post and appreciate your insight.

@Aaron K. I agree, it sounds good to go out of state, but they aren't thinking about how it really works. Everyone is in too much of a rush because 90% of the "experts" in REI tell them to buy anything for cheap, all deals you can do seller financing, and you can house hack everywhere.

@Ryan Evans yup. It's like a weird obsession to own something that you will never see. You at least were going to see it and getting to know the area. These days people think they can go on Niche and get a whole community. It's ludicrous. I am ok with OOS investing, but not for new people. If you don't know what the properties are like, how can you invest in them where you can't even see them? Maybe that's easier, like a cheat code, but it's not smart. You got lucky, but you also made the effort to look and see.

@Christopher Leet I agree that places you've lived before are great, but still hard for a first-time investor. It's a best-case approach and at least you know the areas well and can trust people. I've invested in areas where I had a close friend and done vacation rental because they were there to monitor it so it can work. It's just that so many people are giving advice like to invest in an area that you only learned about online and that will never work out. 

All my investments have been out of state and have zero regrets for that. I would love to invest in something that is local or atleast a few hours drive away but thats just not possible with the price points/ROI that I am after.

Everyone always think the grass is greener somewhere else. What they are ultimately doing is just setting themselves up for failure by taking on increased risk in markets they arnt familiar with, because a spreadsheet tells them the numbers are good. 

Life doesnt happen like a spreadsheet.

I live in one of the most expensive areas in the country (Washington D.C.) and I wanted to acquire multiple properties quickly so I decided to invest in the Midwest. I am still in the rehab phase and it hasn't been easy (lots of traveling back and forth because I am still establishing professional relationships with contractors, realtors, etc. and the level of trust isn't there just yet) but I'm making it work. I was able to purchase three properties and land for less than the cost of one house in my area. It probably would have taken me much longer to acquire properties had I stayed local. I am hoping to leverage and eventually invest in my area as well. 

Originally posted by @Jonathan Greene :

@Aaron K. I agree, it sounds good to go out of state, but they aren't thinking about how it really works. Everyone is in too much of a rush because 90% of the "experts" in REI tell them to buy anything for cheap, all deals you can do seller financing, and you can house hack everywhere.

@Ryan Evans yup. It's like a weird obsession to own something that you will never see. You at least were going to see it and getting to know the area. These days people think they can go on Niche and get a whole community. It's ludicrous. I am ok with OOS investing, but not for new people. If you don't know what the properties are like, how can you invest in them where you can't even see them? Maybe that's easier, like a cheat code, but it's not smart. You got lucky, but you also made the effort to look and see.

@Christopher Leet I agree that places you've lived before are great, but still hard for a first-time investor. It's a best-case approach and at least you know the areas well and can trust people. I've invested in areas where I had a close friend and done vacation rental because they were there to monitor it so it can work. It's just that so many people are giving advice like to invest in an area that you only learned about online and that will never work out. 

Jonathan,

I am a Detroit investor and I personally visited and toured the city for 4 years before I decided to invest there. I actually almost know the city like the back of my hand now because I took time to visit several neighborhoods, speak to residents and do research online. I don't know it as well as a local obviously but I know what major developments are coming, average price points and rents for several different neighborhoods and so on. 
 

its all about price point for most.

its hard to do anything with 50k in a market were the median price is way north of 500k..
so mid west is an affordable option for those that for whatever there desires are want to be landlords or
real investors.. simple as that in my mind.

Out-of-state investors always ride into the 'Burgh breathing fire and ready to beat the world, and then they ride out under cover of dark grimly resolved never, ever, ever to talk about the shaved orangutan that they woke up next to.

Originally posted by @Jim K. :

Out-of-state investors always ride into the 'Burgh breathing fire and ready to beat the world, and then they ride out under cover of dark grimly resolved never, ever, ever to talk about the shaved orangutan that they woke up next to.

Jim, I didn't know what you were talking about; so, I made the mistake of googling it.

 

Out of state isn't bad you just need to focus on true B areas. I have done several for Cali investors. The ones who purchased the nicer buildings even though they looked worse on paper then the cheapest properties did best. One of my Cali clients is actually up over $150k in appreciation and cashflowing it was only around a 6% return when first bought.


@Danielle E. that is absolutely the right way to do it. If you learn a market, visit it, know the blocks, then it becomes your area whether you live there or not. It does still take time to build the right team, but if they know you know the area and have contacts that can check on them you can control it. If I go into a foreign market I do the same. I go there and know it better than locals. What you are doing is NOT what most people are trying to do. They are evaluating cities on the computer or through a "guru" and then trusting everything.

With what other said I still think you can always invest in your own market or nearby. If you have 50k to invest and the market is good, your appreciation will be much better and your rents will be higher. Too many people make the mistake of getting three properties in areas they don't know instead of one closer to where they do, but the metrics end up being similar with more headache.

@Henry Lazerow I agree that B out of state makes sense, but you are dealing with investors who already invest most likely. New investors don't know a B from a C and in the end those letters are arbitrary determinations by local real estate investors who may or may not know anything. The city isn't calling their areas C and D areas, it's a made-up system that takes into account random data points and personal preference and "skill."

I think that by the time someone travels back and forth a few times, get cheated by contractors and PMs, have lower cost houses and lower rents, and regularly beat up houses they would come up the same as investing closer to home with higher prices and higher rents.

@Jonathan Greene

Shouldn't we just let them do this charity? For the country? They are supplying all the money, fixing up all the homes that the locals would never touch. It's making nice homes for nice families .

Yea they will lose some money but the lessons learned way ..more valuable? Lol

@Jonathan Greene good post. I have basically invested wherever I was to a fault though. I lived in one area where I should of branched out of closer to 2 hours instead of 30 miles.. 

There’s “ deals” in every market but they are usually not in the mls . You have to be a different kind of investor to hunt them out . The best deals are not found ..they are created and it’s with motivated sellers not somebody “looking to sell to see what’s out there “.  

As Jim K eluded to going out of state and buying an investment often looks good on paper compared to your home state /town . But reality will soon set in and you’ll realize that algorithm and bp calculations don’t pan out in real life because we are dealing with people not spread sheets 

...when your tenant snorts the rent money up his nose , the contractors robbed you and left a disaster , code enforcement is breathing down your throat ,insurance company cancels you . Your furnace dies , the neighbors report a dead hooker in the backyard , you got bed bug roaches or termites everywhere some crack head broke out the windows and spray painted helter skelter on the siding!

Originally posted by @Jim K. :

Out-of-state investors always ride into the 'Burgh breathing fire and ready to beat the world, and then they ride out under cover of dark grimly resolved never, ever, ever to talk about the shaved orangutan that they woke up next to.

LOL!! Thanks for the laugh, Jim.

Originally posted by @Dustin Mathenia :

@Jonathan Greene

Shouldn't we just let them do this charity? For the country? They are supplying all the money, fixing up all the homes that the locals would never touch. It's making nice homes for nice families .

Yea they will lose some money but the lessons learned way ..more valuable? Lol

Yeah, but Dustin, to really go out on a limb here and try to make a salient point, that's rarely how it works out. Nine times out of ten, these OOS investors don't start with properties worth fixing up. The fixing that's then done is shoddy as hell, and the place starts deteriorating again immediately. It's just the nature of the beast. You can't pump money into this sort of renovation and end up with nice homes for nice families. You just end up with lipstick on a pig.

@Jonathan Greene

You sound man bro, haha I love it. I'm with you 100% about out of state investors. How dumb can people be? "Let me buy a house I've never seen before, do a half butt job looking up the area, hire a management company with no idea how to manage myself, and expect a solid ROI CASHFLOW!!!!" Yeah...good luck.

I have a “buddy” who told me he’s going to out preform me in flipping houses out of state. I’m two properties in and he just completed his first flip. It took him two years to flip out of state because he couldn’t get to the property enough times to fix it. Bozo couldn’t find a deal in our hometown if it bit him in the nose. Anyways...yeah I agree with you. Newbie out of state investing is a wash.

Just because there is a book on out-of-state investing doesn't mean everyone can follow that and it will work and that all these questions are answered. There are books on how to invest with no money down. How does that work out for 98/100 people? Not well. Out of state investing is perfect for people who have experience and can make contacts quickly in an area or who can do so much volume in an area that if one goes off the rails it's not that big of a deal. Anyone who reads these questions and says, "Hey, there's a book on it" will just lose their money trying it. It's not about whether you can or not it's about WHY you would do it for your first investment if you actually want to be a real estate investor. If you want to be a day trader, have at it and invest in towns you've never seen. It won't work out long-term. To be a real estate investor you have to get your hands dirty and that doesn't mean on a keyboard looking at values of a town you've never seen.

Local doesn't mean stay on the same block, it means keep moving outward to find the next "it" neighborhood. It's not hard if you are always out in the field. All of these new investors who are searching online for the best places to invest are a year behind. If it's out on the Internet, it's way too late. You missed all the big profits and will be scratching at bad deals and small margins with everyone else who is web surfing for "best place in the country to make money on real estate with no money down, no experience, and no will to actually see properties, but really want to get into investing today." :)

@Jonathan Greene

Thank you for starting a refreshing thread on some of the counter points to out of state investing for first timers. There's a lot of content on it's advantages and it's important to hear about the con's from experienced investors.

I'm a first timer and have to admit oos sounds alluring (I know a lot of people on this thread may call me dumb, but I know I have a lot to learn and haven't committed to anything yet so I don't think learning and exploring is a bad idea). I'm by no means trying to cut corners, I've started a business and am willing to work hard over many years before seeing any success.

In your opinion, is oos ever right for a first timer? One of my thoughts is gaining experience with something turn-key or close to it on a site like roofstock. I know I won't make great returns this way, in fact i could lose some money on a deal or two, but I think doing this would allow me to grow a team over a few years to feel more comfortable with projects that may need more rehab work.

I live in Brooklyn NY and appreciate your point that while I can't afford anything on my block, or 100 blocks around me, within 30 miles, there are plenty of opportunities. I worked for a company that managed about 200 apartments in urban areas and have dealt with evictions, bad tenants, police raids, sewage backups personally (fun stories), but I've never owned myself so I'm trying to be thoughtful about tiptoeing in. 

Appreciate your thoughts.

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