Should a beginner buy local with lower cash flow or out of state?

Salem, OR · Member since 2020 · 14 posts · 3 votes

I am a beginner looking to buy my first single family rental for cash flow, but my local area of western Oregon has higher prices and potentially lower cash flow. I am interested in out of state investing, but seems like a jump for someone just starting out.

I would like to start with a local property so I could be more involved and learn from it, but with higher property prices it’s also a larger investment and Oregon is not the most landlord friendly state. Any advice on a western Oregon market and out of state options would be greatly appreciated!!

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Nicholas Cook

Real Estate Broker · Portland, OR · Member since 2017 · 100 posts · 56 votes

@Lauren Olson It really depends on your financial position and your goals. Oregon will bring lower cash flow and more regulations. The upside is general appreciation trends, low time on market and greater liquidity of the property than less popular markets.

While having a property locally is great for learning, you can still learn by buying out of state. The key is to have a solid property manager. A property manager will keep you informed and help you navigate the landscape of being a landlord. The key is to find a reputable one.

There is no perfect answer which is why your goals will help inform the best choice for you.

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Jade Bloomfield
Olympia, WA · Member since 2020 · 19 posts · 9 votes
6y
Hi Lauren, thanks for asking the question. I’m thinking the same thing. I’m in WA. Comparing the initial investment to what I’d get in rent over the west coast compared to the Midwest can be a little depressing!
1 Reply
Nicholas Cook
Real Estate Broker · Portland, OR · Member since 2017 · 100 posts · 56 votes
6y
@Lauren Olson It really depends on your financial position and your goals. Oregon will bring lower cash flow and more regulations. The upside is general appreciation trends, low time on market and greater liquidity of the property than less popular markets.
While having a property locally is great for learning, you can still learn by buying out of state. The key is to have a solid property manager. A property manager will keep you informed and help you navigate the landscape of being a landlord. The key is to find a reputable one.
There is no perfect answer which is why your goals will help inform the best choice for you.
6 Reply
Heather U.
Member since 2018 · 67 posts · 20 votes
6y
Out of state, everytime!! Agree with above, you need a great property manager. I have one who is also my agent if you'd like a contact for Charlotte NC. (No benefits to me, just passing his name along.) I invest from overseas and he handles everything for me. Good luck.
5 Reply
Eric Martel
Rental Property Investor · Fort Lauderdale, FL · Member since 2015 · 64 posts · 38 votes
6y
It depends on the resources you have available, your particular strategy then identify the market criteria that makes sense. I jut published this article on BP today.
Define Your Best Market
4 Reply
Annu Zer
Member since 2020 · 34 posts · 27 votes
6y
Based on personal experience, start local. You can check out some sites like roofstock, but benifit of having a property local outweight getting a cheaper "deal" out of sate and then having to deal with people remotely. For OR, look into house hacking or BRRRR, if that works for you, a good option.
Also areas like Salem are good option. Staying close to metros is safer option, as you can rely on popultion with high wages being able to rent, too far out and you run the risk of lower vacancy.
1 Reply
Marcello Di Gerlando
Investor · Colorado Springs, CO · Member since 2011 · 322 posts · 238 votes
6y
@Lauren Hogan @Jade Bloomfield
Trying to play the field with properties outside of your immediate market as a beginner in REI is a recipe for disaster. I'm not suggesting it's impossible but clearly a difficult and dangerous approach to start out with.
For me the fun and excitement of REI is buying the properties themselves. I want to see them touch them and kick the concrete, swing the doors, check out the neighborhood, envision them a new and turn them into fabulous places people can not resist.
REI is a pure hobby for me. Some folks collect stamps. I collect buildings. If I just wanted to push dollars around for a return I would play more heavily in the financial markets truth is I love buildings and interiors...for that I have to be local.
4 Reply
Jade Bloomfield
Olympia, WA · Member since 2020 · 19 posts · 9 votes
6y
@Marcello Di Gerlando, thanks for the input. That makes a lot of sense. Although I’m considering it, I am wary. Mostly because I like to feel like I’m in control of something when it’s my first time doing it. I’ll keep an eye on the market and see what seems to be working best at the time.
2 Reply
Tyler Caglia
Rental Property Investor · Fresno, CA · Member since 2018 · 112 posts · 166 votes
6y
@Lauren Olson Being in CA, I was faced with the same dilemma when starting out. I made the decision that I’d rather chase cash flow in the midwest than appreciation on the West coast, so I jumped into long distance investing. If you feel uneasy about it, David Greene does a great job laying it all out for you in his book, and there’s a few BP podcasts that discuss the concept in detail. Find a market, find a rockstar team, and go for it. The first time can be a bit daunting, but you have to trust yourself, trust your numbers, and trust the process, and it only gets easier from there.
It can actually be less stressful and more efficient to own property out-of-state if you do it right. If you own locally, you can be tempted to not only get emotionally attached to a deal, but if you acquire the property you would then be tempted to manage/maintain and periodically check in on it yourself. However, a long-distance property forces you to leverage the services of your team so that you can spend more time researching and growing your portfolio. Feel free to reach out with any questions, I’m happy to help.
3 Reply
Chris Mackinlay
Midland, TX · Member since 2015 · 90 posts · 75 votes
6y
I was driving through a town about an hour away from where I live and thought about buying some property there.
I went through the steps in my mind:
1. Learn market
2. Find realtor
3. Find and purchase property
4. Find contractor to do work (I can't do the work with my job, so this SIGNIFICANTLY increases my repair costs)
5. Find property manager and pay out the nose
6. Make $200/month CF
7. Wonder every day about tenants I don't really know, storm damages that go unreported, and trusting a management company I don't really know.
Or I could buy another in my hometown after saving a few more months.
That $200/month profit isn't worth it to me to invest far away.
0 Reply
Kyle Mast
Investor · OR · Member since 2018 · 8 posts · 13 votes
6y
@Lauren Olson, this is a great question to be asking. We live between Portland and Salem and have been investing in Oregon for the past 5 years and have several rentals in the area. However, personally we have made the choice to no longer invest in Oregon due to the attitude of the laws toward landlords, even ones that do a great job taking care of their tenants and their properties. Oregon also has some unfavorable 1031 exchange tax clawback provisions if you ever want to 1031 exchange to a property out of state in the future. For those reasons, and to diversify with greater cash flow we are branching into other markets (Ohio has been our first) and will be selling one or two of our Salem properties this Spring to deploy the cash elsewhere.
Getting started with a house hack locally is a great way to get started for sure. But really, as was said above, your property management team is the backbone of your business wherever you are in the long run. If you plan to go out of state be sure to spend the time interviewing the teams you will be working with.
Best of luck to you!
5 Reply
Eric Martel
Rental Property Investor · Fort Lauderdale, FL · Member since 2015 · 64 posts · 38 votes
6y
@Jade Bloomfield @Lauren Olson I think it is obviously important to consider your local market when looking for the right market to implement your strategy. Because it is local doesn't mean that your accessible. You have to consider the resources available to you. How much money do you have to invest, do you have access to PML, contractors, property management, etc. How much time do you have available for your investments? Then look at different markets including your own and compare the returns in each market.
When we started on BRRRR strategy we looked at our local San Francisco Bay Area market. We considered the amount of money we had, how much we would have to borrow from Hard Money Lender for bridge financing, permitting, inspections, unreliable and expensive contractors. CA law is also tenant friendly so if you are rehabbing a property that is already tenanted then good luck. We looked at properties to get an idea of how our strategy would perform. We estimated our returns in CA and it was less than the inflation. We started to look out of state and found many markets that performed very well. In terms of resources we didn't need a HML anymore, contractors were reliable and less expensive. We had to build a relationship with local realtor who steered us in the right neighborhoods and who managed the contractor, sent us photos/videos.
1 Reply
Priyanshu Adathakkar
Realtor · Columbus, OH · Member since 2017 · 313 posts · 245 votes
6y
If your sole consideration is the need or desire to self-manage your investment property, then buy locally.

The principle of substitution states that the upper limit of value tends to be set by the cost of acquiring an equally desirable substitute, assuming no untimely delays. A savvy investor will not pay more for an income-producing property than it would cost them to build or purchase a similar property. Likewise, a prudent tenant would not pay more rent than they would pay to rent an equally desirable property.

All properties, regardless of location or price, are substitutable, if the purchase price is the same as an investor you need to look at the income stream. The principle of substitution is closely related to the economic concept of opportunity cost, which holds that the true cost of an economic choice is measured by the opportunity foregone because of the choice.
0 Reply
Brady Potts
Developer · Missoula, MT · Member since 2015 · 60 posts · 28 votes
6y
@Lauren Olson

Everybody has great points about this. Specifically @Kyle Mast's point about Oregon 1031's and tenant-landlord laws.
I think one question still needs to be asked, is this your first property, rental or owner-occupied? If you currently don't own any real estate, you could house-hack your current market with MF if that fits into your lifestyle. It's a great way to gain experience with rentals, obtain some Schedule E income to show future lenders, and benefit from the loan pay-down & appreciation even if your cash flow is negligible.

If this is your first, you could also face financing challenges related to not having Schedule E income in your history. Also, traditional lenders are going to look at your experience overall, and if you don't own any properties currently, they could question your ability to manage rentals, specifically out of town. These things won't stop you from purchasing anything but should be considered and asked of your lender.
Has anybody had expereince in purchasing out of state properties as their first deal, and what challenges did you need to overcome?
0 Reply
Lauren Olson
OP
Salem, OR · Member since 2020 · 14 posts · 3 votes
6y
@Heather Uhlir
Thank you Heather I appreciate it!
0 Reply
Lauren Olson
OP
Salem, OR · Member since 2020 · 14 posts · 3 votes
6y
@Nicholas Cook
Thanks Nicholas, I have a decent amount for a down payment so I can buy in Oregon, but looking at prices where I can get homes for under 100k in other states looks appealing as the money will go farther, but also daunting since I don’t know the markets and neighborhoods.
Thank you for your input!
0 Reply
Kiwi Mills
Rental Property Investor · St.Louis MO · Member since 2014 · 33 posts · 16 votes
6y
Agree with what everyone said, think finding right property and good management would be key. Only concern I have that I didn't see mentioned is be careful of area invested and cost. Seen allot of properties recently that are asking for way more than it is worth. It almost looks like some people are getting a bid greedy or attempting to take advantage of people not in the area. 80k-100k in C or worse neighborhood. Saw one listed yesterday double to triple what it is really worth. I understand Caveat emptor "Let the buyer beware" but that is a bit much.

1 Reply
Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
6y
For your first one OOS would be scary and risky. If you have a trusted team in place and visit them OOS would be a good route. Always do your due diligence on the professionals you work with. Midwest would be the sweet spot for properties, you have a mix of job growth and migration towards those cities while prices are affordable. An example here you can find a B property for 120K that rents 1,200-1,300 pretty easy. Best of luck!
1 Reply
Lauren Olson
OP
Salem, OR · Member since 2020 · 14 posts · 3 votes
6y
@Tyler Caglia Thank you, that’s really good info.
0 Reply
Andrew SyriosPro Member
Moderator
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
6y
If you can make it work in your local market, I would recommend buying there. Out of state investing just adds so many potential problems and headaches IMO
Podcast Guest on Show #121
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Remington LymanBusiness Member
Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
6y
@Lauren Olson I would recommend checking out Columbus, Ohio. It is a great market for OOS investors.
[email protected]614-541-8475 Podcast Guest on Show My Job Laid Me Off, So I Replaced My Salary with Rentals
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Axel MeierhoeferPro Member
Rental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
6y
@Lauren Olson I am mentoring a few people who have the same goal.
To me the important aspects to consider are:
-What is your overall goal?
-How much does performance of the asset matter to you?
-Can you see yourself following a strategy?
Depending on the answers it becomes pretty clear what to do.
Sadly I meet a lot of people who have a broad range of ideas and intentions.
If you like I would be happy to have a free strategy call to discuss what your goals are and what I would suggest based on that.
Please PM me if you are interested.
1 Reply
Axel MeierhoeferPro Member
Rental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
6y
@Jade Bloomfield I am happy to discuss in case you are interested, same as I offered in my direct response
0 Reply
Lauren Olson
OP
Salem, OR · Member since 2020 · 14 posts · 3 votes
6y
@Kyle Mast Thank you Kyle, great info.
0 Reply
Derek Hamilton
New York, NY · Member since 2020 · 54 posts · 14 votes
6y
@Lauren Olson I heard someone say on the Bigger Pockets podcast and it makes sense to me. Love where you want invest where it makes sense. You can get a property management company to run things for 10% of the rent.
1 Reply
Lauren Olson
OP
Salem, OR · Member since 2020 · 14 posts · 3 votes
6y
@Brady Potts This is not my first property, we own our owner occupied and is a single family we have owned for about 10 years. This new purchase would be a first rental income property though.
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