Newbie interested in out-of-state Investing

Realtor / Attorney · Phoenix, AZ · Member since 2018 · 388 posts · 265 votes

The most important step toward OOS investing is developing a reliable local team you can trust! A lot of California investors look here in Phoenix - it's a short commute, we have a healthy market with lots of job growth, and appreciation has been reliable. Happy to answer any questions!

3 Reply

Will BarnardPro Member

Moderator

Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

Podcast Guest on Show #130

Originally posted by @Jaron Walling:

@Rochelle Duong Appreciation is NOT a quantifiable goal so I don't factor that into my decision to buy property. That's just my 2 cents. These goals can be achieved in different markets. You mentioned banks, I would talk to 2-3 banks in what ever market you choose. The rates won't very that much but developing a relationship is extremely important.

Yes and no. While I agree you can’t “rely” on appreciation and can not lock in some quantifiable return of it, if your strategy is wealth building over long haul as opposed to cash flow, you certainly can invest that way and get some “estimated” or proforma returns analyzed. Many call appreciation plays gambling or the like. In some cases, especially short term plays, that is true but for a long term play of 10 years plus, it is definitely quantifiable and profitable if you choose the right areas.

The real question is, what are your individual goals and needs Rochelle? Since you are young with no debt, cash flow is likely not as important to you as it would be for someone older so you can certainly make local plays in LA for less to no cash flow but future growth, depreciation, and amortization. Think CA home value in 2010 to today. Think same with 1995-2005, etc. These same investments in TX or similar though would have kicked off much more cash flow but much less appreciation. Compare the two and in both cases, the total net gain is much larger with the CA investment. Again, this is just a few 10 year hold examples, I’m sure I could find some that did not turn out as well, but as a whole, still profitable.

As to the rest, I agree with above that hav8ng a local team is of vital importance when investing out of state or local, but especially out of state.

OP

Lakewood, CA · Member since 2017 · 32 posts · 17 votes

@Will Barnard

Hi Will, actually, my general plan is to aim for cash flow from out-of-state properties so that I can purchase a home or other deals in California. Since the market in California is so expensive right now, purchasing a home here with the hopes of cash flow didn't make sense (although yes, there is appreciation, but that isn't a significant priority right now).

OP

Lakewood, CA · Member since 2017 · 32 posts · 17 votes

@Pamela Sandberg

Hi Pamela! Would you recommend reaching out to banks in those states early on now, or wait a little later when I have a bit more cash? I'm estimating at least 5-6 months for me to build up some reserves for a down payment at the moment

Realtor / Attorney · Phoenix, AZ · Member since 2018 · 388 posts · 265 votes

I'd start by reviewing MLS search results (which are more accurate than Zillow). This will give you a general sense of what your budget will buy in a particular area. You can also start to see what geo ares you're interested in, what features you do/don't want, etc. Once you have a clearer idea of what you want to buy you can get prequalified and ready to roll! It won't really hurt to get prequalified now, but it's also not really necessary until you get a little closer to buying.

OP

Lakewood, CA · Member since 2017 · 32 posts · 17 votes

@Pamela Sandberg In order to review the MLS, I would need to have a real estate agent license though, wouldn't I?

Realtor / Attorney · Phoenix, AZ · Member since 2018 · 388 posts · 265 votes

Any agent can set you up to receive automated listings in your preferred area, price range, etc. I'm happy to set you up with this in the Phoenix area if/when you are interested - just DM me your info!

2 Reply

Peice Livingston

Rental Property Investor · Columbia, SC · Member since 2019 · 38 posts · 10 votes

@Rochelle Duong be very careful, I'm an OOS investor from NYC and have properties in NC Fayetteville north Carolina. I am still cleaning up a nightmare for 2 rental projects for the last 4 months, I hired a contractor and he was the worst. He came in and outshined the other contractors by climbing up in the ceiling and noticing all the little problem areas and not to mention the decent estimate. He turned out to be the absolute worst ever. Poor work on a complete rehab job, I had the worst time trying to get him to come and fix his mistakes and even had to reach out to his fiancee to get the message to him that I was taking him to court. So now here I am 3 contractors later and no tenant in this property and don't know when I'll be done because his floor job sucks and every estimate I get is more than i want to put into this place. I'm 1800 into a rehab that was budgeted for 8500. Now I hired a lawyer to handle it and yes that's more money and I'm still not guaranteed to collect if they award me any money because he may not even be licensed, because NC doesn't require you to have a license to do renovation on a job under 30000. Be careful and always have a strong team . Since then I relocated to be near my investments and making progress...

Peice Livingston

Rental Property Investor · Columbia, SC · Member since 2019 · 38 posts · 10 votes

No problem

Kathleen D.

Member since 2020 · 21 posts · 28 votes

@Rochelle Duong What markets are you looking at? I think the midwest has low taxes and high cash flow. Much higher than in CA for sure! I just closed a couple months ago with my first few turnkey rentals that are going very well. We will likely contract 2 more next month as well. I would recommend touching base with zach lemaster at rent to retirement. He has been a great resource for my husband and I to start building our out of state portfolio!

5 Reply

Account Closed

Rental Property Investor · Los Angeles, CA · Member since 2020 · 13 posts · 2 votes

Hi @Rochelle Duong!

I’m in the same boat at you, just paid off my student loans, living in SoCal and wanting to invest but get the most bang for my buck.

I’m currently building a team in an outside market. I’ve met people through bigger pockets who have been so helpful. Being an OOS investor I spend so much time on Zillow, Realtor, and especially google so I can virtually “walk” the streets.

Talking to lenders is good, I have an amazing broker that I use and he gets me in touch with the best lenders for the deals, he has great resources.

[Request to Contact Removed by Moderators] I’m hoping to make my first deal by the end of the month!

Matt Santillanes

Newport Beach, CA · Member since 2018 · 13 posts · 6 votes

@Pamela Sandberg may I please take you

Up on this offer too? I’ll send my info with your approval.

Thanks!

Realtor / Attorney · Phoenix, AZ · Member since 2018 · 388 posts · 265 votes

@Matt Santillanes: Absolutely!

Benjamin Orozco

Rental Property Investor · Los Angeles, CA · Member since 2019 · 64 posts · 29 votes

@Rochelle Duong

I’m investing out of state as well I live in Los Angeles.

I’m going to mention some important details about lenders. I was told by a couple portfolio lenders there requirements. They want to see cash reserves, they want a good credit score 680 and above. They want a low debt to income ratio. That your W2 job produces enough income minus your expenses(cash flow). Your landlord history. They ask you fill a financial analysis statement. Now I don’t know what kind of financing your using but if your choosing to use portfolio lenders this is what they require. If your using conventional Fannie may and Freddy mac loans the requirements are a little similar but change quite a bit. Before you find a lender I would pre screen as many property Manangement companies as you can. Ask the property manager for referrals for a real estate agent. Then screen agents including the referral and pick one. If you have a good property manager he will recommend a solid agent they like to work with. Then you can ask both the property manager and your new real estate agent for referrals to great lenders in the area. Once you have your lender, Agent and PM. Ask all of them for referrals for Contractors they trust.

2 Reply

OP

Lakewood, CA · Member since 2017 · 32 posts · 17 votes

@Benjamin Orozco

Since you do OOS investing, would you say having a reliable property manager is a crucial step to make this process of managing rentals easier? I was on the fence with that since I've had a friend who manages a property in Detroit distance without a proper manager, so he was able to be more profitable in this sense. Luckily his tenants (a family) take care of the property very well, but my friend also has a higher risk tolerance than I do. I'm not confident as a newbie investor to just jump in the game without using a property manager. Any insight is helpful if you have any

Any experience with turnkey companies? if so, what are your insights on them?

OP

Lakewood, CA · Member since 2017 · 32 posts · 17 votes

@Account Closed

Hello fellow SoCal investor! Congratulations on this step! Do you have a property manager to help you manage your OOS rentals?

I hope to be in the same boat as you within the year with purchasing my first property OOS. Shoot me a DM on your broker's info for future reference if you can! I'd love to keep in touch with your journey as a new investor

Jonathan Oh

Investor · Las Vegas, NV · Member since 2019 · 499 posts · 259 votes

@Rochelle Duong @Rochelle Duong If you're looking for cashflow, you may want to consider midwest. Prices are much more affordable. Just don't fall in the trap of investing in cheap properties that have amazing ROI on paper. I began my OOS investments using turnkeys and focused on B class areas. So far it has been going great. Feel free to message me if you have any questions

2 Reply

Benjamin Orozco

Rental Property Investor · Los Angeles, CA · Member since 2019 · 64 posts · 29 votes

@Rochelle Duong

Your friend that is self managing is doing well with it because it's family, and that doesn't always Guarantee success. Since you are out of state the best thing you could is get property management. A good property manager will save you time to do other more important things like working on the next deal. Sure you have to pay them but as you create a relationship and have volume you can negotiate discounts on management fees as David Greene mentions in his BRRRR book. Turner also mentions that a property manger can make or break your investment so screening one is crucial as well.

I looked into turnkey and it's very tempting but the reason I decided to go make all the connections and relationships with people to do what a turnkey company does is for the learning process. Aside from forced learning through networking you are creating and obtaining equity through the rehab process. It's two dynamic benefits from manufacturing your own ROI vs paying for a estimated ROI through turnkey.

James Wise

Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes

Originally posted by @Rochelle Duong:

Hello there!

I'm currently looking to get my foot in the door regarding investing out of state. I currently live in a very expensive market (Los Angeles, CA), and recently just paid off all my student loans, have a stable income, and excellent credit. I still live with my family, and our house is paid off, so I currently don't owe anything. Generally, my next steps include saving up and doing research on various investment opportunities out of state (i.e. Nevada, Florida, Michigan, Arizona), networking with local real estate investors/agents, and taking a couple trips to survey properties once I have enough saved up. Does anyone have any further insight on this?

I've been listening to David Greene's audiobook on investing out of state, and listening to a few BP podcasts for inspiration and insight. Wanted to be more active on BP now that I got one financial hurdle out of the way.

So far, I reached out to a lender regarding what type of loans I could be pre-qualified for, and from my understanding, this shouldn't affect my credit score. Should I talk to several banks to see get different pre-qualification rates?

Welcome aboard Rochelle. Many markets available. Cleveland is the one I am most familiar with and it's also very popular with investors across the USA so I figured you'd get some value out of reading The Ultimate Guide to Grading Cleveland Neighborhoods. I also have similar guides that you may want to look over for Kansas City, Missouri. & Birmingham, Alabama.

In addition there are tons of other turnkey markets out there besides those listed above. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors

Cincinnati, Ohio
Dayton, Ohio
Toledo, Ohio
Youngstown, Ohio
Cincinnati, Ohio
Memphis, Tennessee
Saint Louis, Missouri
Indianapolis, Indiana
Detroit, Michigan
Erie, Pennsylvania
Louisville, Kentucky
Milwaukee, Wisconsin
Jackson, Mississippi

Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.

One thing to note when looking at the individual markets, you can make or lose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
Make sure your property manager is a licensed real estate brokerage.
Google Clayton Morris Scam and/or Morris Invest Fraud for a cautionary tale of what not to do when buying turnkey real estate
Understand you can not eliminate all risk, only mitigate it. If you are risk averse, real estate, (especially out of state) is not for you.

4 Reply

Tom Ott

Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes

Originally posted by @Rochelle Duong:

Hello there!

I'm currently looking to get my foot in the door regarding investing out of state. I currently live in a very expensive market (Los Angeles, CA), and recently just paid off all my student loans, have a stable income, and excellent credit. I still live with my family, and our house is paid off, so I currently don't owe anything. Generally, my next steps include saving up and doing research on various investment opportunities out of state (i.e. Nevada, Florida, Michigan, Arizona), networking with local real estate investors/agents, and taking a couple trips to survey properties once I have enough saved up. Does anyone have any further insight on this?

I've been listening to David Greene's audiobook on investing out of state, and listening to a few BP podcasts for inspiration and insight. Wanted to be more active on BP now that I got one financial hurdle out of the way.

So far, I reached out to a lender regarding what type of loans I could be pre-qualified for, and from my understanding, this shouldn't affect my credit score. Should I talk to several banks to see get different pre-qualification rates?

Hello and welcome! Best of luck to you.

Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes

[email protected]248-209-6824

Some general food for thought:

It's never too early to start building a team of experts, just be polite about the amount of time you expect them to work for free.
Most Realtors only have experience with buyers looking for an owner-occupied home. So, they have very little experience when it comes to rental properties. In our experience, less than 5% of agents know enough about investment properties to help an investor. Be sure to test their knowledge before adding them to your team.
it's also never too early to talk to a lender, but just like with Realtors, find one familiar with financing rentals. They can tell you what to do NOW, so you can be best positioned for a loan when you are ready to buy.
When interviewing property mangers, make sure they are properly licensed, have a decent website, have company URL emails (not @gmail, @yahoo, @hotmail, etc.), offer an online portal for owners & tenants and MOST importantly, can tell you about their specific systems & processes to take care of your rentals.
Many contractors are like politicians - whenever their lips are moving they're lying. Never pay them upfront and always check them out with the local BBB, state licensing, confirm they are insured, etc. Before you pay them insist on a narrated video as those are harder to manipulate than pics. Better yet, hire a 3rd party inspector that will inspect and verify what was done & how well - before paying ANYTHING.

If you're thinking about investing in a specific city, enter it here on BP search and read as many comments by others as you can.

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Cathie Lazarus

Los Angeles, CA · Member since 2020 · 16 posts · 6 votes

@Rochelle Duong

Hi Rochelle! I am in the same place as you. Looking for my first property OOS. I would love to connect and compare notes!

Rod HanksBusiness Member

Insurance Agent · Dallas, TX · Member since 2013 · 743 posts · 462 votes

@Rochelle Duong

Congratulations on getting started! Dallas is a great place to invest.

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David Green

Rental Property Investor · Montgomery, AL · Member since 2020 · 14 posts · 5 votes

Maybe we need to have a SoCal Newbie OOS meetup. I'm in the same boat looking for OOS investments as the local market doesn't cashflow enough for me. I'm looking to establish enough passive investments to retire as early as possible (preferably the next 3-5 years lol). Currently, I'm researching prospective markets more specifically ones with MFH to BRRRR. From reading this thread my next step will be to find a good PM in the markets I find. Congrats on getting started and wish you success on your way to financial freedom.