guide for out of state real estate investing
Fremont, CA · Member since 2013 · 7 posts · 0 votes
Is there any step by step guide for beginner for out of state real estate investing? Please provide some details on how I can start investing out of state for cashflow rental properties with buy and hold strategy? Which areas I can start with?
All Real Estate investing, whether it is the house next door or one across the country begins with RELATIONSHIPS. And the best place to start is right here on Bigger Pockets. We have members in all 50 states and when you connect with them, you are then connected to all their connections.
Like you, I live in California and started investing here in 1982, having bought my first rental in San Bernardino. I was lucky as my father was a Realtor at the time, (I was only 21) so he had connections and we found a cute, slightly junker property. And since then, I have bought all over. My last purchase, in Memphis, TN, was with Alex Craig, whom I met right here on BP. We closed late last year.
I have just a few basic rules for EVERY property I buy, whether next door or thousands of miles away.
1. ALWAYS get an independent appraisal. Don't trust a Realtor, Lawyer, Property Manager, Zillow, Realtor.com, or anyone. Get an independent appraisal.
2. ALWAYS get a home inspection, independent of any interested parties.
3. Check internet classifieds for rental rates in the area you are interested in investing in.
One trick I like to do is to call several Property Manager's in the city/area and tell them that you are being transferred to their city and want to know what areas are the best to rent.
Using online resources, it is not difficult to find good Property Managers either. I needed a new one in Fresno, CA and a person from BP gave me a good referral for Fresno.
If you want to find what area's to invest it, you need to set your own criteria. For me, I want a 1% of price in rent as that gives me an 8-10 CAP rate. With my other criteria, I will accept a slightly lower CAP rate than most IF there is a stronger chance for appreciation. I would never go under 12% CAP if the appreciation possibilities were under 50%. Since I can get 12% or more as an HML, when I get less on a rental, I want a strong chance for appreciation.
So once you have your own criteria, then you can start checking markets. For my criteria, I like TX, OK, AZ, UT and some parts of CO. My second tier areas would be TN, FL, NV and the Carolinas. While good deals can be found in all markets, I would rather fish a pond that has 100 nice fish vs. the pond that has 2 or 3 nice fish.
One last bit of advice if you are still unsure of investing out of area. Try buying your first rental close enough that you can drive a round trip the same day. My first foray out of area was in the Visalia area of CA, about 200 miles away. Close enough to drive to if I absolutely had to, and far enough to be considered out of area. Best of luck to you.
All Real Estate investing, whether it is the house next door or one across the country begins with RELATIONSHIPS. And the best place to start is right here on Bigger Pockets. We have members in all 50 states and when you connect with them, you are then connected to all their connections.
Like you, I live in California and started investing here in 1982, having bought my first rental in San Bernardino. I was lucky as my father was a Realtor at the time, (I was only 21) so he had connections and we found a cute, slightly junker property. And since then, I have bought all over. My last purchase, in Memphis, TN, was with Alex Craig, whom I met right here on BP. We closed late last year.
I have just a few basic rules for EVERY property I buy, whether next door or thousands of miles away.
1. ALWAYS get an independent appraisal. Don't trust a Realtor, Lawyer, Property Manager, Zillow, Realtor.com, or anyone. Get an independent appraisal.
2. ALWAYS get a home inspection, independent of any interested parties.
3. Check internet classifieds for rental rates in the area you are interested in investing in.
One trick I like to do is to call several Property Manager's in the city/area and tell them that you are being transferred to their city and want to know what areas are the best to rent.
Using online resources, it is not difficult to find good Property Managers either. I needed a new one in Fresno, CA and a person from BP gave me a good referral for Fresno.
If you want to find what area's to invest it, you need to set your own criteria. For me, I want a 1% of price in rent as that gives me an 8-10 CAP rate. With my other criteria, I will accept a slightly lower CAP rate than most IF there is a stronger chance for appreciation. I would never go under 12% CAP if the appreciation possibilities were under 50%. Since I can get 12% or more as an HML, when I get less on a rental, I want a strong chance for appreciation.
So once you have your own criteria, then you can start checking markets. For my criteria, I like TX, OK, AZ, UT and some parts of CO. My second tier areas would be TN, FL, NV and the Carolinas. While good deals can be found in all markets, I would rather fish a pond that has 100 nice fish vs. the pond that has 2 or 3 nice fish.
One last bit of advice if you are still unsure of investing out of area. Try buying your first rental close enough that you can drive a round trip the same day. My first foray out of area was in the Visalia area of CA, about 200 miles away. Close enough to drive to if I absolutely had to, and far enough to be considered out of area. Best of luck to you.
Hey Rajiv, Mike definitely gives some good advice there. I live in CA as well and only invest out-of-state. I was lucky and got connected with some great people pretty early in the game and was able to learn about what to look for in different markets and how to find good properties. I go the turnkey route myself, so I don't have to worry about doing any work from afar. But even with the turnkeys, Mike advice is great in terms of making sure to always get the home inspection, etc.
The good news is out-of-state/area investing can be a lot simpler than most people make it out to be. If you want to put work into the property yourself, then that's another thing and requires a lot more thought and effort, but there are easy ways to get great properties that cash-flow well while letting everyone else do the work for you. That's my preference at least :)
Hi Rajiv Gupta,
Welcome to BiggerPockets!
I could write pages on out-of-state investing, and one of these days I will write a complete article on the subject. However, for now here are some tips and guidelines:
1. Start by having a basic investment strategy: Are you a long-term investor focused on wealth creation, or on short-term investments (3 to 5 years)? Is your primary focus on maximum cash-flow or appreciation potential? It's good to be clear.
2. Once you know your strategy and the type of investment property you seek, then you can narrow down the markets that best fit that strategy. For example, if your focus is to maximize cash-flow then a market like Indianapolis would be on your list. If your looking for higher appreciation potential, then a market like Phoenix would be on your list.
3. Once you've done some due-diligence to narrow down your market(s), then you can look at neighborhood and property combinations. My preference is always towards bread-and-butter housing in B+/B/B- neighborhoods. (I don't like to sell anything else to my clients.)
4. The next step is to analyze specific properties. You want to look at three things: the location, the condition, and a complete cash-flow analysis. Properties is good desirable communities are best. New construction (not common today) or newly rehabbed properties are part of what I call "turnkey", and should be your preference when investing from out-of-state. Finally, you want to see a complete breakdown of the income and expenses so you can calculate the expected returns (such as cap rate, cash-on-cash, net cash flow, etc.).
5. Once you've found a good property that you're interested in, you should put it under contract so you can complete your due-diligence. That usually involves a third-party inspection from a home inspector -- which is what most of my out-of-state clients do. (Very few actually fly out to see and touch the property.)
6. Once you're satisfied with the property, you would continue with the closing process which is handled by a title/escrow company. If you're financing the purchase you would continue working with your lender/mortgage broker.
7. Shortly before the close you would sign a new management agreement with the property manager handling that property. (Almost all turnkey properties have property management in place, and it's simply a matter of setting up anew account for you.)
8. Finally, a few days before the actual closing date, you will receive your set of closing documents, usually by FedEx. You would review them, then sign them with the help of a notary (which you can find at any UPS Store.) Once complete you simply return them back to the title company.
9. Congratulations! You are now the proud owner of another investment property under management by a professional management company.
NOTE: The above may sound a little difficult or complicated, but a good turnkey provider will handle most of these steps for you and with you. There will be hand-holding and guidance from start to finish.
Finally, as far as your question about what areas to start with, I might recommend my free report called the "2013 Housing Market Forecast".
I hope that helps a little bit. If not, let me know what wasn't clear.
Continues success!
Thanks Mike M, Ali Boone and Marco for your good advice. I am completely new to out of state investing and do have have access to good resources. My question is more about how to get started in out of state investing. I know there are many step by step guides available on biggerpockets. Is there any such guide for out of state investing or any other resources.
I do not want to go by Turn Key approach.
I am looking for long term hold with maximum cash flow but at the same time want to have multiple exit strategies.
Hi Rajiv Gupta,
I'm trying to better understand what you're looking for. What is your investment strategy?
Hi Marco,
My investment strategy is buy and hold and at the same time positive monthly cashflow. I am looking to put down 20% down payment and looking for properties under 100,000 to maximize my cash-on-cash based return.
Hi Rajiv Gupta,
That is a good answer, and one that I expected. What is not clear to me is what your approach to finding these properties would be. You mentioned that you do not want to go the "turn key approach", however, based on your investment strategy it would seem to be the ideal solution to your quest.
Maybe I missed something... Are you looking to find distressed properties to fix and rehab yourself?
Thank you.
Marco, Also let me know how to get your free "2013 Housing Market Forecast" report?
Rajiv Gupta -- It can be found on my website (in my profile).
Hi, I guess I have to ask if you have ever completed a real estate deal?
and if not, why not start where you are currently located?
laurence, I am new to this and have not done any deal yet. The area (bay area) I live in is very costly to implement the buy and hold strategy without big chunks of money.
@Marco Santarelli -- Can you recommend some turn keys properties and areas so that I can maximize my returns on investment on cash-on-cash basis.
Hi Rajiv Gupta,
I will send you a PM in order to be more specific. I agree with you that the bay area is very costly.