Should I focus on finding my first investment out of state?

21 Replies

Hi Everyone - I am new to Bigger Pockets and looking for some advice. Hopefully, this is the right place! 

I am currently living in New Jersey and finally working towards my first investment property (multifamily/Airbnb). With the high property taxes in NJ and how expensive it is to purchase, I am not sure if buying in NJ is the right move financially. 

What are your thoughts on finding my first investment property out of state? Have you purchased a multifamily/host Airbnb outside of the state that you live in for your first deal? What advice would you have for being a landlord from another state, finding the right markets, working with agents/lenders, etc?  Thank you a bunch for all your advice and insight. 

@Kenneth Rose hey Kenneth. Can definitely understand where you are coming from. Many locations in NJ if you are buying on market or conventionally can be pricey. Good news is there's several ways and locations/markets to acquire your first rental in NJ. Partnering with experienced investors, working with an agent who invests, doing direct to seller marketing yourself are just a few ways. 

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meet ups, face book groups are good places to start networking. friend your local agents on face book. I have clients that only do out of state investing  because the pricing is cheaper. You have to have a solid team around you! agent, property manager and lender to name a few. 

@Kenneth Rose Hey Kenneth, welcome to Bigger Pockets! I'm out in California, so definitely can understand the reality of living in a super expensive market. I would totally recommend looking for deals out of state. There are tons of resources/podcasts/books etc. out there on the subject of owning property out of state and I'm a huge fan of it. It forces you to work "on your business" instead of "in your business" because you aren't able to just drive by to fix something small, you're forced to develop systems to help you run things. 

To start, the best thing would be to identify some markets that interest you. From there, go on Bigger Pockets and look for Property Managers. I know people say to talk to agents first, but I've found that property managers have less incentive to sell you something, and therefor are great people to talk to and than recommend agents from there. 

Hope this is helpful, if you ever want to chat more shoot me a message and best of luck to you!

Thank you for sharing some great perspectives @Jeffrey Albaum ! I like how you mentioned, work "on your business" instead of "in your business" as I am a big fan of having things automate and run on their own. I also would want to prioritize my family over everything as I start this journey, so developing this system to help run things is a major key. 

@Eric Goldman , I appreciate you sharing your insight and advice! Building a solid team seems to be a big theme of thriving and surviving in this space. Thank you! 

It really depends on your price point and whether you want cash flow now or can wait on appreciation as to whether you can invest in NJ now or whether it's worth it. The taxes are high, but there are options that will work, depending on how much you can spend and where you are and where you want to invest. A lot of us have focused on Philly in the past year because the deals are better comparatively and the options are pretty vast to house hack there or invest in multi if you understand the city dynamics and blocks. We have a NJ call on the 2nd WED of each month and a Philly call on the 3rd WED of each month. Also, a new investor call on the 1st WED of each month. All on Zoom, all free, no pitches. That could help you get a better perspective.

Welcome to BP @Kenneth Rose !! While purchasing out of state can be a little scary for your first deal, it is pretty common for investors in expensive markets to do this. All you need is a team that you trust of a Property Manager, Agent/Broker, Contractor, and Lender to have all the tools needed in order to acquire a good investment.

I would recommend starting with an agent or a broker first, as typically they have connections to PMs, contractors, and lenders they've had success working with. Agents/Brokers have their hands in a little bit of everything so they can break down the market the best!

I invest in Ohio (Columbus mostly) and have had a huge amount of success here! Good luck

Hey Kenneth, I'm in the same boat.  I'm south of Denver and the average home around here is $500k plus.  There are some markets a couple hours south of me with semi-affordable opportunities but they can get a little dicey neighborhood wise.  I'm looking out of state for my first investment and I'm focusing on a couple areas where I have family and some familiarity with the area.  I could probably find a cheaper area but duplexes where I'm looking are in the $150-$200k price range and it's been a steady market for a very long time.  Good luck!

@Jonathan Greene Thank you for sharing. I've always had the mindset of once I start out investing, cash flow would be the priority, but I am open to the idea of understanding appreciation more with a bit of research. I have heard some good things about Philly, so it would be great to really understand the city dynamics and blocks as you mentioned. What is the best way to get signed up for your NJ, Philly, and new investor zoom calls? I would love to attend all if possible. 

Out-of-state investing does present unique challenges but also provides the valuable benefit of portfolio diversification. You know what they say—don’t put all your eggs in one basket. With enough variety—the theory goes—when one asset gains another loses, offsetting some of the overall variability. Along those lines, diversifying your real estate portfolio geographically may offer you similar protection from swings in the market. Faster price appreciation in, say, Nevada could offset lower profits in L.A.

Best of luck, Kenneth! 

@Kenneth Rose the local “boots on the ground” will make or break your investment if it’s out of state.

My first rental is OOS, and if the realtor that sold it to me (that also does some property management too) wasn’t an honest, Hard working person, I would have had a disaster on my hands and been lucky to sell for what I paid for.

Not trying to dissuade you, as I did it, got lucky, and it’s worked out, but it adds risk, when as a new investor, it’s hardest to identify and mitigate risks.

Get ready to make a lot of out of state trips if you go forward with an OOS rental.

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I'd be reluctant to purchase my first multifamily out of state, you'd be putting a lot of responsibility in an out of state property manager that may not take care of your property as well as you would. Consider house hacking in your city/ region? You'd save money with a lower interest rate and you'd gain experience as a property manager. Also if you buy out of state consider physically visiting the property too.

My best advice for you for buying out of state is to find a location where you have a relative or friend that you can count on.  I helped an out of state investor buy a property just a few months ago.  He hired a property management company to manage it, but he also has a close friend who lives nearby.  This gives him "boots on the ground' to help watch and take care of anything that may be needed and it also gives him an excuse and a reason to visit his friend. It can be considered a business trip.  

@Kenneth Rose  
Definitely buy the house hack first, it will introduce you to real estate investing as well as being a landlord and if done right, you won't have to pay rent. After that, I would recommend looking towards the mid-west market's more specifically Columbus OH. Lots of job opportunities and population growth. 

@Kenneth Rose I did a post on the appreciation of Philadelphia (https://www.biggerpockets.com/...) that I would check out, it highlights the hottest area being West Philly, and the demand and future predictions for value. That being said the city is extremely block by block, so you have to make sure you're on a good one.

@Kenneth Rose My suggestion would be to flip first to rack up some capital. I would suggest markets such as Columbus, Oh, Indianapolis, Charlotte, or even Denton, Tx. If you are investing in Columbus, definitely flip for about a year before buying a buy and hold. Yes, it all comes down to your investment strategy and it can be done. But with the available flips right now and old homes, it would be wrong to do so immediately. 

Columbus, OH, offers a variety of markets/submarkets in such a small space (and it's only growing). For flips; Hilltop, Franklinton, Linden, Southern Orchards, would be my go to markets. Most investors can get a early 1900's build for less than 170k cash and have it done within 2 months. When you reach the buy&hold/airbnb stage, my immediate suggestion would be also Southern Orchards, Driving Park, Whitehall, or anywhere North side of Columbus (Dublin, Westerville, Delaware, near downtown, etc). 

It is 100% a market to tap into right now and finically speaking, most people are fools for not doing so. If you're looking in markets such as far south or far west coast (where most people are moving to right now), your investment strategy need tweaked (for residential at least). 

Feel free to reach out to me for any further questions. Either way, Happy Investing!

@Kenneth Rose

I’m a realtor in the Charlotte metro area. I work with a lot of out of state investors. Since Charlotte is such a great area to invest we get investors from all over the United States. Please reach out if I can help in anyway.

Hello Kenneth,

I moved from New Jersey to Las Vegas. I know how expensive real estate is in NJ and how high the taxes and insurance are, plus the anti-landlord nature of NJ. If you want to make money, NJ is probably not the place to buy.

The most important decision you will make is the location, not the property. As long as you buy a property in a "good" location, all but the worst mistakes will be corrected over time through appreciation and rent increases. However, if you do not buy in a "good" location, you can do nothing to turn things around after the fact. Fortunately, selecting a "good" location is relatively easy if you use the right metrics.

  • Rent and Price Growth Rate - Inflation is constantly eroding buying power; each year, it costs more to buy the same set of goods and services. If you buy in a location where prices and rents rise faster than the inflation rate, your buying power will increase due to the increased rents. If you buy in a location where prices and rents are increasing below the inflation rate, your only option will be to decrease your standard of living over time. Also, do not rely on the rapid increases resulting from COVID; these increases are not sustainable. Evaluate locations based on the ten years preceding the COVID times compared to the current inflation rate (>5%).
  • Population Size - Greater than 1 million. Small towns rely too much on a single business or market segment.
  • Population Growth - If people are moving into a location, many things have to be right, including jobs and the cost of doing business. Do not invest in any location where the population is stagnant or declining.
  • Crime - People and companies will not move to locations perceived as dangerous. One source of cities to avoid is Neighborhood Scout's 100 most dangerous cities.
  • Disaster Risk - Some parts of the country suffer frequent natural disasters. The best indicator for natural disaster probability is the cost of homeowners insurance. Avoid states with high insurance rates. Note, even if insurance pays for all the damage your property suffers, you still lose. When a significant disaster occurs, people and jobs move to locations where they can make money today. The location may take years to recover, or it may never recover. ValuePenguin is a good source for the relative cost of insurance by state.

Investment Team

After location, the most important success factor is finding and working with a good investment team. If you needed surgery, you would not start medical school. Also, not just any doctor will do. You want a surgeon that specializes in the kind of surgery you need, not a general practitioner. The same is true with real estate investing. You want to work with an investment team that already has the skills and a proven track record of finding, qualifying, renovating, and managing properties. A good investment team will minimize your risk and save you time and money. If you try to do everything yourself, it will cost you more, and the odds of success are much lower. The place to start is with an investment Realtor, not an investment "friendly" realtor. Below are the skills and experience an investment Realtor and their team members provide at no cost to you.

However, it may be hard to find an investment Realtor. Even in a large metro area, there is likely only one or at most two investment Realtors. While finding an investment Realtor may take time, the cost, risk, and time savings will be worth it.

Tenant Pool

The only way to consistently make money is to keep the property occupied by what I call a "good" tenant. A good tenant is someone who:

  • Has stable employment in a market segment that is very likely to be stable or improve over time
  • Has a credit history with which you can evaluate the likelihood that they will perform
  • Pays all the rent on schedule
  • Takes care of the property
  • Does not cause problems with neighbors
  • Does not engage in illegal activities while on the property
  • Stays for many years

Good tenants are the exception, not the norm. Good tenants are the result of:

  • Targeting the right tenant pool.
  • Selecting properties that your target tenant pool is willing and able to rent.
  • A skilled property manager.

How do you select a good tenant pool? Your investment team is your first stop. In addition, I would interview multiple property managers. I believe that the best tenant pool will be obvious once you go through the interviewing process.

Properties

The next step is selecting good properties. You now have all the information you need to select good properties. Your investment team will find and analyze properties and provide actionable analytics, not MLS sheets. MLS sheets contain little value to an investor. They will also provide renovation estimates and the other information you will need in your evaluation.

Summary

Kenneth, if you follow the process outlined above, your odds of constantly buying properties that provide a highly reliable long-term income stream are excellent.