Out of State Investing for Californian

26 Replies

Hi BP community,

I am thinking of doing some out of state investing.  I work full time so I need good property management.  I am thinking of using either Jason Hartman referral service, epic real estate cash flow program or maybe one advertised on the radio real estate guys show.  Does anybody have any advice or experience with any of these people/programs?  Thanks in advance!

Pam

@Pam Schuster   welcome to the site!  As someone who wants to invest out of state, you will want to read up a lot on the pros and cons of this method of investing.  You can lose all your money (or most of it), or you could hit home runs (or at least get to 2nd base).  

I don't know if that baseball analogy made any sense!  Basically it can be either a good or bad experience depending on the team in the area you work with, especially the property manager (PM).

@Pam Schuster  

  are you talking about Jay and Bill there in San Deigo?

There are a myriad of middle men in the industry and no doubt you will get some PM's from those that lurk on BP for buyers.

I wrote an e book on the do's and don'ts of investing in the mid west cash flow markets that I am happy to send your way just send me a pm with your e mail.

bottom line is you get what you pay for.. especially in the bigger cities. buy the nicest you can.. the properties that are super cheap with high advertised returns are just that advertisements.

when buying through an agent in LA they are making a fee that you pay for on top of the home so as long as you think your getting value.. Jay And Bill are licensed RE max agents so that is good many of those selling are not licensed so you have no recourse if something needed to be addressed.

Best of Luck to you.

A small word of caution: While living in CA, I owned and rented property in CA.  Then I moved to NV.  Now CA started hitting me with an out of state owner tax that is based on the Gross of rental income (not the Net).  So as soon as I moved away, CA started cutting into most of my cashflow.

My word of caution is: You might want to investigate how taxes on the deal will work in both states before jumping into a deal.

Originally posted by @Daniel Burbol :

A small word of caution: While living in CA, I owned and rented property in CA.  Then I moved to NV.  Now CA started hitting me with an out of state owner tax that is based on the Gross of rental income (not the Net).  So as soon as I moved away, CA started cutting into most of my cashflow.

My word of caution is: You might want to investigate how taxes on the deal will work in both states before jumping into a deal.

 Great advice!

Pam,

1. I can agree with @Daniel Burbol  100%. The tax man from each state including federal will always be there and they want their cuts (unless you find a way).

2. That was one of my fears, all these shows are turning people onto real estate without people understanding the risks. These shows tend to act as "middlemen" and they take a portion of the value.

3. I recommend that you look at the risks involved to avoid losing money, find ways to apply risk mitigation techniques, and do a bit more research (BP is a great resource) before jumping into the "shark infested waters".

Tony

@Tony Tran  

  would that be sharks with  laser beams  :)

Welcome!

We live in Central California. We own both locally and out of state (east coast). We self manage and have put a business plan together that allows us to manage thousands of miles away! While it certainly has had its moments we have done very well.

@Jay Hinrichs 

Haha! Laser beams...love it!

Welcome

I have nothing good or bad to say about Jason Hartman or any real estate referral service but, if you are investing in real estate outside of your home base, I would get a property management company that eliminates the Tax on your Rental income.  Your referral service, and management company should be an IRS designated 501 ( C ) 3 Tax exempt community housing development organization.  In Box me and I will send details on investing this way out of State

@Alex Hamilton  

  can you please expound on this... how can a private investor be a 501 C and get tax free income.. ??

Regarding Affordable Investment Properties, and Jay Hinrichs question as to "How can a private investor be a 501 ( C ), and get Tax Free income?"  The private investor can not .  However, a Private investor can be a member of a 501 (C) 3, and use it as a Conduit for investments that are within the purposes of the Non- Profit.  The most common use of a 501 (C)3 is a "CRT"  Charitable Irrevocable Trust.  See a Tax Attorney for more details

@Alex Hamilton  

Ok I am familiar with charitable remainder trust .. Have done many transactions with wealthy families that use this election. Never have seen it though in the SFR rental game. And or with the average BP er that is looking to create wealth not give it away.

but there is always a new scheme ...

@pam 

@Pam Schuster  what role are you looking for your biz partner to fill? Just mgmt or the entire process of finding and managing the property? 

I am looking for turn-key with a high degree of success that is legit.  That is why I am asking the BP community.  I am really conservative and have only invested in my backyard so far.  It is new for me to give up control but I am investigating right now.  Thanks to all who have responded I really do appreciate it.

Pam

You may want to attend one of the Marshall Reddick events, as they have been helpful to us, finding properties we would otherwise have missed:   

http://www.mrren.com/

Regarding the California out of state owner tax:

We've been doing some digging.  Yes CA is requiring our management company to report our tax on the gross rents per quarter, but we are starting to find a paper-trail that would let us deduct the expenses on a different tax form.  we know we can deduct at year end.  we are currently trying to determine if we can submit this 2nd form per quarter and make this issue go away.  I'll update with details when I have the final results. 

Pam, most of our cash buyer investors here in San Antonio are from CA. It works great for our buyers....note that you can do owner finance deals so that you do not have to be a landlord. Works brilliantly for our out of state investors. Good luck!!!!!

@Account Closed  

  how do you handle the Dodd frank and Safe act on owner occ seller finance these days. I know it was a no brainer in years past but with the new rules how are you possibly qualifying people that would want to live in 60k homes in Texas... I see this as glorfied landlord.. and the default rate over time is sky high from my personal experience. I did a few hundred of these over the years and can name on one hand the amount of people that actually perfected their contract.  but maybe times they be changing.

Hi dodd frank is not an issue. You can do three deals a year, after that we use a loan originator. 

Our default rate is low. When it happens, we resell it in 2-3 months to another buyer. No big deal. 

My mentor retired himself at 28 with owner finance distressed properties in San Antonio. Blue collar hispanics, no credit, documented income, 5k down. Must have stable work history. Works very very well, good markets and crash markets. 

thanks!

the key is very carefully qualifying people of course. Out of 500 people who call us for a house, a handful qualify. Patience is the key. If you want to get rich quick, go try the lottery :)

@Account Closed  

  If they have no credit and you don't qualify them but then you do qualify them. I think you run up with the Qualified mortgage laws.. those are separate from the 3 exclusion rules.

Its just when your putting other investors into these deals as the sellers there are risks they are not aware of. If you are doing these all yourself as the principal then that is another matter your in the business and you know and accept the risks,

Nope. We have done thousands of these deals. There are no risks they aren't aware of. There are risks with rentals - vacancies, people trashing the house. The risk here is a default, which is solved by a 60 day foreclosure process and reselling the house to another buyer. Get the house back in better condition and resell it. 

We qualify everyone according to law. We have a team of lawyers on this trust me. Job and documented income is what matters.

My partner has done thousands of houses with several hundred investors owner finance. Upgraded entire neighborhoods. I would not invest any other way.

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