Investing in Rental Income Properties out of state

121 Replies

Hey Everyone,

My goal is to invest in Single Family Homes and Condos that I can rent out and eventually generate a decent amount of passive income.

I’ve heard from many experienced investors (and moguls) that the best way to start out is start in your city, town or state because you will have a much better idea about neighborhoods, job market etc and would just need to drive around to get some leads.But I don’t have that luxury because I live in the San Francisco Bay Area where housing is a lot more expensive than what I can afford.

I’m looking at purchasing properties worth $50-$100K where the mortgage would be affordable for me to cover out of pocket in the event I’m not able to have the place rented. From the very basic research I’ve done, I’ve figured out that good deals can be had in the following states (in my price range): Florida, Georgia, Texas, Ohio, Colorado and Utah. I have the following concerns

  1. I plan on using a Property management company (8%) but I’m concerned I’ll get ripped off I don’t take precautions or look for certain things (because I don’t know what I need to look for)
  2. Random Unexpected events come up: IE roof caving in, Water heater breaking etc that will render the unit unlivable or exposes me to liabilities.
  3. Since Im not in the area, i don’t know it that well, ill end up choosing something that is not in the ideal location, and my assumptions about the place being rented, etc will be completely wrong.

I would appreciate any suggestions or nudge in the right direction.

Thanks!

I was in the same boat, bump up your budget or take a loan get higher caliber property. I went out of state because I couldn't close a deal to save my life in Oakland. In Oakland I was looking at near 500k, HOA fees, and maybe 2500 a mo in rent. My out of state property was under 200k and rents for almost 1700 (Not the best performer, but far from "bad").

Some areas are easier than others to research as they've been pretty well discussed, while others are more tricky and car change quite a bit so best left to locals. 

Last thing to consider is taxes/laws. Some states have lower taxes and are more landlord friendly. 

If you want to know more in depth feel free to PM me and we can chat... it was a interesting experience, wish I did it sooner.

Great question and investing out of state is the best move that I ever made. Now I live in LA and invest in key markets around the usa. I have built a portfolio which cash flows every month and it has been going great.
I'd love to share how I got started and if I can help you grow your business and build up some cash flow.
Connect and let's chat!

Thank you for opening up a great discussion. I am also located in Northern California and I am thinking to invest out of state. I have already built up a rental portfolio here started investing in 2011-2012 but it doesn't make sense to invest in California anymore. That's why I have been looking to invest out of State . I would love to hear from you guys experiences and learn from you.
Thank you!

I am biased, not just for Georgia, but for making money and good cash flow without huge investments.  In my town of Athens, it can be tough to find deals right now, but not based  on plenty of conversations I have had with other California people.  There are tons of condos and houses in the $90-120k price range, and you get $1000-1200 per month rent. Some have higher HOAs that run $120-180 per month, but these are in A+ communities.  Just recently there were 3 duplexes listed and under contract quickly for $87-$93k. They rent for $1000-1200 a month.  I am an agent and investor looking for these deals and helping other investors buy them all the time.  That's my 2 cents for Athens, Georgia, The Classic City, home of the Georgia Bulldogs.   PM me if you need some help and want to make some easy cash flow.  

Originally posted by @Ethan Atkinson :

I am biased, not just for Georgia, but for making money and good cash flow without huge investments.  In my town of Athens, it can be tough to find deals right now, but not based  on plenty of conversations I have had with other California people.  There are tons of condos and houses in the $90-120k price range, and you get $1000-1200 per month rent. Some have higher HOAs that run $120-180 per month, but these are in A+ communities.  Just recently there were 3 duplexes listed and under contract quickly for $87-$93k. They rent for $1000-1200 a month.  I am an agent and investor looking for these deals and helping other investors buy them all the time.  That's my 2 cents for Athens, Georgia, The Classic City, home of the Georgia Bulldogs.   PM me if you need some help and want to make some easy cash flow.  

Ethan, 

Thanks some good intel. I'm going to add Athens to my watch list. The 90-120 K with $1000-1200 would be an ideal price/cash flow combo for me. When looking at such properties, should I be prequalified for a loan, what should I be ready with ? 

Thanks,

Shashank

Originally posted by @Matt K. :

I was in the same boat, bump up your budget or take a loan get higher caliber property. I went out of state because I couldn't close a deal to save my life in Oakland. In Oakland I was looking at near 500k, HOA fees, and maybe 2500 a mo in rent. My out of state property was under 200k and rents for almost 1700 (Not the best performer, but far from "bad").

Some areas are easier than others to research as they've been pretty well discussed, while others are more tricky and car change quite a bit so best left to locals. 

Last thing to consider is taxes/laws. Some states have lower taxes and are more landlord friendly. 

If you want to know more in depth feel free to PM me and we can chat... it was a interesting experience, wish I did it sooner.

 Matt,

I was looking at Oakland as well, but quickly realized that while you can find some deals that look relatively better than the rest of the Bay, it still doesn't compare to the deals I see in other parts of the country. Of course, my perception of available deals in the Bay are based solely on my affordability and tolerance for risk. 

Shashank

I know when I looked in the past some of condos in GA were good performers on paper and had decent cash flow, but if you ever wanted out they took FOREVER to sell... is that still the case?

Just received a Cook County IL Assessment  notice on a rental, it worth 155K on a good day. They are assessing property 222K for 2017. This type of crap makes investing somewhere else more appealing, even with management fees.

I was in the same boat, after some time and research I ended up choosing Indianapolis. Currently sitting with a duplex saving for the next property. This deal was 90k for $1250 a month in rent from both sides being rented.  My plan is to buy one a year. 

What criteria are you using to make your choice? Do you have some PMs in any area that you would like to work with?

@Shashank R. I love impossible questions!  Just kidding, kind of.  I don't think you'd go horribly wrong either investing locally or out of state.  If you're going to be an absentee landlord you always stand a chance of a PM ripping you off.  And I wouldn't bank on 8%, I'd use 10% and you'll want to ask if there's a leasing/releasing fee as well.  The last place you want to skimp on is going for a 'budget' property manager.  As for your plan, those $50K properties will not qualify easily for financing.  Most lenders want a $50K or $75K minimum loan amount so you'll have to think through that as well.  I do think that one thing that can make like a little easier (investing out of state) is that you can get a newer property in a (relatively) better area for the same money.  So if you're worried about roofs caving in you can look in a place like Georgia, maybe a nicer suburb of ATL, and find a newer build.  That might make you feel a little better than investing those same dollars in a dicey part of Oakland and a home built in the 50's.  I'm just making random things up but I think you get the theme.

Here is what's going to be your problem: travel expenses. Let's say you do but that property for $100K and put $25K down (75/25 LTV) and make 10% cash-on-cash return every year. So that's $2.5K in profit that *should* go into your pocket. Now look up what a round trip flight to ATL costs from the Bay Area, renting a car, hotel room, food, etc. I visit my out-of-state properties twice a year. If you do the same, guess what just happened to your $2.5K profit? Poof! Gone. Spent on visiting the great state of Georgia.

So while I don't want to discourage out of state investing you really have to think through *all* of the associated costs.  The cost analysis done above was total fiction but I don't think it was an insane calculation.  My personal perspective is that out of state investing it's really tough to do if you're buying 1-2 low-dollar properties.  It just doesn't pencil out at the end of the day.  Now if you want to (and can) scale I think it makes total sense.  You'll take it on the chin while you're building your portfolio but eventually you'll be (essentially) spreading that plane ticket cost across 10 properties instead of 1.

Hope this helps. 

I'll chime in for Ohio. I've been researching parts of it and it seems hard to beat from a price to rent stand point. I was just emailed a listing in Cleveland area for purchase of 53k and is rented for 1300. It's a C class area so keep that in mind. But that's over the 2
Percent rule and even with the headaches you'd still likely get good cash flow.

Hi all,

I live in San Diego and have 85 front doors in NE Ohio, soon to be 109 front doors.  I started investing in this area in 2014.  I have traded in pricey San Diego single family for much higher cash flowing 8 single family and 6, soon to be 7 apartment complexes.

Feel free to ask me any questions.  

Swanny

@Shashank R. - Welcome to BP! Lot of great ideas on the thread and all over the BP. Buying locally or OOS , TK or no TK, one marketing or chain of marketing , one wholesaler or 7 (Max I have heard). Investment in general comes with risk , specific to your financial situation and many other factors. You can make or loose money in any market and with any investment. For REI please read every page of the following link for your REI education.

https://www.biggerpockets.com/forums/311/topics/22...

Good Luck Investing

Vivek

Originally posted by @Com M. :

I was in the same boat, after some time and research I ended up choosing Indianapolis. Currently sitting with a duplex saving for the next property. This deal was 90k for $1250 a month in rent from both sides being rented.  My plan is to buy one a year. 

What criteria are you using to make your choice? Do you have some PMs in any area that you would like to work with?

 90k for a duplex w $1250 sounds like a good deal. I too plan to start 1 the first year and if all else permits, do more in the following years. I don't have any PMs yet that I have spoken to. As far as criteria, thats what I'm here to find out. Looks like there's a lot of information available!

Originally posted by @Michael Swan :

Hi all,

I live in San Diego and have 85 front doors in NE Ohio, soon to be 109 front doors.  I started investing in this area in 2014.  I have traded in pricey San Diego single family for much higher cash flowing 8 single family and 6, soon to be 7 apartment complexes.

Feel free to ask me any questions.  

Swanny

 Michael,

I'm originally from San Diego as well. I still visit my parents there every other month in San Marcos. I thought SD was expensive until I came to the Bay!  109 doors in 3 years is phenomenally impressive. I've been casually looking at properties in NE Ohio. I have a long term outlook of 15-25 years, and I'm guessing in that time frame the region comes back strong as soon as my generation notices the quality of life and value for money the region offers. I've been particularly interested in working class neighborhoods , but I'm still too early in the game to know what I don't know.

Shashank

Originally posted by @Andrew Johnson :

@Shashank Rao I love impossible questions!  Just kidding, kind of.  I don't think you'd go horribly wrong either investing locally or out of state.  If you're going to be an absentee landlord you always stand a chance of a PM ripping you off.  And I wouldn't bank on 8%, I'd use 10% and you'll want to ask if there's a leasing/releasing fee as well.  The last place you want to skimp on is going for a 'budget' property manager.  As for your plan, those $50K properties will not qualify easily for financing.  Most lenders want a $50K or $75K minimum loan amount so you'll have to think through that as well.  I do think that one thing that can make like a little easier (investing out of state) is that you can get a newer property in a (relatively) better area for the same money.  So if you're worried about roofs caving in you can look in a place like Georgia, maybe a nicer suburb of ATL, and find a newer build.  That might make you feel a little better than investing those same dollars in a dicey part of Oakland and a home built in the 50's.  I'm just making random things up but I think you get the theme.

Here is what's going to be your problem: travel expenses. Let's say you do but that property for $100K and put $25K down (75/25 LTV) and make 10% cash-on-cash return every year. So that's $2.5K in profit that *should* go into your pocket. Now look up what a round trip flight to ATL costs from the Bay Area, renting a car, hotel room, food, etc. I visit my out-of-state properties twice a year. If you do the same, guess what just happened to your $2.5K profit? Poof! Gone. Spent on visiting the great state of Georgia.

So while I don't want to discourage out of state investing you really have to think through *all* of the associated costs.  The cost analysis done above was total fiction but I don't think it was an insane calculation.  My personal perspective is that out of state investing it's really tough to do if you're buying 1-2 low-dollar properties.  It just doesn't pencil out at the end of the day.  Now if you want to (and can) scale I think it makes total sense.  You'll take it on the chin while you're building your portfolio but eventually you'll be (essentially) spreading that plane ticket cost across 10 properties instead of 1.

Hope this helps. 

Andrew,

This helps a lot. I have been thinking about travel expenses and how that will eat into profit. But I reasoned with myself that while initially, my profits will be gone,  eventually I will start acquiring more units (10+ sounds good) within the same city or state, and those travel costs will be distributed among many properties. So I feel validated to hear someone very experienced have the same outlook. 

Shashank

Originally posted by @Shashank R. :

Hey Everyone,

My goal is to invest in Single Family Homes and Condos that I can rent out and eventually generate a decent amount of passive income.

I’ve heard from many experienced investors (and moguls) that the best way to start out is start in your city, town or state because you will have a much better idea about neighborhoods, job market etc and would just need to drive around to get some leads.But I don’t have that luxury because I live in the San Francisco Bay Area where housing is a lot more expensive than what I can afford.

I’m looking at purchasing properties worth $50-$100K where the mortgage would be affordable for me to cover out of pocket in the event I’m not able to have the place rented. From the very basic research I’ve done, I’ve figured out that good deals can be had in the following states (in my price range): Florida, Georgia, Texas, Ohio, Colorado and Utah. I have the following concerns

  1. I plan on using a Property management company (8%) but I’m concerned I’ll get ripped off I don’t take precautions or look for certain things (because I don’t know what I need to look for)
  2. Random Unexpected events come up: IE roof caving in, Water heater breaking etc that will render the unit unlivable or exposes me to liabilities.
  3. Since Im not in the area, i don’t know it that well, ill end up choosing something that is not in the ideal location, and my assumptions about the place being rented, etc will be completely wrong.

I would appreciate any suggestions or nudge in the right direction.

Thanks!

 One thing I can pretty much guarantee you is, you will make less profit investing in all the states you mentioned.. plus Illinois, Michigan, and Indiana. Why? San Francisco, San Diego, and San Jose have had the highest overall profit over the last 10 years, also the last 15 years. Profit = cash flow + capital appreciation.

Another thing I can guarantee you is, you will have more stress and headaches dealing with a property far far away from where you live.

When you say "good deals can be had in those states", let me point out, good and bad deals can be had in EVERY state, and every neighborhood :)

Originally posted by @Shashank R. :
Originally posted by @Andrew Johnson:

@Shashank Rao I love impossible questions!  Just kidding, kind of.  I don't think you'd go horribly wrong either investing locally or out of state.  If you're going to be an absentee landlord you always stand a chance of a PM ripping you off.  And I wouldn't bank on 8%, I'd use 10% and you'll want to ask if there's a leasing/releasing fee as well.  The last place you want to skimp on is going for a 'budget' property manager.  As for your plan, those $50K properties will not qualify easily for financing.  Most lenders want a $50K or $75K minimum loan amount so you'll have to think through that as well.  I do think that one thing that can make like a little easier (investing out of state) is that you can get a newer property in a (relatively) better area for the same money.  So if you're worried about roofs caving in you can look in a place like Georgia, maybe a nicer suburb of ATL, and find a newer build.  That might make you feel a little better than investing those same dollars in a dicey part of Oakland and a home built in the 50's.  I'm just making random things up but I think you get the theme.

Here is what's going to be your problem: travel expenses. Let's say you do but that property for $100K and put $25K down (75/25 LTV) and make 10% cash-on-cash return every year. So that's $2.5K in profit that *should* go into your pocket. Now look up what a round trip flight to ATL costs from the Bay Area, renting a car, hotel room, food, etc. I visit my out-of-state properties twice a year. If you do the same, guess what just happened to your $2.5K profit? Poof! Gone. Spent on visiting the great state of Georgia.

So while I don't want to discourage out of state investing you really have to think through *all* of the associated costs.  The cost analysis done above was total fiction but I don't think it was an insane calculation.  My personal perspective is that out of state investing it's really tough to do if you're buying 1-2 low-dollar properties.  It just doesn't pencil out at the end of the day.  Now if you want to (and can) scale I think it makes total sense.  You'll take it on the chin while you're building your portfolio but eventually you'll be (essentially) spreading that plane ticket cost across 10 properties instead of 1.

Hope this helps. 

Andrew,

This helps a lot. I have been thinking about travel expenses and how that will eat into profit. But I reasoned with myself that while initially, my profits will be gone,  eventually I will start acquiring more units (10+ sounds good) within the same city or state, and those travel costs will be distributed among many properties. So I feel validated to hear someone very experienced have the same outlook. 

Shashank

 So then, if you look at it that way, then your choice is between an out of state market that doesn't appreciate as much with no cash flow until you scale up or a local real estate market that appreciates more with no cash flow until rent increases ... then, if you can find a value add deal you have a local real estate market with short term cash flow and forced appreciation and long term cash flow and market appreciation and the kicker which is more control over your investments. I sure know which one I'd choose. If you already lived or wanted to move to one of those out of state markets, then my answer may be different ... if you were already an experienced RE investor with established, proven systems and could safely deploy those same systems out of state to more or less instantly, then my answer may be different ... but as a newbie with little or no experience, then my advice is to start in your local market.

Updated over 2 years ago

typo ... I meant to say "more or less instantly scale up".

Originally posted by @Account Closed :

Great question and investing out of state is the best move that I ever made. Now I live in LA and invest in key markets around the usa. I have built a portfolio which cash flows every month and it has been going great.
I'd love to share how I got started and if I can help you grow your business and build up some cash flow.
Connect and let's chat!

Hey Antione. It's great to hear someone positive on out of state investing. Ive heard so many horror stories I've been leary. If you're willing, I would like to connect and learn of your experiences. I'm in Temecula so in a similar boat with regard to investment prices. And quite frankly getting the numbers to show cashflow.

Hi @Andrey Y.

We have talked before. Using the true Multifamily (5 units or more in one complex) business model value is based on NOI. Soooooo, if you get a good value opportunity, you can grow your total RE portfolio, increasing cash flow and forcing appreciation dramatically. Apartment complex value is based on NOI, not comps. If you do more research, you will see for every hyper inflated value area like California, there is another emerging market just waiting to give you significant appreciation and cash flow. That's why I bought 10 Condos in San Diego in 2011 and 2012. They cash flowed well and Even though people thought I was crazy buying RE in 2011 and 2012, I knew that I was buying based on 1. It can't lose money. 2. It must cash flow. That is not the reality right now in San Diego. So, unemotionally I learned what people with lots of equity getting low 3% return on the equity, due to how they all doubled in value have done with this dead equity. I found out they 1031 exchange their way to financial freedom!!!

Swanny

@Shashank R.

I own 9 units every one out of state and in 3 different locations in that state.  Im from that state, but none are in my home town.  I focus on the property manager first.  I spend as much time looking for the PM as I do the house.  you have to deal with the PM the entire time you have the house.  maybe longer if you own multiple properties.  They are in charge of your 100K investment.  They pick your renters, collect your rent, evict your renter and control your maintenance people.  They can make you a lot of money or put you in the poor house.  find your pm first.  what good is the best rental in the state if the pm mismanages it??  I wont buy a property if I don't have a good manager in place FIRST.  After you find the PM then let them help you with some of the other stuff.  some times they even know a land lord looking to sell.  They know the local realtors and what rents they can charge.  It takes a lot of time to set up your team when you are buying out of state.  There's insurance people, the PM, a bank and loan officer, a realtor, and maintenance people, a home inspector to name a few.  Find a good PM and they can help you find these other members of your team.  The realtor can help as well.  out of state investing is very slow at first.  Don't get in a rush.  once you have your "Team" in place then you can look for a house.  Once I have this team and have bought a house or 2 you build a trust with them if not then you replace them.  Always inspect the first couple houses yourself. I have bought 2 sight unseen properties using 2 different teams in different cities.  You can't tackle out of state investing by yourself.  You have to learn to read people and at some point trust them.  With their help the actual purchase of the house is a lot easier.  Out of state investing done in this manner has worked well for me, and I feel completely safe.  Its not for the feint of heart tho.  RR 

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