Buying out of state property
Member since 2022 · 11 posts · 6 votes
Buying out of state property
Most Popular Reply
@Jayson Valdez a few thoughts:
1. Due diligence is YOUR responsibility, and you can't hand it off to others. If you want to be a successful RE investor, one of the first things you'll need to learn is how to personally walk a property and assess its existing & impending problems, current value, and potential value--this is a critical part of due diligence. Although your team members (agent, GC, inspector) can help you with this, at the end of the day, the due diligence buck stops with you, and if you wholly rely on others to do your due diligence, it will often come back to bite you.
2. Photos / videos are not sufficient. There are countless potential issues that will not be conveyed via photos/video, so it's essential to see the property in-person. For instance, old galvanized steel plumbing hidden under a flipper's brand new drywall. Water diversion failure points causing masonry degradation or rot. Settling issues. A neighbor with constantly barking dogs. The house is directly under the flight path of a nearby airport. A bad neighborhood with drug dealers around the corner. These are all things that either can't be fixed, or cost tens (or even hundreds) of thousands to fix, and they are not easily conveyed in photos or video.
3. RE investing is challenging, and it's 10x+ MORE challenging OOS. This has been described thoroughly in other forum threads, articles, podcasts, etc., etc.; so you'll want to study up. Even very experienced RE investors often fail when they attempt OOS investments. In general, OOS is not a good strategy for an inexperienced investor, and there are far better strategies for inexperienced investors to get their start (e.g.; house hacking).
4. "Turnkey" is often too good to be true. One of the most common ways inexperienced investors get into trouble is with OOS property, and "turnkey" properties. Often, "turnkey" properties are freshly rehabbed properties in D class neighborhoods where nobody wants to live, and no PM wants to manage. There are many stories on the forums of inexperienced investors buying a "turnkey" OOS property, only to discover that it's in a D neighborhood, they can't find tenants (or the tenants they do find are a nightmare), and the PM doesn't manage the property correctly--because the revenue isn't worth it for a PM to put in the serious amount of time and effort it takes to correctly manage a property in a D neighborhood. ...also, if a property were truly "turnkey" (i.e.; in great shape, in a B or A area with a top-tier tenant pool), the local pros would be all over it. If RE investing were as simple as buying a true turnkey property in an A area, handing it off to a PM, and sitting back as the rent checks roll in, everyone would be doing it! ...but, in reality, RE investing takes serious work, skill, creativity and perseverance...if a "turnkey" property seems too goo to be true, it probably is!
5. Be wary of OOS C areas, and never buy in an OOS D or lower area--no matter how good the cashflow looks on paper! This is another way inexperienced investors often get burned. Every few days, an inexperienced investor posts on the forums saying "I bought an OOS property and it's a trainwreck; the tenants didn't pay, then they trashed the property, and now my PM is ghosting me"...inevitably, it's a property in a C or lower neighborhood, and the investor got lured into buying it because the cashflow numbers looked great on paper. A property in a C or lower area takes a LOT of time, effort, and skill to manage properly--and no PM will put in all that effort unless you're paying them a fortune. Moreover, the catastrophes these types of properties produce aren't worth any amount of cashflow.
6. A good team is required, and a good team is hard to build. It's not possible to succeed in OOS investing without boots on the ground...but good help is rare, and it's expensive. As they say: "Cheap help ain't skilled, and skilled help ain't cheap". Moreover, the incentives of many potential team members are not aligned with your best interests. Every agent will always be happy to sell you a house, but they are DISincentivized to steer you away from problematic properties (assuming they even have the expertise to spot problems, which many do not). "Turnkey" property companies will be happy to tell you all the good news about potential cashflow, but it's not in their interest to inform you of the bad news (e.g.; low quality tenant pool, neighborhood problems, etc.). Obviously, there are GREAT agents, PMs, GCs, etc. out there who will act in your best interest--even when they're disincentivized to do so--but these pros are few and far between (and their time/experience is valuable!). Since having a good team is critical for OOS investing, it's worth studying up on how to find, screen, build, and incentivize an effective team.
Don't get me wrong: it is possible to succeed in OOS investing (and even OOS turnkey investing); obviously, people have done it. However, it's way more challenging than other investing strategies (like house hacking in your local area), and it comes with unique issues and risks to navigate.
Hopefully that's useful info.
Good luck out there!
33 Replies
- Real Estate Agent · Indianapolis IN · Member since 2022 · 51 posts · 24 votes3y
Hey Jayson! I think this is a very common way of investing especially when you live in a more expensive area like San Diego. David Greene wrote a book about it called " Long-Disance Real Estate Investing: How to Buy, Rehab, and Manage Out-of-State Rental Properties". It's one of the Bigger Pockets publications. I would highly recommend that book. I am an investor friendly Realtor in Indianapolis IN which has been a great location for Real Estate. Send me a message and we can get you set up on an auto search so you can see all the properties as soon as they hit the market. If you like anything you see I'd be more than happy to go do a virtual showing for you. Talk soon!
- Developer · Gainesville, VA · Member since 2021 · 26 posts · 7 votes3y
@Jayson Valdez
Unless there is a serious level of trust between you and the person doing the inspection and they know what to look for then It's best to fly there. I buy out of state but I have a solid network. My mom walks the property and even general contracts for me! What has helped me is knowing the rehab costs and ARVs associated with my investment radius. I personally remodeled 2 homes in the area in 2021 then bought my next BRRR sight unseen..based on the real estate agents appraisal of the property....I would never ever recommend taking their word especially when they have an interest in the deal. Most might immediately think this was insanely bad idea...but it was a calculated risk because I know the market and the rehab costs. 50k equity and a cashflowing investment even at 7% rate.
All that to say don't trust an agent, most are gone before the ink dries. A home inspection is your best bet...even though I've found most of them in various markets not to be worth the spend especially on a BRRR, but for a traditional deal they can benefit in negotiations and escaping the contract. And may save you 1000s if they actually discover something. Can't do that all the time but if you're moving forward could be a solution.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
As a new investor I wouldn't. Make the trip, so many more variables than numbers working
- 3yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
Welcome to BP!
You'll need good contacts in the area to make your investment plan successful. That doesn't only mean a real estate agent. You may need a property manager, a maintenance worker, and a contractor before long.
The secret to many out-of-state investors' success is finding and hiring an excellent property management company. It will be their job to fill vacancies, collect rent, make repairs and handle emergencies.
If you lived in the area, you might choose to manage the property yourself. If you live far away, professional property management is an extra expense you simply must incur to safeguard your investment.
Experienced builder and property manager Rusty Meador notes, "No matter how good of a real estate deal you find, it is only as good as its ability to be managed well."All the best!
NETWORTH BUILDERS5237 Reviews - Real Estate Agent · Dallas-Fort Worth, TX · Member since 2021 · 117 posts · 69 votes3y
Quote from @Jayson Valdez:
Quote from @Marc Stevenson:
@Jayson Valdez I lived in San Diego my whole life till 5 years ago when we migrated to Texas primarily to invest in this market. You've had some great responses... I' would say be very careful when you see "Turn Key" Investment. You have to do your due diligence...or you might be turning the key into a mess.
Get a team (Realtor/Property Manager you trust in the area you wish to invest. Meet with them, interview them, consider flying out and meeting with them. Find out their scope and scale / vendor list/ etc. You have to rely on a team when out of state investing but you have to do your due diligence and make sure it's the right fit for you.
Best of luck. Happy Investing
thanks for the info. Yes San Diego is great but paying for this "Sun" is sometimes not worth it. I have a few friends and coworkers that moved to Texas or planning to move there.
I have been looking in El Paso, TX for I have a friend in the military (Fort Bliss). In hopes he can guide me with that area on rent and neighborhood ratings. Mostly single family homes though and not Multis, which I would like.
Yes, depending on what area I choose, I will find a savy agent from the area and in hopes they are investors too.
Before all this I will get preapproved first. I have someone that I been using for my approvals
@Jayson Valdez sounds like you have a good plan. Happy to answer any questions about the Texas market if you have any.
Best of Luck and Happy Investing
- 3yCliff BennerBusiness MemberAccountant · Denver, CO · Member since 2020 · 394 posts · 183 votes
@Joshua Perelli I would advise you to listen to BP Podcast #610, to hear all that can go wrong with OOS investing when you first start out and don't see a property in person.
Benner Stride52 Reviews - 3yMark AinleyBusiness MemberProperty Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes
@Jayson Valdez Find a team/PM you are comfortable with in a particular city and consider that city as your first option.
GC Realty & Development LLC4.61063 Reviews - 3yLindsay DavisBusiness MemberReal Estate Broker · Birmingham, AL · Member since 2019 · 328 posts · 204 votes
Hey @Jayson Valdez,
Buying out-of-state properties sight unseen isn’t an issue as long as you have other ways to do your due diligence. Done correctly, pictures, videos, online neighborhood databases, and virtual tours can be good substitutes for in-person tours.
Considering it’s your first out-of-state rental property, try to find a reputable, full-service property manager that’s local to the area you want to invest in. This way you’ll have just one service provider to vet—saving you time and hassle.
Spartan Invest4.8133 Reviews
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