Pros/cons buying investment real estate out of town

19 Replies

I live Austin Texas and its a sellers market here right now. Most everything is bought cash and above the asking price. I would like to look to other markets to invest in Texas. I'm just wondering what are my limitations?

I understand that I would need to out source for property management or repairs for property with tenants. But are there any other pros/cons to a strategy like this?

Hi Randon

I'm kind of in the same boat with you. I live in Austin, and most of my searching has been outside the area. Houston and DFW still have deals to be found. San Antonio is starting to pick up. The opportunities in other states are possibly great, at least from what I'm seeing.

You'll probably want to consider a JV with someone before you dive head first into a market too far from where you live (or have close friends or family).

-Michael

I've been a long distance landlord for years. It sounds like you're a buy and hold guy, is that correct?

First you'll need a method of acquiring these properties (MLS, mailings, other)? If I were you, I'd start by looking 30-50 miles out to see if you can find decent rent/price ratios. People living there are more than likely commuting back to Austin for their jobs, so the economics of your tenants should be good. And, it's not that difficult to go check on your properties once in a while.

Next you'll want to have a property manager that you use for lease ups. After you find a tenant, you can either keep the PM on to manage the tenant, or find a reliable repair firm that you keep on speed dial. Tenants would then mail their rent checks to you and call you for all issues.

If you can't find decent deals within that radius, you'll have to keep expanding until you do. Good luck!

Sharon Tzib, Real Estate Agent in TX (#653488)
832-745-8657

I myself currently own properties out of state....and I do not have a P.M ....never had anyone to manage my properties, but myself. I have live where i currently purchased my investments preiviously for many years. I have been a long distance landlord as well for many years. Nevertheless, I have never had any major issues....knock on wood. I do have a very very good home repair group and handyman...that I had to find. Which was not easy...i am not going to lie. Although once i got a good crew together that understood what i needed and when i needed it....it was smooth sailing.

I am in Indianapolis, IN market. I get about 2-3 calls a week from out of state investors... I have seen more horror stories than I care to admit...

Find a market you like, and then check trulia/zillow for property managers that have feedback. Also do some google searches for property managers.. Then ask for references, and check the references. First deal or two, get an appraisal done from someone other than your property manager. Ask for comps from your property manager and then go to a realtor or two and offer to pay for comps from them. Ask for video from the properties you are looking at. I like videos because the guy taking the video has to talk and you get to see how saavy he/she is.

Don't be afraid to hop on a jet and go see your properties every so often.. I work with investors who have never been to Indiana, and I do my best to keep them in the loop, but nothing beats coming out and seeing what you are buying.

I live in a rural town near the south west border with Mexico, and invest in Phoenix and Tucson. I have no desire to be a hands on landlord, so I budget with property management included.

I think the biggest pro to this method is that it gives you time. I have a very demanding job and have to work 10+ hours a day, five days a week. I also at times may have to spend weeks or even months out of state or in areas where I simply can not manage my property in any way.

I don't invest in the market I live in for a multitude of reasons, including lack of job growth, stagnant population growth, very low median household income, and too much stock in terms of rental properties, driving rents lower. Meanwhile housing prices seem high, making turning a house into a rental have an even slimmer profit.

@Randon Hayes I would look in lower cost areas that are close to you, for example San Antonio.

402-965-1853

This post has been removed.

@Randon B. It all depends on what your objectives are. Define your objective and criteria and go from there. Of course, it's great if you can achieve your objective in your local market but most of us don't have that advantage. Investing remotely does have more challenges but those challenges can be overcome with a great team and especially great property management. I strongly believe that you should invest in the market that gives you the best chance to achieve your objective regardless of where it is. Austin is a great market economically and is a very safe market, but if you're objective is high cash flow and ROI, it's not so great. TX has some of the highest property taxes and homeowners insurance rates that will hit your cash flow hard. I have a couple of reports on how to evaluate and choose a market and how to invest out of state that I'll be happy to send you if you'd like. Feel free to reach out if you want to bounce ideas around.

Best wishes,

Mike

All my properties are out-of-state. Across the entire country actually (they are in Atlanta, I'm in LA). It works fine as long as you have a good team in place. Property management is KEY. A bad PM will break your investment in a heartbeat. So find a good one and you're fine. Should be minimal checkup on the property then.

As mentioned above, I great team on the ground [including the PM] is key.

Even when I only had one local property, I still used a PM. I can't justify the headaches and time wasted dealing with leases and tenants. It's a small price to pay [in my opinion].

Like @Lee Smith mentioned, we see lots of horror stories about people like yourself getting burned by "turnkey" providers and property managers.

If you ever look at Indianapolis, let me know and I'd be glad to help anyway I can.

Originally posted by @Lee Smith :
I am in Indianapolis, IN market. I get about 2-3 calls a week from out of state investors... I have seen more horror stories than I care to admit...

Find a market you like, and then check trulia/zillow for property managers that have feedback. Also do some google searches for property managers.. Then ask for references, and check the references. First deal or two, get an appraisal done from someone other than your property manager. Ask for comps from your property manager and then go to a realtor or two and offer to pay for comps from them. Ask for video from the properties you are looking at. I like videos because the guy taking the video has to talk and you get to see how saavy he/she is.

Don't be afraid to hop on a jet and go see your properties every so often.. I work with investors who have never been to Indiana, and I do my best to keep them in the loop, but nothing beats coming out and seeing what you are buying.

Great post Lee,

If I can also add that there are too many horror stories around with out of state and country investors pulling the trigger to soon and getting screwed over by shady operators with their pressure sale tactics and gimmicks.

Trust is built over time and not over one phone call or meeting.

Spend that time in building a relationships with whoever your looking at doing business with and conducting your due diligence.

Most operators are very transactional and if they can't make a quick dollar, you will find that their communication level will drop as enough time passes. This is exactly what you want as you get to weed them out and only the true professionals that have your best interest at heart will stay on and always be happy to assist.

It took me 2+ years to establish such relationships but it was well worth it.

Thanks for reading and have a great day.

Hey everyone thank you all so much for the great replies! Yea my main objective is to buy and hold and create the cashflow.

I'm going to focus mainly on the surrounding areas. Depending on how far away the property is, I'm gathering is the main factor on whether or not to bring in a P.M. I have no problem bringing in a good one and all for creating jobs.

You all rule.

Can someone tell me what are some of the responsibilities of a PM?

I have been investing in out of town condos for many years now, so far I do not see the need for a PM. But maybe there is something I have overlooked, would appreciate knowing the specific responsibilities of a PM so that I can compare.

For me, I have been able to do the following without a PM,

1) rent - auto deposit, so I do not need a PM

2) emergency plumbing or electrical problems - tenants get immediate assistance from condo maintenance staff, it makes more sense for my tenants to contact the maintenance staff on site than to call me especially for emergencies.

3) Repairs - I always insist that either my agent or my contractor does a walk through twice every year to make sure the apartment is in a reasonable condition and attend to any repairs. I pay them on a per diem basis each time they do a walk through.

4) Extermination - provided by condo.

5) Electrical - once every 1-2 year I have a licensed electrician examine all electricals in the apartment.

6) Insurance - my insurance agents take care of that, and my tenants have renter's insurance with my name as additional insured.

7) Lease - my attorney takes care of that.

8) finding tenants - my real estate agents take care of that based on criteria I provide, and I use online screening sites to screen tenants background. The condo boards also do their own background check and pull credit.

This is basically what I do year over year, I do not see the need for a PM at this point, but please let me know if there are other areas that I have overlooked and should consider using the help of a PM.

Thanks !

@Mary Joe I think you've covered most of it basically place/evict tenants, collect rent, and perform maintenance. Some of it can be up to you and what you expect as you listed above. Discuss with the owner of the PM company what you expect and include in your contract.

@Mary Joe "Can someone tell me what are some of the responsibilities of a PM?"

- Advertise property

- Initial telephone screening of prospective tenants

- Showing Unit

- Application screening and reference checks

- Lease signing and security deposit collection

- Initial walk through and key hand off

- Rent collection

- Serving notices and handling evictions, if necessary

- Repair and maintenance calls

- Annual or Bi-annual property inspections

- Lease renewals

- Exit walk through

- Make ready for next tenant

- Return security deposit with itemization of deductions

In your case, you are in a condo with onsite maintenance to interface with your tenants, which is a luxury most landlords do not enjoy. You also appear to have a realtor acting in a dual capacity as a PM if they are advertising for you and I presume showing the unit.

Honestly, there is no hard and fast rule about whether someone needs a PM or not. It will always depend on the investor's experience level, proximity to their rentals, number of units, risk tolerance, availability, and/or desire to even deal with some or all of these duties. And as in your case, PM does not always mean one person - it can be a compilation of team members assisting you to achieve the desired end result - excellent tenants who pay on time, take good care of the rental, stay a while, and aren't a major PITA :)

Sharon Tzib, Real Estate Agent in TX (#653488)
832-745-8657

@Sharon Tzib THANKS for the list Sharon, very helpful !! Appreciate that.

Originally posted by @Randon Hayes:
I live Austin Texas and its a sellers market here right now. Most everything is bought cash and above the asking price. I would like to look to other markets to invest in Texas. I'm just wondering what are my limitations?

I understand that I would need to out source for property management or repairs for property with tenants. But are there any other pros/cons to a strategy like this?

Your limitations in Texas may be more to do with how far you want to drive and forming banking or financing relationships in other areas.

You're staying within the same state jurisdiction so you don't have the brain damage related to various state law compliance issues.

You may get further away, physically, that you can't really oversee your investments. In that case, you need to start relying on others.

Texas has areas that have different political views and socio-economic aspects, such do effect how RE is done as all RE is local. You'll need to be aware of these issues.

Markets are different, so you'll need to zero in on these matters, why drives the market, declining, stable or increasing or is it blasting off like Austin?

Wearing the hat of a lender I had a huge area to be familiar with, not much to detail but a good overview. 7 states meant that I had to rely on others, some of those "others" weren't very reliable or knowledgeable, even with good recommendations. In Texas you won't have such great issues as that, but who you work with will probably be a trail and error venture. Bad choices cost you money.

Anytime you cut others in on a deal the less you're going to make. There is a break even point and a point where adding another unit yields less. As you grow you can increase your earnings, even at a lower yield per deal, where these turning points may be have many moving parts, only you can figure that out.

If you're a small investor, you might consider moving. You might get a temporary place so that you can break into a new market. All this will cost you. Is the cost greater than the limitations suffered by where you are.

You need to grow where you are planted, otherwise you're uprooted and can have a long time growing somewhere else. I can go 50 miles from Springfield and if you aren't from that town, you might as well be from Texas. Same is probably true everywhere to some extent, but I'd bet in rural Texas such thinking would be significant, you can be dealing as an outsider.

Lenders will have a lending area, like 30 miles from any branch, you may have the same lender represented all over the state making things slightly easier but that loan officer, that loan committee is from there, expect them to be cautious in dealing off the bat.

Biggest thing that keeps me rather local is that I can reach out and touch my deals, I don't rely on others and probably couldn't find anyone with the expertise I'd demand without really cutting them in for more than they would be worth to me, so I just don't.

Just some considerations. :)

Hey thanks so much for the insight @Bill Gulley .

Yea I think that I've decided on sticking locally as much as I can, I've been searching areas in and around Kyle, Buda, and San Marcos.

And moving is actually one of my strategies that I wanna use. Moving to a new location for at least 2 years and rehab a house that I'm living in.

Texas is very huge and one of the main things I love about this state is how rural you can get real quick. I'm from a rural Texas town originally and I love those people, but yea sometimes if you're an outsider you'll get some funny looks.

Originally posted by @Randon B. :

Good plan. I've been to San Antonio and san Marcus many times, love the area, my uncle lived in SM and he had a large construction company, he put the Hemisphere Needle up in the 60s and primarily built motels nationally.

Buy, move in, fix and sell, more less how I started too. :)

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.