Where should I buy?

40 Replies

Hi all, 

I am an entry level investor (own my house with a mother-in-law) and am looking to buy my first true rental property.  Since I live in Seattle, where prices are crazy, I am looking out of state.  

Currently, I have about $50k for a down payment and have been looking in Atlanta, Indianapolis and Philadelphia.  It seems all the good deals in Philly are in bad areas, Atlanta is not as good as it was a year ago, but Indy looks pretty good. 

Would appreciate any input from others who are investing out of state or who have an idea as to what markets are safe but will still cash flow.  This is a pretty big step for me, but I am ready to take the plunge.  Also interested if people have input on how to manage out of state property - figure I need property management/yard maintenance. Thanks!

Peter

I am preferably looking for multi.  I found what appeared to be great deals around Temple Hospital, but my buddy in Philly said the homes were in a horrible neighborhood. 

I highly suggest you link up with someone in the area and learn more about it if not even take a trip down here. Philly is a block by block city and if you invest on the wrong block your screwed! We see many out of state investors get burned big time by thinking just because the price seems good, doesnt mean its a good investment. If you don't know anything about the area I'd be very careful and cautious.....just my 2 cents.

Thanks David.  That is exactly what I have been told.  My friend owns a house in a fairly bad neighborhood in Philly, but he is a contractor and lives there.  

My inclination is to stay away and find a city that is a little bit easier for an out of state investor to navigate.  That is one reason I have been looking into the Atlanta area.

Welcome Peter.

A caveat: I'm new to this myself having just bought my first property in Philadelphia. I'm a New Yorker and moved here a month ago, but I feel I got to know some areas pretty well through my house search. I was also considering just being a passive out of state investor. 

As to the question of where to buy, I second the endorsement for South Philly close to Broad. The deals are better on the west side but the neighborhoods are more of a mixed bag. Very much a block by block situation as described above. I'm bullish on this area mostly because I think it's such a great neighborhood myself, and just expect people to realize that as prices push them farther south. That said, I'm a little daunted by the successive, seemingly eternal 'For rent' signs on some of my neighbors  houses.  

I think Port Richmond is another good spot for buy and hold investing. The property value won't appreciate as fast as some other areas, but the buy in prices are reasonable and it's a pretty safe, stable area.  It's less block by block than South Philly. The area from Aramingo to the river is safe. I haven't made an exhaustive study, but I think you could get solid returns there and its adjacent to Fishtown, where people are getting priced out. 

For speculative buying, Brewerytown seems like a good bet especially if you find a deal along Girard Ave. 

As to investing remotely, all the cities you mentioned have plentiful offerings through turnkey companies. The site Hipster Investments aggregates deals from different companies. They like Chicago a lot, but feature several offerings in Philly and Indianapolis. The prices seem competitive and you don't have to worry as much about the quality of the neighborhood because when you buy from a turnkey company you also buy a management company. 

To get a feel for an area without visiting it, I find the maps on Trulia really useful regarding crime, commuting times and area businesses. 

I'm probably way to new to this to be offering this much advice and welcome corrections from more seasoned investors. 

I would advise asking other bigger pockets members or your local REIA if there are any areas within a short drive where the numbers make sense. Although I own a turnkey company, I always advise individuals to invest close to their backyard. The 8 to 10% you will save on management will certainly make for better cash flow. If that is not possible then search the bigger pockets forums using the keyword "turn key" and you will surely find a lot of topics on this, along with mistakes people have made that will assist you in your due diligence.

One other thing, there are several good markets which are unique in one way or another. It is more about finding the company or individual that you want to work with as you could own this property for a very long time. You mind as well like the person you were working with. I think that is just as important as the market, and staying away from cheap properties in low value/income neighborhoods. Leave the locals to battle that fight. 

Hey @Peter Nierman ,

I listened to a podcast here on BP last night about buying out of state rentals. I believe I searched "Rental Property" here on BP, and it was one of the ones that showed up.

It featured a guest who lived in the Los Angeles area but purchased properties in Milwaukee. There was a lot of good information and would be worth your time to listen. If you need me to dig and see if I can figure out which one it was, I'll be happy to. I think it was in the range of #60-#70 of the BP podcasts.

Hope that helps..

Buying out of state is 'challenging'.  Your due diligence is much harder, even for those with experience.  

We took a trip to Nashville to verify a possibility - - sure glad we did - - it was a learning experience as they say, but as noted elsewhere here on BP,  no deal  is better than a bad deal.

IMO, out of state investments is like a marathon compared to a jog around the park.  Start with areas you know, within driving distance, near to friends and family where you can "cut your teeth" on relatively simple transactions.  Yea, some call me chicken, but I still have my shorts!

@Scott Cornelius thanks for the link.  Will listen on my way home. 

@J Beard - anymore info you can share about your out-of-state investing experience would be welcome (ie cautionary tales).  I would love to invest nearby, but Seattle is just too expensive.

Thanks everyone! 

Hey Peter! I don't see many people on here who so quickly nail out analysis of markets, especially when they are new to out-of-state investing. Impressive! :) You are right about all of those markets, exactly right, and then I would add into the 'good' list of markets- Kansas City and Chicago. A lot of it will depend on your price range too.

I live in LA and have always bought out-of-state. As far as management, it's all about the teams! And how much work you are wanting to put into the properties (my preference is zero).

Hi Peter

I closed recently on my first out of state property. When I first started looking I was focusing on what were the areas I may want to invest in. What it turned out to be for me was not where to invest but with who to invest. It is truly about being comfortable with your turnkey provider and trusting that they know what the good and not so good areas are. If you are going to go the turnkey route talk to different providers but make sure you have a conversation with Alex and Jeremy at Memphis Turnkey Properties. So far I'm very pleased with this partnership. 

I'm from the Milwaukee area, and there is potential in the Milwaukee all the way down to Chicago with the right people. We have ran a property management and preservation company here in Milwaukee for over two years and have networked with the MRIA on great projects. There are deals here but in some areas be cautious.

Originally posted by @Peter Nierman :

Hi all, 

I am an entry level investor (own my house with a mother-in-law) and am looking to buy my first true rental property.  Since I live in Seattle, where prices are crazy, I am looking out of state.  

Currently, I have about $50k for a down payment and have been looking in Atlanta, Indianapolis and Philadelphia.  It seems all the good deals in Philly are in bad areas, Atlanta is not as good as it was a year ago, but Indy looks pretty good. 

Would appreciate any input from others who are investing out of state or who have an idea as to what markets are safe but will still cash flow.  This is a pretty big step for me, but I am ready to take the plunge.  Also interested if people have input on how to manage out of state property - figure I need property management/yard maintenance. Thanks!

Peter

 Peter, you are definitely int he right forum for advice on this subject. I will begin by cycling I am a little biased towards Cleveland, Ohio - if you have not seen this market, I recommend looking into it, $50K down payment can go a long way in good well established suburban neighborhoods. You can expect to see hi yield rent ratios. Its a good space that is booming a little bit about Cleveland:

Did you know:

CLE - home to the 2016 Republican National Convention

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CLE - A great place for the WHOLE family/

CLE - A great place for investing come check out the beautiful things CLE has.

Anyhow, I think we need to get back to the core of the question: As a new investor looking / considering investing outside of your local hyper area you will want to define someone who is not just going to help you buy, renovate and then you will figure out how to manage, you want someone who can allow you to have passive income without giving up your full time occupation. Who is this person and how do we define this individual? You will notice if you dig around BP a lot of discussion about TurnKey - this is your number one solution! However, I think it is important to standardize the definition of Turnkey:

*Turnkey = A cash flowing asset, that has been acquired, renovated, tenant placed and vetted and all managed by (1) operator - all service are in house.

You do not want to work with a piecemeal operator, they have no skin in the game, the loyalty is very short lived, plus you cannot place actual value on a property that has not been renovated yet, difficult and complex to finance. What I mean by this, if the "partner" you define in any marketplace can take you through acquisition and construction and have to pass you along to some tertiary management team, I will suggest avoiding this situation, no one has any accountably for anything. 

I am assuming you are not going to be looking to try to have a long distance rental and doing it on your own. I think a big fail here is that you do not get the value of the team, the economies of scale, the immediate hyper local knowledge to make your rentals a success in long term play, for cash flow with an eventual exit or reposition.

Next, moving on! 

Now, we have defined our perfect operator: someone who offers a completed renovated, cash flowing asset with in-house management services. You get the global experience, you get the economies of scale. Best practices to consider when working with a turnkey operator is to discuss the construction method and methodologies, tenant screening policies, view copies of the rental agreements and management agreements. You want full disclosure, complete transparency and operator who has the sophistication to accommodate and communicate with far reaching clients. The management is the secret sauce behind every asset, a good and happy tenant is a good and long term tenant. Visit the teams you expect to work with, see what they do and how they do it, Meet the people see the communities.

Do your homework, be invasive, ask tough and hard questions, scrutinize and understand the pro-forma and what the pro-forma is saying, just because it says one thing in Kansas and another in Cleveland, does not mean they have the same definition, I know our core logic tells us they should all be the same, but, believe em I have seen some crazy stuff over time. Be diligent! You will want to ask blunt questions about resilient product implementation during construction so you can better understand the ramifications of multiple tenant turns. Ask why they use specific products and how they serve you. A sophisticated well established turnkey operator with the proper systems, should be any more expensive not he contrary you should be able to take advantage of the efficiency and uniform systems designed to service investors exclusively. It's not just any amazement and any construction materials and any support staff, you want the A team, no matter what area. Whatever you do in any market you need to make sure you get a home inspection. You want to get as much repaired and cleared up during the purchase process. The more risk you mitigate = MORE ROI ! You want to define an operator that can provide you with scientific data to your questions, I am saying yes, precision data, a good sophisticate deported will always be measuring themselves with a series of widely accepted metrics to enhance the performance and opportunity to the investor.

Finally, some people will post about the premium placed on these Turnkey assets, NO a good sophisticated operator, with good systems in place, with a positive track record will be able to extend their economies of scale to the investor, you should be able to acquire at or below market, obviously below market if possible. If you plan on financing, this condition will be regulated by the lender regardless, the appraiser will determine f the home is or is not worth the money. Obviously if you do not appraise, you will need to bring money to the table to cover the gap, this places you in an underwater situation, I would avoid this type of transaction. I know it sounds perhaps silly, you would be shocked to learn how much of this goes on.

Happy investing!

GO CLE!

#TeamTurnkey

Originally posted by @Peter Nierman :

I am preferably looking for multi.  I found what appeared to be great deals around Temple Hospital, but my buddy in Philly said the homes were in a horrible neighborhood. 

 Peter, when considering Multi VS Single - consider the additional owner burden responsibility and the communal area you would be responsible for serving, yard, snow - then you need to define if the utilities are separately metered or not etc. Just a little item to consider when looking at the ramifications of Multi vs Single

Single Family  tenant is responsible for all services, at least this has been my experience.