Purchasing Out of State Rentals

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Purchasing Out of State Rentals

Rob Terpilowski
Investor · Seattle, WA · Member since 2016 · 108 posts · 43 votes

I'm considering the possibility of acquiring properties out of state as rentals, either SFH, or small MF properties. I'm located in the Seattle area, but rentals in the midwest are priced significantly lower with much juicier yields. I realize that the upside appreciation may not be as high as the Seattle area, but it seems that for the same amount of capital you can get a much higher cashflow.

 I'm interested to hear from people that have invested out of state, how have you done it? Purchasing a complete turnkey solution, sight unseen,  or build a team remotely from your home state to find properties and tenants, and property management.

I'm interested in hear both the things that have gone right as well as the pain points.

Thanks,

-Rob

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Alex S.
Professional · Los Angeles, CA · Member since 2015 · 33 posts · 10 votes
10y

Hi Rob,

Most of our investment properties are out of state as the cash-flow is better( I am in California).  When I go into an area.  I build a team first. I usually have 2-3 property managers  in case one is not performing. Also have someone that can find you deals( network with wholesalers realtors, etc). 

Most of the time we try to get equity on the purchase. As it gives downside protection if something goes wrong and increases your return. 

I would be careful sight unseen. Unless you have some boots on the ground that you trust. Perhaps do some research on the areas, We tend to ask what can go wrong first, Whats the climate?, In a flood zone? Earthquakes? How can I mitigate risk? What do the numbers look like?  Are there many foundation issues in that particular area.? etc,

Overall its worked out pretty well with a few bumps along the way. We started investing in 2003.

Hope this helps, Reach out if you need more specifics.

To your success,

Alex

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  • Alex S.
    Professional · Los Angeles, CA · Member since 2015 · 33 posts · 10 votes
    10y

    Hi Rob,

    Most of our investment properties are out of state as the cash-flow is better( I am in California).  When I go into an area.  I build a team first. I usually have 2-3 property managers  in case one is not performing. Also have someone that can find you deals( network with wholesalers realtors, etc). 

    Most of the time we try to get equity on the purchase. As it gives downside protection if something goes wrong and increases your return. 

    I would be careful sight unseen. Unless you have some boots on the ground that you trust. Perhaps do some research on the areas, We tend to ask what can go wrong first, Whats the climate?, In a flood zone? Earthquakes? How can I mitigate risk? What do the numbers look like?  Are there many foundation issues in that particular area.? etc,

    Overall its worked out pretty well with a few bumps along the way. We started investing in 2003.

    Hope this helps, Reach out if you need more specifics.

    To your success,

    Alex

    6Reply
  • Bryson Pennock
    Residential Real Estate Broker · Lindon, UT · Member since 2016 · 50 posts · 8 votes
    10y

    I only buy out of state as my market here in Utah just isn't as good as I can get out in the midwest.

    0Reply
  • Lelith Walker
    Investor · New York City, NY · Member since 2013 · 263 posts · 141 votes
    10y

    I do not believe in buying something and not looking at it.  I know some people who are successful with turnkey although its less stress the price point is high.  I think it is best to get a team of experience license people.  Run background check on them via some type of skip tracing tool.  One of the people you should get is a boots on the ground person that you could partner with this way they have skin in the game.  Know your market though.  If 4 bedrooms sell faster than 3 take this into account.  If a neighborhood is bad take that into account.  Put everything in the contract and let your attorney go over it.  Have the boots on the ground person walk with the inspector or engineer to make sure everything is done right.  Some people have made local retired engineers and contractors their boots on the ground person that they partnered with, kill 3 birds with one stone.

    1Reply
  • Anton Ivanov
    Rental Property Investor · Rio Rancho, NM · Member since 2013 · 314 posts · 816 votes
    10y

    @Rob Terpilowski

    Regardless of how you find your deals (turnkey or not), I would definitely visit the city, neighborhood and property before purchasing, ideally during its inspection and also meet with your PM team who will be managing it after purchase. This will save you a lot of headaches that come with buying sight unseen.

    As far as turnkey or not, it all depends on your time commitment and how much work you'd like to put in to finding and managing your team. If you find a market that you like, plan to buy 10+ units there eventually and don't mind spending the time to finding and building a good team, you will be more profitable that way in the long run.

    If you're looking for 1-2 properties and want to spend the least amount of work finding them, turnkey is probably better, although your COC returns will be lower due to buying at MV. And don't forget to still do research on the city, neighborhood, property and the people you will be working with even if buying turnkeys. Not all turnkey properties are in good neighborhoods and are good investments. I've seen plenty of terrible turnkey deals.

    2Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    10y

    Hi Rob! I've always gone the turnkey route myself. I love it- less work, less risk (in my opinion). Happy to share war stories if you want any.

    1Reply
  • Marvin Gunn
    CRE Bridge Lender · San Diego, CA · Member since 2015 · 23 posts · 5 votes
    10y

     @Ali Boone what are your favorite markets for turnkey properties? are you finding deals in SoCal?

    0Reply
  • Steven Bond
    Developer · Provo, UT · Member since 2015 · 141 posts · 89 votes
    10y

    We work with clients out of the state of Utah (over 60% of our investors come from out of state) that buy multifamily here in our market and Texas specifically for the cap rate benefits as well as the landlord friendliness and tenant quality.  For those that have invested with us in our developments (over 800 doors and $200M in sales) all but one out of state investor have flown in at least once to see the locations, economics of the area, traffic patterns, shake hands with the people involved (lender, broker, PM, builder sometimes, etc).  I like it because it adds to the human element of the great business of RE investments.  It's a great investment in your investment choice to ensure you're not just taking the bait, but you understand what the entire picture of your investment portfolio will look like in the future. 

    All the best in your investment choices!

    2Reply
  • Rob Terpilowski
    OP
    Investor · Seattle, WA · Member since 2016 · 108 posts · 43 votes
    10y

    Hi @Ali Boone, yes, I would like to learn some of the war stories, both the good and bad, and I'll echo @Marvin Gunn's question, which markets do you look at for your turnkey properties?

    0Reply
  • Steve OlsonPro Member
    Real Estate Agent · Pleasant Grove UT and Hurst, TX · Member since 2014 · 128 posts · 63 votes
    10y

    Hi @Rob Terpilowski.  I'm an agent here in my local market of Salt Lake City, UT.  I work with investors here regularly.  I also work with a lot of investors on acquiring turnkey properties out of state (midwest, south primarily).  From a purely pragmatic standpoint, it's possible to do turnkey properties out of your area.  From an emotional standpoint, if you are going to wake up in a cold sweat every night without going out to see the market, then do it.  I have a lot of clients do this and it brings them tremendous peace of mind.  On the other hand for flips...you GOTTA go there until you get competent boots on the ground that you trust completely.  

    0Reply
  • JR Hinds
    Investor · Portland, OR · Member since 2014 · 146 posts · 101 votes
    10y

    I started looking in Portland, OR (my hometown) for my 2nd rental property a few years ago. I had a lot of difficulty finding another small multifamily that showed cashflow. I couldn't find anything that fit my model, so I decided that instead of learning a new model, I would learn a new market. After doing some research, I felt like Chicago would be a good fit for me (partly because I have extended family there). Once I picked the market, I started researching Turnkey companies. I traveled to Chicago to interview two companies, and chose Elite. They experienced some growing pains in the beginning, but they've improved a lot since then.

    I just got back from another trip, and I'm ready to purchase my 3rd property (which will bring me to 10 units) in Chicago. This model has been great for me, and I'll continue to use it until I have more experience and time. Once my other business starts to slow down, or I sell it, I'll be more hands-on with my real estate investment business. Until then, I need it to be fairly passive. I realize that I'm giving up appreciation when I let the Turnkey company handle the acquisition and flip, but I'm okay with that right now.

    I hope that's helpful. Don't hesitate to reach out if you have more questions.

    2Reply
  • Barb Hart
    Investor · Centennial, CO · Member since 2016 · 2 posts · 3 votes
    10y

    I own a few turn-key homes in Indianapolis.  I love the company I buy them from because they have my back.  Once a month they do a bus tour.  If you're interested, let me know and I will put you in touch with them.  If you purchase 3 homes with this aweome company you can do a flip with them.  So far, I've made 18 and 26% return on my investment in the flip and all I did was write a check. LOVE it!!

    3Reply
  • Jay Bhatt
    Tarrytown, NY · Member since 2016 · 79 posts · 43 votes
    10y

    @Rob Terpilowski I am in the same boat. My partner and I are researching different markets in Midwest and south (Chicago, Indy, Birmingham, Memphis) since it is impossible to get deals in local market. We are going to look in Central NJ as well. Good Luck with your search.

    @Alex S.  This is a great information. I was looking only at turnkey but seems like what you are suggesting is an alternative to turnkey and get more skin in terms of equity in the property. I am definitely interested to learn more. Is it ok if I reach out to you via PM?

    @JR Hinds I want to say thank you since through one of your earlier post in different forum we came to know about Elite invest. My partner is visiting them today and will  checkout their property tours. Great to see you still excited abut investing with Elite. Give a newbie like me more confidence for possible partnership with Elite and Alex.

    @Steven Bond  I looked at your website briefly. It seems a bigger bite to chew for a first time investor like me. Let me know what your client base is and does it include first time RE investor. I am always willing to learn  and challenge my own comfort zone.

    @Anton Ivanov I am going to check out your app. Thanks.

    @Steve Olson Didn't know about turnkey opportunities in Utah market. I will definitely likely to know more. Will it be ok if I send you a colleague request?

    1Reply
  • Jay Bhatt
    Tarrytown, NY · Member since 2016 · 79 posts · 43 votes
    10y

    @Barb Hart I would love to know the name of your provider. Is it fshouses or someone else? Will appreciate your help. Thanks.

    2Reply
  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    10y

    I can't imagine a $40,000 home being a great long term investment. That means the home was purchased for around $5,000-$10,000 max.  These areas have to be D- quality at best. 

    Curt Davis - KAIZEN Realty538 Reviews
    WebsiteView Page
    2Reply
  • Donald Mogashwa
    Johannesburg, Gauteng · Member since 2016 · 2 posts · 1 vote
    10y

    Hi Rob, I am fairly new in the US real estate market but I have found properties with 1st 12 months rental guarantee by the seller and 18% annual return. I can hook you up with the seller

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Curt Davis  it is quite amazing that folks don't understand simple math in these low end assets.

    40k turn key....  -   10k profit to turn key company -  3 to 5k for west coast marketing company ( if one is involved..  we are down to between 25 to 30 left over to buy and rehab asset.  If its true turnkey IE all major component new or near new.. roof no more than 5 years old. etc etc.

    as you know I fund well over 200 TK buy and rehab deals a year and I know what my vendors put into these homes to make then quality turn key.. and that is 15 to 30k per home sometimes more but generally never less.. so lets say we are at 20k for full blown turn key rehab.. 30k - 20k leave 10k to buy the asset.. sometimes only 5k. 

    now go on line and look at what a 5 to 10k wholesale deal in ANY major metro area looks like and what the neighborhood is like..  As we beat the same drum.. this is fine for a local.. but for out of state folks thinking they are building some kind of cash flow pretty risky

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    3Reply
  • Jay Bhatt
    Tarrytown, NY · Member since 2016 · 79 posts · 43 votes
    10y

    @Curt Davis  Thank you for heads up. I was wondering the same since most of the turnkey properties that have turned up during my last couple of months search has been at least 50 to 70K with reputed names behind.

    @Jay Hinrichs I want to say your book on turnkey investing provided me my first introduction on what to watch out for while buying one and your website has been a great resource for me to contact and review different turnkey providers. It is humbling to know that a veteran like you have been consistent contributor to BP community and provided a newbie like me months/years worth of education.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Jay Bhatt  my pleasure

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Will G.
    Rental Property Investor · Maryville, TN · Member since 2009 · 529 posts · 414 votes
    10y

    I wish I was brave enough to do this! Cap rates stink here(florida) in general so it freaks me out thinking about all the potential pitfalls in a completely unknown area. If you must.. stay close to amenities and pick proximity to a target vs walmart, panera bread vs chipotle, lowes vs home depot, as these companies do extensive demographics and target, panera, lowes seek out a slightly more exclusive base

    1Reply
  • Samuel Waters
    Investor · Arroyo Grande, CA · Member since 2016 · 16 posts · 1 vote
    10y

    @Will G. nice tip on the lowes, target stores!

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Will G.  Portland Oregon fights walmart at every turn.. they won't let them in...

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    1Reply
  • Jay Bhatt
    Tarrytown, NY · Member since 2016 · 79 posts · 43 votes
    10y

    @Will G. That's good to know.

    0Reply
  • Jason V.
    Investor · Rochester, NY · Member since 2016 · 477 posts · 426 votes
    10y
    Originally posted by @Rob Terpilowski:

    I'm considering the possibility of acquiring properties out of state as rentals, either SFH, or small MF properties. I'm located in the Seattle area, but rentals in the midwest are priced significantly lower with much juicier yields. I realize that the upside appreciation may not be as high as the Seattle area, but it seems that for the same amount of capital you can get a much higher cashflow.

     I'm interested to hear from people that have invested out of state, how have you done it? Purchasing a complete turnkey solution, sight unseen,  or build a team remotely from your home state to find properties and tenants, and property management.

    I'm interested in hear both the things that have gone right as well as the pain points.

    Thanks,

    -Rob

     I'm in almost the exact opposite situation: I can buy cashflowing properties in an acceptable area next door. And that's what I'm doing - for right now - with the intent of building up a base of cashflowing properties to jump off of into a market that has appreciation. 

    Why? Because, in my experience, the folks who build real, generational wealth make about 75% of their money from appreciation. If I lived in a market that had high appreciation (SoCal, Hawaii, Pacific Northwest) I would be working to find cashflowing deals around the corner, instead of looking half way across the country. 

    But hey - the grass is always greener, right? 

    Good luck! You got some awesome advice from the folks here should you choose to go the long-distance route.

    1Reply
  • Will G.
    Rental Property Investor · Maryville, TN · Member since 2009 · 529 posts · 414 votes
    10y

    There was actually a study done (perhaps I can find the article again) on home values, holding, increasing more in proximity to target compared to wally world!

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    10y
    Originally posted by @Jack Eyer:

    Birmingham is a great state for Cash Flow profits. Ex. 40k Turn Key rental generates $750 mo. 15% ROI with tax deductions.

    See Jack at AIACLUB.COM 

     I am sure guys in Birmingham do great. Birmingham also has the nations 2nd highest poverty rate at 27%. It seems common for some turnkey operators to operate in these spaces across the country. RE can be a great investment and should be in 80% of the country moving forward. IDK where Birmingham falls and fortunately inside and outside Birmingham there must be some good ones around. 

    0Reply
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