Is out of state too risky?

Question

Thomas S. · Answer

The greatest risk with out of state investing is the PM. Many investors go through multiple PM companies before they find the right fit and many will be forced to sell due to financial pressure before they are successful.

The key is to understand and know how to manage a PM. Investors that think owning a income property out of state is a arm chair investment usually will go bankrupt if they leave their property in the hands of the wrong PM company.

Investing is always high risk, higher when the investor does not understand how much involvement is required to make it work. Your success or failure after purchase will depend 100% on your ability to manage your PM. Trust is not part of a successful business plan.

Ali Boone · Answer

I'm a big fan of investing out-of-state. It's all I've ever done and I was a new investor at one point.

This article is specific to turnkeys, but it's about out-of-state nonetheless....maybe it will help-

https://www.biggerpockets.com/renewsblog/turnkeys-...

Hope that helps!

Erin S. · Answer

@Lee Ripma Thanks for the answer. I appreciate it when people share their knowledge.

Larry Fried · Answer

@Alan Chambers Out of state investing does have its challenges.  In particular you rely on other people to be your eyes on the ground, and their interests may not be that closely aligned with yours.  So building or identifying a trusted team is crucial, and that can take time.  I always advice going to the market you are considering and meeting the people, seeing the work and the neighborhoods as part of your initial due diligence.  Build trust over time and verify everything.

For various ideas on passive real estate investing see my article:

Three Key Routes for Passive Real Estate Investing

Lee Ripma · Answer

@Erin S.

Well BP is great place to start! I found a deal, then I contacted local folks, then I flew out to meet them, then I closed on a deal (it was actually a different one, one I contacted them about ended up falling through) then signed contracts with them to do work on the properties and PM. It certainly takes an investment of time and energy to build relationships, but thanks to BP it's pretty easy to find folks to talk to in any local market you're interested in. I don't like TK for SFH but would do it for small to large MF apartments, I will only buy 5+ units in the future. Best of luck!

Jeff Filali · Answer

You could always become a Hard Money Lender in areas that are booming.  Find someone local who's doing well, but could use more capital to do more deals, and become their HML

Tom Ott · Answer

Out of state investing is not too risky if you do it right. Many investors go with Turnkey providers so most of the work is done and little is required on your part. Since heading out to the property might be difficult for you, having a provider will make it much better. A TRUE provider (not just an agent) will actually own the property and do the work for you. They will also supply you with the PM. They will NOT turn you over to a third party.

Please check out:

The Best Types of Markets for Profitable Turnkey Properties

and

How to Find the Right Turnkey Real Estate Investment Company for You

Sebastien Hitier · Answer

The risk of finding someone incompetent is much higher than finding someone dishonest.

I would recommend to buy from an established tunrkey vendor with 5Y+ in this business. If you go for one of those fly by night operation that just started a year or 2 before, you are taking the risk that they do not succeed as a business.

You also want a PM that has at least 200 doors, and 4 people in administrative roles (not just a sales guy and his friend). There are great resources on internet on how to vet a PM or a turnkey.

Risk also varies with property classes, class D are the most risky. You may want to establish some normal landlord experience before you move into that.

Erin S. · Answer

@Lee Ripma how did you "build a local team" if you didn't know anyone in the area? I've always wondered how you get connections in a place where you are interested in buying.

Lesley Resnick · Answer

Out of town is no more risky than any other investment.  If due diligence is not part of your process, then  the risk of anything you will do is to high.  The biggest difference is your reliance on a team.  If you are the guy who wants to be a landlord and turn a wrench every time a toilet leaks, then don't do out of town.  If you are an investor and want to operate from that perspective, then go where the money is.

I do a lot of work with out of town investors. You can PM if you want to chat further.

Is out of state too risky?

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