Out of state investing prior to purchasing primary residence?

20 Replies

Given that I live in a horrible location for local investing (i.e. Brooklyn) my wife and I are moving forward with the strategy of out-of-state, turnkey investing. While we haven't made our first purchase yet, we have a short list of finalist companies to buy from with the goal of completing our first purchase in Q1/Q2 and completing 3-4 purchases over the next 12-18 months. 

That being said, we're always on the lookout for an "affordable" apartment to buy in Brooklyn so that we can stay here long term as opposed to moving to the Jersey-burbs. At this point, I'd say there is a 50/50 chance that the stars will align and we'll be able to purchase an apartment in Brooklyn in the next 12-18 months (using a separate pool of funds than the ones earmarked for out of state investing). 

So my question is this: Should I hold off on out of state investing until I figure out my primary residence situation? For example, I don't want to get approved for a sub $100k mortgage for an investment property from one lender now, only to have issues with a different lender 6 months later when I apply for a much larger mortgage for my primary residence. I could see them raising liquidity issues, expansion of credit issues, etc. 

We're definitely going to hop on the out of state investing train at some point to start to build cash flow and net assets, however, I'm wondering if we should just pause for the time being. Would love to hear if anyone else has been in this situation and what they decided. 

Thanks BP community! 

@Jesse S. I would suggest you do either. If you find a great deal jump on it. regardless if its your home or rental property. if you buy a rental property first it shouldnt hurt your ability to procure a mortgage on your primary home as long as the investment property does cash flow. before you do anything speak with an experienced mortgage broker to set you straight. If you are going for out of state may i suggest Pittsburgh. its a great market with a low price point and I have done well here and I see a lot of out of state investors doing the same. I live here so its much easier but you can be successful if you get to know the market and work hard and work smart. 

Word up fellow Brooklynite! 

I would prioritize investing first and know the difference between an asset and a liability. A rental property should create a positive overall cash flow for you, making it an asset. On the other hand your primary residence is a liability as it costs money to own and maintain. On top of a mortgage there are the high property taxes and all the maintenance and repairs you will be on the hook for. Therefore if it were me, I would be focusing on finding cashflowing investments first that will pay for me to have my own home in my desired location. Of course there are methods that will make your primary home profitable or at least neutralize the cost (i.e. house hacking), but like you said it's just very difficult here in Brooklyn. 

I'm skeptical of turnkey operations, but I'm sure there are good ones out there. I just don't have one I can recommend you yet. Would love to hear about it if you find one! 

Good luck!

@Jesse S. buying locally NYC can be more of a liability than an asset depending where/when you buy. Banks are looking at your DTI and liquidity. If you are looking to get an FHA mortgage to house hack here is some info on their guidelines. I would suggest going the FHA route as you are able to get into an asset for less than 4% out of pocket(plus closing costs/escrow etc...) - https://www.fha.com/fha_requirements_debt As someone who invests exclusively out of state and lives locally I'd say there is a great deal of opportunity out of state. But just be sure you vet the team as you don't want to be taken for a ride....Also some lender may be able to count the income the property is making now to offset the debt that it will put on your credit profile. Search for a national lender i.e. https://www.mbfinancial.com/personal/mortgage-and-loans who can walk you through this. I'd suggest contacting a national lender on this before making a move in either direction. All the best to you. Always remember to persist and you will WIN!!!!

Originally posted by @Jesse S. :

Given that I live in a horrible location for local investing (i.e. Brooklyn) my wife and I are moving forward with the strategy of out-of-state, turnkey investing. While we haven't made our first purchase yet, we have a short list of finalist companies to buy from with the goal of completing our first purchase in Q1/Q2 and completing 3-4 purchases over the next 12-18 months. 

That being said, we're always on the lookout for an "affordable" apartment to buy in Brooklyn so that we can stay here long term as opposed to moving to the Jersey-burbs. At this point, I'd say there is a 50/50 chance that the stars will align and we'll be able to purchase an apartment in Brooklyn in the next 12-18 months (using a separate pool of funds than the ones earmarked for out of state investing). 

So my question is this: Should I hold off on out of state investing until I figure out my primary residence situation? For example, I don't want to get approved for a sub $100k mortgage for an investment property from one lender now, only to have issues with a different lender 6 months later when I apply for a much larger mortgage for my primary residence. I could see them raising liquidity issues, expansion of credit issues, etc. 

We're definitely going to hop on the out of state investing train at some point to start to build cash flow and net assets, however, I'm wondering if we should just pause for the time being. Would love to hear if anyone else has been in this situation and what they decided. 

Thanks BP community! 

My opinion, you gotta get home base locked down 1st.

@Jesse S. I bought out of state first but that’s just me. I’m young and want to remain mobile for the next few years while my significant other finishes school. Once that happens I’ll probably consider buying a house

Originally posted by @Jesse S. :

Given that I live in a horrible location for local investing (i.e. Brooklyn) my wife and I are moving forward with the strategy of out-of-state, turnkey investing. While we haven't made our first purchase yet, we have a short list of finalist companies to buy from with the goal of completing our first purchase in Q1/Q2 and completing 3-4 purchases over the next 12-18 months. 

That being said, we're always on the lookout for an "affordable" apartment to buy in Brooklyn so that we can stay here long term as opposed to moving to the Jersey-burbs. At this point, I'd say there is a 50/50 chance that the stars will align and we'll be able to purchase an apartment in Brooklyn in the next 12-18 months (using a separate pool of funds than the ones earmarked for out of state investing). 

So my question is this: Should I hold off on out of state investing until I figure out my primary residence situation? For example, I don't want to get approved for a sub $100k mortgage for an investment property from one lender now, only to have issues with a different lender 6 months later when I apply for a much larger mortgage for my primary residence. I could see them raising liquidity issues, expansion of credit issues, etc. 

We're definitely going to hop on the out of state investing train at some point to start to build cash flow and net assets, however, I'm wondering if we should just pause for the time being. Would love to hear if anyone else has been in this situation and what they decided. 

Thanks BP community! 

 Wait until your content with your primary first. That is just my opinion. You do not want to be out of capital and looking for a home!

@Jesse S. Where you live is similar to La seattle and SF. The rent to value ratios just don’t make any sense to be a homeowner. Don’t be like everyone else and get a big mortgage and think you are investing. It’s exactly what the banks want you to do. Buy a property that cash flows. That’s what I did not too long ago and so great full I did not make the mistake so many young couples make.

I admit I haven't read the other responses yet before I post mine so I apologize if I repeat anything anyone else already said.

Well first, when you say you guys are going to buy an apartment....do you just mean a single apartment for yourself? Versus an apartment building that you will live in and rent out the other units? 

If it's just a single apartment for yourself....what do those numbers look like? Like how much would that cost versus what you are paying in rent now or how much it would cost to move to the Jersey burbs (I assume you'd only be doing that in order to buy?) I guess my question is- what's the specific motive to buy a property for yourself and not just rent?

Not sure how to advise on the financing other than I would recommend connecting with a [super] investor-friendly lender who can lend in all the states you are thinking of and consult with them about how to plan for all of this. A good lender will be able to give you a heads up on what will work or won't or helpful tidbits in planning for it. Definitely better to plan ahead of time.

Lastly, I've been buying turnkeys for myself and working with others buying turnkeys since about 2011....if you want to direct message me and run any names by that you're considering buying through, I'm happy to let you know if/what I know about them! Good or bad.

@Lane Kawaoka I 100% agree with you that owning in Brooklyn (or other high cost markets) is not an investment in real estate; I'm not fooling myself there. For my wife and I, we see it as a way to provide stability for our family but also preserve our capital by moving it out of the stock market. With a minimum 5-8 year time horizon we feel confident of getting our money back when we sell (assuming a 1.5% appreciation rate). 

We've moved 4 times in the last 5 years and each move brings months of looking for an apartment, packing, unpacking, etc. not to mention the thousands of dollars we spend each time on broker fees and movers. We're sick of it. So we really want to buy a primary residence just to establish a home base for the medium term. 

I'm just sorting through if I can do both at the same time (potentially) or if I need to think about the timing of when I start investing compared to buying a primary residence. 

@Jesse S. I think you should talk to a lender and see what they think since they're the ones that will loan the money. Find a local lender, credit union, etc. It would probably help if you shared real numbers with them using an investment property similar to what you are looking for and a primary residence similar to what you are looking for. They can use actual numbers to determine credit risk and what they are able to do.

@Jesse S. throwing in another possibility, instead of buying turnkey where you have a mortgage yourself, invest with someone else and it won't affect you because you won't have a mortgage against your name. Doesn't necessarily have to be syndication in multifamily, could be hard money loans, partnering up with someone else, REIT's, etc. I have no idea if another mortgage on rental will effect your ability, but this way you don't even have to worry about it.

the amount of money I'd need for a down payment to match my rent I could own houses in the midwest free and clear that'd cash-flow equal to or greater than my rent.

@Jesse S.
As a fellow Brooklynite - I agree that investing in NYC can be challenging.

If you do decide to use a turnkey company - make sure to spend the money to take a flight and meet with the turnkey provider. See some of the properties that they are selling and interview a couple of people that are "investing" through them.
You are ultimately relying on them with your money and your future. The least you can do is spend a couple days and money to make sure you made the right investment.

Whether to buy your personal residence or to invest first depends on your goals and your cash reserves. Buying real estate is very cash intensive. 
Personally - I would focus on investing first and then getting the personal residence.

@Jesse S. Respectively I don't really validate "We've moved 4 times in the last 5 years and each move brings months of looking for an apartment, packing, unpacking, etc. not to mention the thousands of dollars we spend each time on broker fees and movers. We're sick of it." 

If you want to be life everyone else and work until you are 62 then do what everyone else does and don't sacrifice. Life is made of binary choices and this is a big one. 

@Jesse S.

I have to agree with @Lane Kawaoka here.  If you want to succeed in this business, then sacrifice is a necessity.  I have been investing out of state for a decade now and I can tell you that at the beginning of our journey, my wife and I both decided to build our portfolio first then purchase our main residence later.  I can only speak from my own personal experience and tell you that it was a great decision for us.

@Nathan G. good call... I spoke with two mortgage bankers and after running some hypothetical numbers, neither seemed concerned with the DTI ratios they were seeing with the costs of the primary residence vs investment properties. However, an interesting point around credit scores came up as credit scores generally decrease when you take out a mortgage because it increases your total debt outstanding. However, it recovers over time as you have more on-time payment history and you reduce your total debt outstanding.

That being said, there could be a situation where you buy 2-3 investment properties which decreases your credit score. Then when you go to get a mortgage for your primary residence (with a much larger mortgage), you don't qualify for the best rate because of a lower credit score. That would be REALLY unfortunate. 

Unrealistic? Seems believable to me, even if its a bit unlikely.

@Jesse S. I bought my primary before rentals, but thats because I didnt know of OOS rental options. Like @Caleb Heimsoth I would have preferred the mobility that comes with renting and also making cash flow with the down payment you would have used to buy the primary residence.

However, it also comes down to the market, you may be more inclined to pass on the primary if you live in the coastal markets of LA/SF/SEA/NY but may want to buy the home if youre in the mid west to do some live and flips, 4plex house hacks or other value adds.

I would have also given a different answer and said buy even in the coastal markets if it was 2014-15, since alot of my friends who bought in CA during that time their homes have gone up so high, they gained about 30% equity (think 4-500K avg purchase --> 650-750K) which they got a HELOC to buy multiple properties.

I bought mine super cheap in early 2017 and already have 10% equity. I am also planning to use creative financing like HELOCs to buy in cash flowing markets like Indy and KC in the future.

Definitely pros and cons!

Cheers

@Bo Kim , I agree.... definitely pros and cons! Especially in the past ~5 years where the coastal markets have had some exponential price appreciation.  

In looking at the numbers in Brooklyn again, they really don't seem to make sense. We're leaning toward being permanent renters and starting OOS REI. Exciting times!