It seems to me that many people are comfortable with long distance investing. What made you make the leap to long distance? What was your first area you invested in and why (the why is what I want to know)? How did you evaluate the area?
It's all about having the right property manager.
I invested in my hometown in California, because I have relationships there that allowed me to get the right people in place to make my investments successful.
@Lewis Christman It's always easier if you have a long-distance market that you have familiarity with. Maybe you grew up there, went to college there, a sister who moved there, etc. Where I invest is where I have some distant relatives and a place I visited maybe 20+ times growing up. I'm familiar with the area, they're familiar with the area, and it also happens to have low property taxes, is landlord friendly, and the dirt isn't too valuable so I get to depreciate a lot of the purchase price. I also (now) have a great PM that I can scale around. I don't know if it's ever super-duper easy to make the first investment but once you have comfort it's much simpler to make the 2nd, 3rd, etc. purchase. The challenge then? Sometimes limited inventory...
I figured there had to be that connection with the area. Unfortunately I'm as local as you get. I also agree with the right PM, it is vetting them and picking the right one.
I chose to go out of state and so far I think it’s working really well. The big thing for me is by doing it this way I can live wherever I want. Some day I may live in the city I buy in but if I never do it’s not a big deal.
@Caleb Heimsoth so you went to an area you were unfamiliar with? How did you pick that area, why that area? I know dirt cheap areas about an hour away but I always ask what the H do people do for jobs around that area.
@Lewis Christman that’s sort of correct. I chose areas based on the economics, the price to entry and my long term goals, as well as the people I’d be working with.
Your team is important if you’re out of state. So far I’m happy with the people I work with. Some people may argue this next point, but to an extent I think a great PM is almost more importsnt than the deal.
Think about it, would you rather have a great deal (for buy and hold) and a bad PM or a mediocre deal with a great PM. Long term likely they’ll either be the same or the mediocre deal and great PM will be bettrr
I will take mediocre deal and great PM for long distance. With 50 states to cover trying to make that decision is hard not to mention creating that team.
Out of state is easy, but time consuming. It's not hard really, but you're going to have to dedicate time to understand where it is you're going to invest. You want to get to the level of where you understand who's renting, what are they are they renting, where do they work, where do they go out for nightlife, what schools are good (and why),.....
Once you get this level of understanding about an area it's really no different than if you were to invest locally. I say that w/ one big assumption, that you're not the DIY type. Calling a plumber, HVAC, handyman isn't much different when you live in place A or place B.... it's all the same for the most part.
But what I can tell you is that trying to make your own team can be hard. It can be frustrating and tiring and in the end it might not work. If you get a chance to get a referral from someone who has an established team in place.... you greatly increase your odds of being successful.
Final word of caution: If you're going out of state because it's cheap and you're looking at these amazing returns on paper, it's a trap. That type of investment does exist but it's for experienced LOCAL landlords.
@Lewis Christman I live in Utah but grew up in Indy so I was convinced that was where I was going to invest. It's a great market to invest in and I knew the area! But as I looked to make connections and build a team there, nothing was syncing the way I felt comfortable with.
Fast forward to me meeting up with an old friend who sells out of state real estate investments to investors. Her company is kind of a turn key company, kind of not. It's also a smaller company so they have vetted the PMs they work with across the country very well. She sent me a couple of possible investments that were scattered throughout the country. From there I was able to narrow it down to which ones I liked the most and then do more research on the areas they were in. For the first two OOS properties we bought, we went with North Carolina. My friend/now agent also has her own investment properties in North Carolina and was using the PM she was recommending to me for her own properties. As others have said, the PM is so important.
Once we made those initial purchases, we feel a lot more comfortable with additional purchases. We are working on purchasing a triplex in Florida right now.
@Tiffany Bishop thanks. One or two that go well will make all the difference. I was looking in the Portland Maine area but they do not cashflow at all.
I am curious about those turnkey properties. I need to talk to a friend who did that. They seem to be happy, I just am reluctant.
@Lewis Christman some people are lucky to be in a secondary market with robust economy. However for myself living in seattle it did not have the numbers to produce cashflow. I stepped out of state in 2012 and bought in Atlanta Indianapolis and Birmingham. I figure it was a safe investment because the income supported the expenses. It was not easy setting up the systems but it was simple and just requires some organization.
It’s key to connect with other investors on here and NOT marketers who are looking for a sale.
two questions - 1. Any southern Maine investors out there? I would love to chat about an opportunity. 2. Without seeing a property when you run your initial numbers would a 5% repair fund and 5% cap X fund be reasonable for OOS investing or should them be 10% (or 5% repair and 10% cap)? I get the more conservative the better yet it cant be unreasonable or the numbers would not work.
@Lewis Christman I am a Southern Maine investor, developer, and Realtor. You can message me to connect and I would be happy to discuss opportunities with you and go through your questions.
My company owns a construction company, PM company, and nearly $100MM in assets around Greater Portland. I would be happy to discuss anything going on in this market or compare perspectives on deals anytime.
Great questions @Lewis Christman! When you say 5 or 10% for capex / maint are you calculating that percentage based on purchase price, ARV or gross income? I recently bought a well set up townhouse out of state in the St Pete area and paid about 2% of the purchase price for capex. Granted it was in good shape when I bought it.
I am basing my numbers off of gross rent. I think off of PP would be too much. 100,000 would be 5,000 a year or 10,000 a year. Would be very tough to cashflow that in my opinion so I hope gross rent is the right way to do it. If not let me know - need to adjust spreadsheets then.
I think you are right - I was talking about the initial investment to get the unit rent-ready. Though I’m sure there are people on BP with a lot more experience than me!
Your statement that "you are as local as you get" is your obvious disadvantage. Truth be told asking people where they started investing won't help you at this point (everyone bought at different time periods). I highly recommend attending local REI meetings and really networking (like you are here). Try to follow those that have invested out of state successfully and see how you can be a part of that team. It's all about building a team and business model. Best of luck!
@Steve Kontos I did not mean the specific location but the thought process of how they picked an area. It does seem that there is some kind of connection to the area (family, college, etc). I am trying to network where my brother now lives yet that is not that easy being 6 to 7 hours away.
Where he lives my limited research indicates those properties will not cashflow (I need positive cash) and an hour away it's tremendous potential cashflow. Is that area a safe area? good area? I'm not familiar with that town yet it is only an hour north of my brother so I could combine my trips. Yes I need to network and cross my fingers I get a solid PM / Realtor who will protect me. Is there a realtor out there that will say "NO you don't want that property because of x, y and z. You want to be over in this area."?
@Lewis Christman yes there are realtors out there who will give you honest feedback on areas.
A trick you may try that’s I’ve done in the past is to have your realtor and your PM be the same person. Then if it’s in a bad areas they won’t want to manage it and will likely tell you that. Also you have one point of contact instead of two which can make it easier
@Caleb Heimsoth I'm sure there are however I know in PA (I just put my license into escrow) that if someone asks you can't say anything. It is up to the buyer to make that decision if that is a good area or bad area.
I agree with making them the same. The simple fact is if you find me a property that makes me money and manage it well then I will be able to buy more properties and will use you again.
@Lewis Christman Virtually all of the investors that we work with are out of state. The reason they go out of state is that their own markets are high cost markets that don't cash flow. There are a lot of good markets that cash flow well, especially in the Midwest, but the main things that you should look at are the economic and demographic trends of the market. The top 3 that I looks at are 1. Population growth, 2. Job growth, 3. Incomes. Next, you want to look at markets that are landlord friendly and have low property taxes and homeowners insurance. Below is a matrix of the things that I look at. Look for markets that have the best combination of cash flow and economic/demographic trends. Markets like Dallas, Phoenix and Las Vegas have booming population growth and jobs but they don't cash flow. Others like Memphis and Cleveland have good cash flow but stagnant jobs and populations, Personally, I like Indianapolis and Kansas City. They both have good cash flow but also strong economic and demographic trends.