Should I invest in a new market, living around the world from it?

19 Replies

Hello everyone, and thanks in advance for any insight you may provide!

I currently live and work in Beijing, and have a rental property portfolio in the form of 7 condo units in downtown Seattle.  They are managed very well and cash flow, which is really nice living halfway around the world from them.  My property is in one of the best locations of that market, and annual appreciation has been steady for a few years at 20-22%.  All of the units have already appreciated 50-150%, and the value of the units range from $350-700k.  My equity ranges from 30-90% of the current value, depending on the unit.  They are all great condos in newer buildings and excellent locations in the Belltown neighborhood.  For individual units, the cap rate isn't too bad at around 2-5%, especially considering the appreciation, but I feel like I have money stuffed under the mattress with the large amounts of equity I have built up in them.

My end game is to leave Beijing and move to the SW U.S. when I retire from my current career within the next 5 years.  I am looking at the Phoenix market right now to 1031 exchange one or more of my units into an apartment building.  My plan is to eventually own a few buildings to provide my retirement income, as well keep me personally involved in the real estate business.

I have never owned a whole building before, but as I read books, gather knowledge, and talk to my friends that do own buidings, I feel comfortable with making this transition.  I have owned rentals for over 10 years and have residential construction in my background, so I am feeling good about this new venture.  I am also thinking of starting small at first to get my feet wet, using 1 or 2 of my properties to 1031 exchange into a 10-25 unit building.  I would really like to leverage this equity I have built into a bigger investment, and do it sooner than later.

I am just not sure if it is smart to uproot my worry-free investments from a great market, and re-invest into a city that I am not that familiar with, especially without being there full time to look after the buildings?  I wouldn't be posing this question if I lived in Phoenix, as I could easily be more hands-on with the process of buying and managing, and would even be interested in acquiring property that needed work done on it to add value. 

At this point, I am looking at property online and talking to potential agents via email.  I plan to travel to Phoenix next month to chose the right agent, look at property, learn more about the neighborhoods, and talk to lenders regarding financing.  I would really like to get a jump-start on my portfolio in Phoenix before I move there, and the timing seems right in both markets; however, my biggest concern is getting into a property that eventually needs my personal attention on-site, for whatever reason, and ends up being a bad deal.  Am I wise to proceed with cashing out of the Seattle market, using my equity to leverage a bigger investment in Phoenix now, or should I wait a few more years until I am living in the U.S.?

What do you think?  ANY insight, advice, or recommendation you can give is welcomed and appreciated.

Thank you!  

Randy

Ni Hao! @Randall Prosise

There're 2 parts to a well managed rental portfolio. (which you have already established in Seattle)

1. Your local team

2. The property itself.

While looking at properties online, emailing potential agents and management companies are great. Nothing beats face to face meetings, building relationships and boots on the ground. 

I think once you find a team that you trust and have done your due diligence on in Phoenix, then you can leverage their experiences to find the right buildings in the right neighborhood for you. 

Once you have the right team, they can deal with any issues without you being present. 

In regards to the timing, it depends on your comfort zone. 

@Chris T.  Xie Xie Ni.  You make a great point that I just realized needs to be my first big focus:  Finding a great broker and lender that will be able to work for me and take the guesswork out of a deal.  Thanks so much for your input, I really appreciate it!

I think personally you would not be wise to change a very solid carefree investment for something you have no knowledge of.

One thing you may consider if your itching to do this.. is find a syndicator that may have a TIC opportunity let them do the heavy lifting and you can still do your 1031.

but man i would not mess with a great thing. to move down in asset class

Multi is quite frothy good to stable properties are selling at 4 to 6 caps... 

If it was me i would wait till i get here.. also you have all the doomsday folks who think the market is going to crash in the next 5 years so maybe your timing when you retire in 5 years will be perfect.. 

Today your competing against silly money basically in the MFR space

I'm curious, why do you want to transfer your portfolio prior to moving to Phoenix?  Do you expect better cashflow or appreciation in Phoenix over the next 5 years?  I would think Seattle has a more stable job market due to the tech industry.....employment in Phoenix has always been too heavily dependent on construction and real estate (in my opinion), which is most likely why we have drastic boom / bust cycles.

A buddy of mine moved over from Seattle. He lived here for a solid couple years before selling his Seattle assets and transitioning. He's doing that now. I think he did it right. Move to Phoenix first and familiarize yourself!

@Jay Hinrichs  Thank you for the insight.  I appreciate what you are saying, and you make a very valid point.  Maybe part of my wanting to move markets is due to what is happening in Seattle with the government imposing ridiculous rental regulations (ie. $14/night AirBnB tax, and letting renters pay their deposit over the first 6 months of the lease, among other ridiculous laws), as well as increasing my property taxes 25% this year to pay for their wasteful spending, versus a more conservative government in Phoenix garnering less property tax and more relaxed rental rules.  I am trying to keep my personal feelings out of it, but it really does affect my business and the bottom line.

You do give me something to consider though, thanks again!

@Steve Vaughan  Thanks for the input.  I agree that the more familiar you are with the market, the better decisions you can make.

Originally posted by @Randall Prosise :

@Jay Hinrichs  Thank you for the insight.  I appreciate what you are saying, and you make a very valid point.  Maybe part of my wanting to move markets is due to what is happening in Seattle with the government imposing ridiculous rental regulations (ie. $14/night AirBnB tax, and letting renters pay their deposit over the first 6 months of the lease, among other ridiculous laws), as well as increasing my property taxes 25% this year to pay for their wasteful spending, versus a more conservative government in Phoenix garnering less property tax and more relaxed rental rules.  I am trying to keep my personal feelings out of it, but it really does affect my business and the bottom line.

You do give me something to consider though, thanks again!

 Randall, those are very real concerns.

Don't forget rent control proposals quarterly, first come, first serve screening, ESAs dictate how we handle animals, and show cause terminations of m-m agreements.

I am afraid some of these policies will drift up or down the coast or East over the hill to us.  Head-scratching 'solutions to affordability ' going on there in Seattle!

@Steve Vaughan Yes, you mention just some of my  "other ridiculous laws" (I wanted to keep my post to a minimum).  Disturbing regulations and taxes that affect our business for sure.  Sad what is happening...  

Originally posted by @Randall Prosise :

Hello everyone, and thanks in advance for any insight you may provide!

I currently live and work in Beijing, and have a rental property portfolio in the form of 7 condo units in downtown Seattle.  They are managed very well and cash flow, which is really nice living halfway around the world from them.  My property is in one of the best locations of that market, and annual appreciation has been steady for a few years at 20-22%.  All of the units have already appreciated 50-150%, and the value of the units range from $350-700k.  My equity ranges from 30-90% of the current value, depending on the unit.  They are all great condos in newer buildings and excellent locations in the Belltown neighborhood.  For individual units, the cap rate isn't too bad at around 2-5%, especially considering the appreciation, but I feel like I have money stuffed under the mattress with the large amounts of equity I have built up in them.

My end game is to leave Beijing and move to the SW U.S. when I retire from my current career within the next 5 years.  I am looking at the Phoenix market right now to 1031 exchange one or more of my units into an apartment building.  My plan is to eventually own a few buildings to provide my retirement income, as well keep me personally involved in the real estate business.

I have never owned a whole building before, but as I read books, gather knowledge, and talk to my friends that do own buidings, I feel comfortable with making this transition.  I have owned rentals for over 10 years and have residential construction in my background, so I am feeling good about this new venture.  I am also thinking of starting small at first to get my feet wet, using 1 or 2 of my properties to 1031 exchange into a 10-25 unit building.  I would really like to leverage this equity I have built into a bigger investment, and do it sooner than later.

I am just not sure if it is smart to uproot my worry-free investments from a great market, and re-invest into a city that I am not that familiar with, especially without being there full time to look after the buildings?  I wouldn't be posing this question if I lived in Phoenix, as I could easily be more hands-on with the process of buying and managing, and would even be interested in acquiring property that needed work done on it to add value. 

At this point, I am looking at property online and talking to potential agents via email.  I plan to travel to Phoenix next month to chose the right agent, look at property, learn more about the neighborhoods, and talk to lenders regarding financing.  I would really like to get a jump-start on my portfolio in Phoenix before I move there, and the timing seems right in both markets; however, my biggest concern is getting into a property that eventually needs my personal attention on-site, for whatever reason, and ends up being a bad deal.  Am I wise to proceed with cashing out of the Seattle market, using my equity to leverage a bigger investment in Phoenix now, or should I wait a few more years until I am living in the U.S.?

What do you think?  ANY insight, advice, or recommendation you can give is welcomed and appreciated.

Thank you!  

Randy

Buying out of state can be pretty simple. It can also be pretty dangerous if you try to reinvent the wheel or get too creative. 

Whenever you are buying a property out of state or in your case out of country you should do a few things to ensure it's as smooth as possible.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow to start with.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

Good luck to you & feel free to tag me on the forums if you have any additional questions you'd like some insight on.

@Michael Hacker  I guess I am looking at it from a few different standpoints.  I do agree that the economy is doing very well in Seattle and there is a thriving tech industry that keeps growing every year.  The appreciation alone is a reason to stay in that market.  I have been averaging over 20% over the last 4 years.  I do not expect better appreciation in Phoenix, but I do see a better cash flow opportunity to pay off my existing loans faster, and the market there seems to be heating up a bit.  When I see that I can basically trade a 505sf one-bedroom unit for an 8-plex that has 4x the cash flow, my interest is piqued.  When I can use that same 505sf unit to 1031 exchange as 40% down on a 12-unit apartment building with 8x the cash flow, I realize I need to explore this further.  The fact that I eventually want to own buildings, and that I will end up living in or near the Phoenix market, it seems like a no-brainer to at least peel off one of my 7 units to test out this market and new venture.  I am seeing the pros and the cons, which is why I posted here.  Thank you for your insight, I appreciate it!

Originally posted by @Randall Prosise :

@James Wise  Thanks James, I appreciate the help!

 Anytime.

@Randall Prosise Iived in seattle for ten years and invested where the number made sense in Birmingham atlanta and Indianapolis. Now I’m in Texas. It’s way better than being restricted to where you live.

Seattle condos are considered somewhat unstable by a lot of the real estate people I know around here. Rents for apartments/condos have actually started to decline recently with all the inventory that's come online over the last year. And there are a lot more units that will be finished soon. You're in good shape with the equity you've got, but this might be the point where a lot of people look back and wish they followed the simple buy low and sell high model. 

Selling a couple and putting that in a better cash flowing market might be a good option. 

You could use your next vacation to get out to Phoenix and get more familar with it. Once you know your way around, you should feel a lot more confident pulling the trigger on an investment. 

I flew across the country to buy my first out of state property and felt confident enough after a week to write an offer in the airport cafe on the way home :) 

@Ryan Evans thanks for the insight.  You are right, there are new buildings being completed and many units entering the market; however, these are rental units that command a much higher price per sf than my units, and usually charge and extra $150-200/mo for parking, while my places all have dedicated building parking.  The fact that most of these (almost all) buildings are apartment rentals and not condos for sale, I believe the inventory of condos for sale will still remain low, and will continue to drive the prices up.  That being said, I do agree with you about getting out while the market is this hot and reinvesting into a different one where I can get better cash flow for my objectives.  Which is the reason for my post.  I appreciate what you did, and it makes me feel better knowing what I would like to do is not too crazy.  Thanks again again your input, I appreciate it!

@Lane Kawaoka good point Lane.  Thanks for your insight.  It is nice to know of others who are successful doing what I would like to do. 

@Randall Prosise good point. With 7 units, you'd know more about the local condo landscape than I do. 

And to your last point, I don't think it's crazy at all, but a lot of people call me crazy for investing the way I do and I'm sure you'll hear the same haha. 

Yuo, we are the crazy millionaires who invest in real estate 😜

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