First property out of state??

6 Replies

Hello Everybody!

I wanted to get some feedback from the BP community and see what are your thoughts are on investing in your first property in a different states? Pros, cons, good areas to invest in, condos, SFH etc.?

Thanks!

@Dillon Dinglasan I work with a few clients that have made their first ever purchase out of state. It's definitely doable if you have a good system in place. Buying something more turnkey would probably be the best way to go to get started. If you live in an expensive area it makes a lot of sense to buy somewhere where you have more purchasing power and less risk. 

I think it's wiser to buy closer to home for your first investment. Jeremy is right, if you have a good system then there's nothing wrong with buying out of state, but I'm guessing for your first one, the system is still in the works. It's just a lot easier to do your due diligence if the property is close by, and you can react faster to anything that has to be taken care of.

@Dillon Dinglasan It may seem like a big leap but working with a turnkey provider is definitely helpful!  I have served many clients across the globe with their investments.  My company has allowed investors to be completely hands off while we manage the acquisition, rehab, leasing, and property management.  If you have market specific questions to Kansas City or Cincinnati/Dayton, I would be glad to help!  Best of luck to you. 

Originally posted by @Dillon Dinglasan :

Hello Everybody!

I wanted to get some feedback from the BP community and see what are your thoughts are on investing in your first property in a different states? Pros, cons, good areas to invest in, condos, SFH etc.?

Thanks!

 What are you looking to do? Flip? Buy and Hold? Turnkey? It all depends. 

@Dillon Dinglasan as others have said here, going OOS (out of state) for your first investment is definitely doable, and for many investors, necessary. Here are some basic pros and cons:

Pros:

  • Your capital often goes much much further in other markets, esp if you live in CA, NY, HI, or the Seattle/Tacoma area
  • Getting comfortable with OOS investing really opens you up to greater diversification of your REI portfolio as you build it. If one market takes a turn, your other properties are unlikely to suffer in tandem. Barring a nationwide plunge like in 2009, diversification across markets is a good risk-mitigation tool
  • If you are looking for a more passive investment, going the Turnkey route on an OOS property sort of forces you to actually be pretty passive. Many first-time investors say they want passivity, but are actually too stressed about taking the leap to truly let go of the reigns. When you have an OOS property with a reputable Turnkey provider (or a truly solid, reputable PM, if you go the DIY route and assemble your own team) it cuts out the possibility of driving by, checking on tenants, etc. The passivity is sort of forced upon you, which some new investors sort of need, especially if they have full-time jobs/families, etc. The first investment is always the scariest regardless of where you buy, so having someone you trust to take care of a prop that is 'out of sight, out of mind (sort of)' can help with the transition.

Cons

  • The flipside of the above coin is that you can't just drive by and see your property. So if you have the time, energy, and inclination to be more hands-on, OOS investing becomes a bit trickier. If you're wanting to self-manage to save money or just to get experience, investing in your area is generally the better bet. 
  • The obvious downside: it's a little scary to invest in a market you don't know as well as your own. Not necessarily riskier, but definitely a little nervewracking. Of course, you shouldn't be investing until you've established a team or selected a Turnkey provider that is transparent and reputable. I suggest flying over to meet the people you're entrusting with your investment before cutting any checks, as looking someone in the eye (and seeing some of their handiwork) is still one of the best ways to suss out the scammers.

Most of our clients are from OOS or even out of country, so we know from experience that it is a doable, viable strategy. But before you make that decision, you need to have a serious come to jesus about what your goals, needs, and deal breakers are with regard to:

Time - how much time can you reasonably afford to spend on the investment once it's made, on an ongoing basis 

Control - are you willing to sacrifice a bit of your return for someone else to handle tenanting, maintenance, and turnover, or do you want maximum control regardless of your experience level

Resolve - if you're inclined to be very hands-on, do you honestly know that you will be able to maintain the level of involvement long-term? Do your job, family, or other commitments mean you'll be spreading yourself thin after six months? This is especially important if your decision to be hands-on (ie self-manage, handle maintenance repairs yourself) is motivated by the desire to increase returns by cutting out the middle-men. Some people love managing their properties and do so happily, but if that decision is not motivated by a strong desire to learn by doing, you may find your stamina waning sooner than you think, so just be honest with yourself.

Going OOS can be done a couple ways, as mentioned by other commenters. You can DIY, which means build your own team of agent, contractors, PM, etc. Or you can go the Turnkey route where one company does everything from finding homes, rehabbing, marketing and managing. Obviously, the latter is the easier route, ideal for those who really want or need a more passive solution. DIY can also work well, especially if you know people in the market you choose, have connections to reliable contractors etc - your network really makes or breaks this kind of investment because you have to manage all the moving pieces from afar, but it also gives you little more control and could potentially result in higher returns if you get the numbers right. Either way, you'll be doing tons of homework long before you ever start looking at properties. Vetting Turnkey companies or individual team members, asking for references, scouring BP for reviews and info - even Turnkey isn't truly passive, there's a ton of legwork that happens up front.

OOS investing is popular and viable, you just have to do the hard work of figuring out what you want and need out of your investment and the best route for obtaining it. Then you hit the books.

Best of luck

Clayton