Out of State RE Investing

16 Replies

For those of you who buy and hold rental real estate out-of-state, how did you narrow your search area to the market(s) that you are currently investing in? 

I currently reside in Southern California and am looking to buy and hold cash flowing rentals out of state, but I'm unfamiliar with markets outside of California. With 49 other states and a countless number of cities/towns in each, finding a market to even begin analyzing deals is daunting.

Some have advised reaching out to people who currently live or are familiar with an out-of-state market, but my network is limited to California.

Any tips would be greatly appreciated!  

Jared. 

I live in LA and invest out of state. I buy properties from $70-100k which have a 1% rent to value ratio or better.

I look for markets that have population increasing or stable, major employers, job growth, low crime and also a diverse workforce. Most importantly you want to find markets that are cash flowing markets. 

If you need more help. Feel free to reach out and we can meet up or chat. 

I start with research about housing prices, demographics (growing population) , crime rates,    school districts. One great web site is Bestplaces.net.  

If you want to stay closer to home, yet at a fraction of the cost - Temecula. Murrieta are in Riverside is excellent- Commuters to San Diego, great schools and growing population. Industry is growing as well.  Invest here for future appreciation. 

If you want the $100K homes with nice cash flow, I recommend suburbs of Indiana. I can refer you to a great agent and property mgr out there.  I have several homes there myself  (As well as Temecula) 

Best of luck. HouseMatchCA. com.

Christine

@Jared Aquino lots of good markets obviously. Once you pick one stick to it for a while. Don't spread yourself too thin in many markets. You won't be able to know what a good deal is when it comes if you spread yourself to thin. 

How to pick a market:

-Pick a larger MSA

-make sure jobs are diversified. ex tech, medical, gov't, finance

-more people move in to the market than leaving

-room for growth in rent

-landlord & business friendly

-boots on the ground if possible

Once you narrow these things down learn where the path of progress is and good school zones. Don't buy in the hood.

Send me a dm if you want more info.

Good luck!!

@Jared Aquino I'm in the Cleveland area. . What ever you do, fly out and meet these people where ever you choose to go. Keep your guard up and go with your gut feelings. Some people feed off of people like you. Good luck with your investing

Moderator Note:  Edited to remove self promotion

I think @Scott Morongell gave an amazing list of things to look for. Those are very much in line with how I narrowed my search down. Overall in my opinion, the two most important factors are population growth and job growth and that list has a lot to do with both of those factors.

Also I'd be happy to share the spreadsheet I put together with this type of data (and much more) for the top 10 cities I was considering, just pm me.

My research criteria:

Job numbers

economy in state

infrastructure spending 

how many people moving into this State per month

how many companies in fortune 500 have their headquarters in this State

Finally........ but a BIG ONE...... inventory......... if inventory is low and there is more demand than supply... it can only mean one thing......... BOOM...... the way to make easy money

I will echo what @Frank Wolter said.............go out to the area you are thinking about investing in. I flew out to Ohio twice last year before finally deciding on Cleveland. 2 duplexes and 2 SFRs since then....After lots of research I discovered that if you don't care about appreciation, but you are OK with focusing on nothing but cashflow ten Cleveland and Milwaukee are the best places in the US to buy in C neighborhoods and still have a low point of entry. And don't let any "stuffy" bankers lie to you and tell you that they won't finance anything under $50,000. I found a mortgage lender that is based in Ohio but they lend in 48 states that will.

Originally posted by @Jared Aquino :

For those of you who buy and hold rental real estate out-of-state, how did you narrow your search area to the market(s) that you are currently investing in? 

I currently reside in Southern California and am looking to buy and hold cash flowing rentals out of state, but I'm unfamiliar with markets outside of California. With 49 other states and a countless number of cities/towns in each, finding a market to even begin analyzing deals is daunting.

Some have advised reaching out to people who currently live or are familiar with an out-of-state market, but my network is limited to California.

Any tips would be greatly appreciated!  

 I always suggest looking into places in the Midwest, such as Cleveland. Prices are so low but rent is still going up. You just need to make sure it is a city that is performing well and you don't end up buying in a very bad area.

@Jared Aquino Hi there, while a lot of people on BP advocate for OOS state investing in the Midwest (Cleveland is very popular), I’ll just mention that we’ve found great success in CA in MF investments. I personally only invest on the west coast and stay away from the Midwest for reasons I’m happy to share if you send me a PM. I’ll also share the research I’ve done on the CA cities I’m in and the deals/returns I’m getting. In my opinion finding property that is both a cash flow AND has an appreciation play is the way to go for wealth building, and MF allows you to control the appreciation. A SFH in the Midwest may not appreciate $1 in the next 5-10 years.... Id suggest investing where appreciation can at least keep up with inflation. That said, many people are successful in the Midwest by their own definition and goals, so more power to them. This is just my view. Best of luck!

@Jared Aquino

I have seen a lot of discussion on the Cleveland market in this thread. I'm not interested in engaging in a discussion on whether you should or should not choose Cleveland as a place to invest in. However if you do want to invest in Cleveland you should educate yourself on the different types of neighborhoods we have here. There are some great rental neighborhoods and there are also some incredibly blighted areas. Prices will vary widely and you need to know why that is. As such I created The Ultimate Guide to Grading Cleveland Neighborhoods so out of state investors can get a firm grasp on the Cleveland market.

Knowing the pros and cons of each type of neighborhood is very important. Take a look at some photos below to see some of the things you should be prepared for if you engage in investing in these blighted areas. Note; these are all photos of properties in my company's rental portfolio. We have a portfolio of over 1,000 rentals in a wide range of neighborhoods in Cleveland.

Tenants got into a fight over a nominal sum of money. Burning one parties car was the way one of the parties involved decided to handle the situation.

Tenants got into a fight over a nominal sum of money. Burning one parties car was the way one of the parties involved decided to handle the situation.

 Best part about the car fire was one of the parties forgot which car was owned by the tenant. They just knew it was gold. So they set all of the gold cars they saw in the parking lot on fire.

Best part about the car fire was one of the parties forgot which car was owned by the tenant. They just knew it was gold. So they set all of the gold cars they saw in the parking lot on fire.

 No caption necessary for this toilet from hell.

No caption necessary for this toilet from hell.

This is what a kitchen can look like when a low income tenant moves out of it.

This is what a kitchen can look like when a low income tenant moves out of it.

This is what a backyard can look like when a low income tenant moves out of it.

This is what a backyard can look like when a low income tenant moves out of it.

If tenants in these tough neighborhoods don't have yards, don't worry they will light off their fourth of July fireworks in their bathrooms.

If tenants in these tough neighborhoods don't have yards, don't worry they will light off their fourth of July fireworks in their bathrooms.

Don't worry though. Sometimes when they move out they forget about their unregistered firearms.

Don't worry though. Sometimes when they move out they forget about their unregistered firearms.

Another point i'd like to make is you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state 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.
  • 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.

@Jared Aquino I would suggest you begin with your own set of metrics.  This will give any market you consider an even playing field.  For me, my metrics were 1. 2% price to rent ratio, 2. Sub $50K cost of entry on multi-family, 3. Landlord 4. friendly L&T laws and an ability to build a team.  Once a market presented the ability to get me #'s 1,2 &3 and then began working on #4.  I looked at 6 different markets and settled on the Midwest.  More specifically Milwaukee WI.  All the best to you my friend!!

Hi @Jared Aquino ,

I am a loan officer who works for a company out of San Diego that does business in all 50 states. We get a lot of our data from title companies, the biggest being Black Knight, Inc.

I work in 30 different states and see some patterns in property value but there is only so much you can do from a computer. I recommend a city that is within driving distance or a place where you have relatives/good friends that would be willing to check in on the property. 

Be wary of using property management companies, they need to be somewhat supervised to make sure they are doing their jobs and that really just means dropping by your property ever now and then.