How risky to invest out of state?
Investor · Templeton, CA · Member since 2016 · 60 posts · 21 votes
How risky to invest out of state?
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Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
7y@Roberto Moita. My first piece of advice is be aware who has biased advice on BP. Whenever you post about out of state investing the same people and TK providers pop up. So just be aware of that.
As to which state I would choose one that’s not to far and is landlord friendly. Ohio, TN, Indiana, WI, AR are some examples
24 Replies
- Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes7y
Originally posted by @Roberto Moita:
I currently live in California and will take years before saving enough money to invest in real estate. I’m considering investing in other states. Housing prices are much more investor friendly than California. But the question is...which state?? I’m not familiar with other states as much. So if you guys could give me some ideas or suggestions, it would be greatly appreciated. Thanks in advance for your assistance!Hey Roberto, it's really not that bad. Just don't let the relatively low prices compared to CA let you get into other cities that don't work out. I ONLY get the numbers my investors and I are seeking in a very select few, lesser known markets because cities like cleveland/indianapolis/kansas city have drawn sooo much investor attention that returns have been diluted, and rental supply has become overly abundant out there. PM me if you ever want to chat!
- Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes7y
It depends on what you're looking to buy and what your goals are. Are you in it for monthly cash flow, appreciation, etc? What's your budget? Do you want to fix up a property or buy rent-ready/turnkey? How big of a property?
- Developer · Atlanta and Detroit · Member since 2018 · 601 posts · 821 votes7y
Hi Roberto
I am out of State investing in Detroit at the moment, wont be for everyone.
But funny enough this market is starting to take off and I dont know where in USA you will get these prices/returns. Big business is back in town.
Have a search you will see some of my deals I have purchased, I am also flipping 2 properties.
All the best
- Real Estate Broker · Detroit, MI · Member since 2014 · 384 posts · 149 votes7y@Roberto Moita Research the Midwest; Detroit, Cleveland, and Indianapolis.
- Specialist · Columbus, OH · Member since 2018 · 117 posts · 35 votes7y
Originally posted by @Roberto Moita:
I currently live in California and will take years before saving enough money to invest in real estate. I’m considering investing in other states. Housing prices are much more investor friendly than California. But the question is...which state?? I’m not familiar with other states as much. So if you guys could give me some ideas or suggestions, it would be greatly appreciated. Thanks in advance for your assistance!There are a lot of great markets out there. The midwest has been seeing a lot of capital migration to the area. Columbus is the second largest city in the midwest and has seen continued growth, other markets in Ohio that offer a great opportunity are Cincinnati and Cleveland. Indianapolis is a great market and is continuing to grow, the city of Indianapolis is 12% of the state of Indiana. Detroit is another area to look, there is growth in the area and more jobs coming. Kansas City and St. Louis are also good areas to look.
There are more risks investing out of state if you do not have a solid team, and experts on the market on your team. You will need property management, contractors, brokers/agents, wholesalers. Do your research on the market you are looking to enter.
- 7yIvan BarrattBusiness MemberInvestor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes
@Roberto Moita if you're buying turn key single family, be cautious! For every one good TK provider there's 99 bad ones. Most have a habit of leaving out certain expenses (FYI: turnover costs are additional to maintenance and repairs) in order to make their models look better. This model usually falls apart but not till year 2 or later.
Buyer beware. Getting educated helps reduce risk.
All the best man!
- Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes7y
Originally posted by @Roberto Moita:
I currently live in California and will take years before saving enough money to invest in real estate. I’m considering investing in other states. Housing prices are much more investor friendly than California. But the question is...which state?? I’m not familiar with other states as much. So if you guys could give me some ideas or suggestions, it would be greatly appreciated. Thanks in advance for your assistance!OOS can be a great way to earn a decent ROI. If you are investing in Longer-term investments, many go with Turnkeys. They are very passive and simple for someone investing OOS.
I would look into markets in the Midwest that are not oversaturated with investors yet.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes7y@Roberto Moita. My first piece of advice is be aware who has biased advice on BP. Whenever you post about out of state investing the same people and TK providers pop up. So just be aware of that. As to which state I would choose one that’s not to far and is landlord friendly. Ohio, TN, Indiana, WI, AR are some examples
- Investor · Indianapolis, IN · Member since 2016 · 232 posts · 133 votes7y
@Roberto Moita There are a ton of Cali folks investing in the midwest. I highly recommend connecting with your local investors and find out how their investments are working out for them. I've met quite a few folks from Cali who found great value in the local real estate meetups and clubs. So that would be a good place to start. Make sure to visit the market you pick to get to know the area and meet the team you pick.
- Real Estate Agent · Indianapolis, IN · Member since 2015 · 26 posts · 17 votes7y
Indianapolis can be a great place to build a buy and hold portfolio. (as well as BRRRR) Let me know if I can help.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
at the end of the day this is just real estate.. and its just a home just like you would buy in CA.
what you have though are local market issues that many times your not aware of until you buy.
for instance.
1. you have to be careful with property tax's many time when you look them up the property is in homeowner deferral and after you buy them the tax's go way up.. and the profroma's were run on current tax's.. states with very high Tax are Texas and IL for example.. states or cities with pretty low tax's are Indy and Philly for example.
2. weather and soil conditions.. not to pick on Texas but that state has a lot of expansive soil conditions that pop up on many homes wiping out a year or more cash flow.. States with freeze thaw.. states were the homes have a lot of basements.. these can be good and or if they weep or leak can be a pain..
3. Economic drivers for a MSA most every city has there area that is re gentrifying.. and those price points tend to be higher than just plain vanilla rental areas of the city.. but you have up side..
lastly you can find cash flow in CA just have to go to tertiary cities.. and or generally 50 miles plus from the Pacific ocean.
- Rental Property Investor · Los Angeles, CA · Member since 2018 · 29 posts · 11 votes7y@Roberto Moita I bought a duplex in Phoenix AZ last year. I live in Los Angeles county, and bought in AZ because it's more affordable and not too far. I am very happy about my decision and plan to buy more there, including one that I would turn into a vacation rental. I interviewed and worked with RE brokers, property managers and contractors through the phone and everything worked out well. Ofcourse, I only worked with people with good reviews. It took us 2 months (after rehab) to fill both units, but that's the same amount of time it took to fill my SFRs in Riverside county, California.
- Sacramento, CA · Member since 2017 · 52 posts · 40 votes7y
As others have said, Cleveland, Indianapolis, and Detroit are gaining alot of popularity. However, be very very wary and do extensive research on the areas you plan to look at. I am on my way back actually from visiting these cities and took a look at many properties that were on the market place here on BP and also connections i've made. Lots of the properties were in areas I would never invest in and they were being presented on paper as C-(In general better) neighborhoods when in fact to me more of a D-, vacant homes everywhere, drug dealers, etc . I thought Stockton California was bad and i'm used to ghetto areas. With that being said I did see many areas that offered potential and still made financial sense. Have a good reliable team and take some time to either go to the areas and see what you are comfortable with.
- 7yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
@Roberto Moita Most of the risks of investing out of state are the same as investing locally. Bad tenants have no boundaries. You can get a bad tenant in your local market just as well as you can out of state. Things break in houses regardless of what state it is located in. The key is to have excellent property management that you trust and can rely on. The biggest risks that I see that would be unique to investing out of state is not knowing the neighborhoods. I see a lot of investors unknowingly buy in bad areas because they didn't do their due diligence. You can get rid of bad tenants and fix things that break. You'll take a financial hit short term, but you can overcome it. You can't fix being in a bad neighborhood. Take some time to figure out what class of neighborhood you are are comfortable with and then identify the neighborhoods that fit that criteria. Rents will tell you a lot about what type of neighborhood it is and by all means, don't buy in low end, cheap neighborhoods.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes7y
Originally posted by @Roberto Moita:
I currently live in California and will take years before saving enough money to invest in real estate. I’m considering investing in other states. Housing prices are much more investor friendly than California. But the question is...which state?? I’m not familiar with other states as much. So if you guys could give me some ideas or suggestions, it would be greatly appreciated. Thanks in advance for your assistance!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.
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.
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.
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.
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.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @James Wise:
Originally posted by @Roberto Moita:
I currently live in California and will take years before saving enough money to invest in real estate. I’m considering investing in other states. Housing prices are much more investor friendly than California. But the question is...which state?? I’m not familiar with other states as much. So if you guys could give me some ideas or suggestions, it would be greatly appreciated. Thanks in advance for your assistance!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.
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.
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.
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.
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.
Classic Jim Wise !!!! so many folks cannot imagine the aboslute filth people will live in tenants and homeowners.. give me a 30 year hoarder home owner you want to see the worse of the worse.. I had to demo 6 homes in the last 18 months. all of them were beyond salvage and all of them owner occ.. and these were in neighborhoods of 500 to 1million dollar homes.. of course they were the old junkers on the street and the lots under neath them were worth 250 to 500k just the lots.. LOL
- Rental Property Investor · San Francisco, CA · Member since 2017 · 206 posts · 138 votes7y@Roberto Moita. I own in Columbus Multi and SFR along with s SFR in Atlanta that I plan on holding. If you like to talk more let me know. They are both a breed of its own and really depends on what you are looking for but I love both markets. I also own in SF but I got in during 2009 and the rest is history. Not ever going to sell it.
- Real Estate Broker · Minneapolis, MN · Member since 2016 · 530 posts · 398 votes7y@Roberto Moita your risks reduce if you learn your target market correctly and get a great team in place from the getgo. Out of curiosity, what other markets have you been looking at?
- 7yIan WalshBusiness MemberLender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
It's really different from what people think of as being a local landlord. The things you have to know are different. Vetting the management company, contractors and knowing the market are really really really important. The margin of error tends to be slightly smaller than localized investing where you can do the work yourself if you make a mistake.
- Rental Property Investor · North Vernon, IN · Member since 2018 · 136 posts · 192 votes7y
Hey Roberto, I’m a real estate investor in south central Indiana. I’m happy to help answer any questions you might have about this area. All markets can be good markets if you find the right deals, connect with the right people in these areas to find those deals.
- Investor · Great Neck, NY · Member since 2016 · 679 posts · 467 votes7y
Risky is a word defined in the eyes of the beholder. What's more risky, investing or not investing at all and relying on my job to survive? In real estate, the risk is always there whether it's next door or miles away. In today's ever changing world, we are more equipped to handle situations located a lot further than just within your city. It's about having a good team and systems in place. Learning from those that have done this type of investing successfully helped me immensely when I first started out. Best of luck and always remember we are all here to answer questions along the way!
- Developer · Nashville, TN · Member since 2016 · 484 posts · 406 votes7y
@Roberto Moita I agree with @Jay Hinrichs. At the end of the day, it's just a house. As long as you're doing your homework, working with the right teams/systems, you'll be fine.
I had to laugh at @James Wise pics of the tenants...yes, it's disgusting, and we've seen some of that too. It's a strong reminder that good management is the key to making your investment work. It seems that many investors spend 99% of their focus on finding the perfect deal, but very little spend time thinking about the systems that need to be in place for long-term performance.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes7y
Originally posted by @Jeff Schechter:
@Roberto Moita I agree with @Jay Hinrichs. At the end of the day, it's just a house. As long as you're doing your homework, working with the right teams/systems, you'll be fine.
I had to laugh at @James Wise pics of the tenants...yes, it's disgusting, and we've seen some of that too. It's a strong reminder that good management is the key to making your investment work. It seems that many investors spend 99% of their focus on finding the perfect deal, but very little spend time thinking about the systems that need to be in place for long-term performance.
Solid points. In my career i've seen a ton of investors go overboard on the analysis of minor details while totally missing the boat on the bigger picture.
- 7yShawn AckermanPro MemberReal Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
@Roberto Moita I'd suggest figuring out your metrics i.e., price to rent ratio, cap rate, cash flow, landlord tenant laws, class of neighborhood etc.... And once you can nail down what you would like to achieve, let different markets match your metrics. This is one way you can keep each market you consider on a leveled playing field. All the best to you in your REI journey!
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