Hey everybody. I am looking to invest out of State. I currently live in Victorville, California. The prices in California are way to high already. I am really interested in investing out of estate. I am open to suggestions. Any realtors that have experience with this sort of thing. I am looking for a property under 150k since it will be my first out of estate investment.

@Alejandro Ortiz

Out of state investing has its own risks and benefits but if you set up a good team (property manager, contractors, etc.) you mitigate the risks and reap the rewards. As long as you do your due diligence on the neighborhood you finally decide to invest in you shall do fine.

Now for the suggested areas to invest. I personally feel the Midwest is where its at to invest. Real estate on both sides of the coasts are booming but because of that, investors and developers are slowly going further inland to invest their money.

I would suggest you go there while the market is still cool. Ohio (Cleveland, Toledo, Columbus), Indiana (Indianapolis, Fort Wayne, Lafayette), Missouri (St. Louis, Branson). Make sure the property is near areas that have Universities, Hospitals, or Big tech companies so that you will always have tenants.

The market is NOT cool in Fort Wayne, IN.  The prices are cheaper than investing in California, true, but our market is far, far, far from cool.

Account Closed had planned to invest with, I'm pretty sure he would be able to afford at least ONE property in Fort Wayne, IN instead of NONE in California.

Originally posted by @Alejandro Ortiz :

Hey everybody. I am looking to invest out of State. I currently live in Victorville, California. The prices in California are way to high already. I am really interested in investing out of estate. I am open to suggestions. Any realtors that have experience with this sort of thing. I am looking for a property under 150k since it will be my first out of estate investment.

 Tons of turnkey markets out there. Many are well represented by sellers & turnkey operators here on BiggerPockets. The most popular markets are

• Cleveland
• Toledo
• Memphis
• Birmingham
• KC
• Indy
• Detroit

Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.

One thing to note when looking at the individual markets, 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.

I am a newer out of state investor myself. For me it wasn’t so much about what the market had as far as inventory or how hot it wasn’t (the market I’m in according to realtor.com was in the top ten hottest markets in the country last summer) it was about connections and knowledge I had about the market itself and with real estate professionals in the area. 

I think in a lot of ways this is a question each individual has to answer for themselves. Is there an area where they already have connections? If not can they get connections through local BP meetups or a local REI meeting to see where others are investing or can help make connections.

I think most of all you need to figure out what your goals are for your investment, what ROI are you looking for, how much cash flow do you want and how much will your expenses be (mortgage, cap-ex, repairs, PM, and so no)

@Alejandro Ortiz

I've seen hundreds of out of state investors look to Oklahoma for precisely this reason! 

In OK you can get a solid C class property that's cash flowing for 60-80k.

I'm talking tenant in place, no rehab costs and 8% rate of returns. 

B class has it's place as well. More updates a bit less maintenance annually and maybe a bit newer neighborhood for 80-120k. You can also get the 8% rates of return. Sometimes it'll dip a bit beneath that, but the perks make it worth it!

Very solid information here!

I'm gaining from this thread as well. 

Also, not to hijack the thread but I have a couple of relevant questions for @James Wise . I'll post it here, that way if anyone else has the same questions the answers will be visible.

1. What happens when the Bank ordered appraisal comes back lower than what the seller wants to sell it for?

2. Why do you want to make sure your Property Manager is a licensed Real Estate Brokerage?

Thanks!

@Alejandro Ortiz You will probably be safe by picking a market in the Midwest or Southeast. There are more and more people migrating to the Southeast than in any other section of the country, however some of those areas are already overpriced and don't make great cash flow scenarios for the turnkey model. 

Not sure if my @James Wise above worked.

@Alejandro Ortiz I'm in Cleveland, and there is plenty of upside to investing in up and coming areas there. you just have to know where to focus on. Finding properties on good streets in areas close to restaurants, retail and shopping, where you'll attract quality tenants is key. Oh yea and obviously cash flow. 

@Milton Marcelin if the appraisal comes back under accepted purchase price, either the buyer has to put more money down (because the bank will only lend on appraised value) or the buyer can (and should, depending on the situation) request a price reduction to reflect the value. Most of those situations involve re-negotiating the purchase price, and putting a bit more money down. But it's also a good way to get out of the contract as well. (I can't put more money down, I only have 10k, this is the best I can do, etc.)

@Jared Lichtin I get the second part about having to renegotiate the purchase price. This is what I thought would be the case. However, can you give me an example about the first part you mentioned about having to put more money down. I don't quite get that. Thanks for the reply!

@Milton Marcelin Okay so in 2013 i was under contract to buy a house for 202,000. I thought it was worth 200 so I didn't mind overpaying because I was living in it. I should have known better but I went with a bigger bank because it was just who my parents banked with. Generally the smaller more local banks have better appraisals. Anyway I was putting 20% down, so about 40k, which is all I had. Then, the appraisal came back at 170. Ridiculously low, but I took it as an opportunity to get a good deal. The sellers were moving out of state, so they were on a timeline. I said the most I can possibly pay is 183,000. 20% of that is still about 36k, but I knew the house was worth 200k. So the bank would only lend on the 170,000 value. 20% down on that is 34,000. 170-34 is 136,000. Ultimately the sellers ended up accepting the 183k, I put down 10% instead of 20%, since it was my principal residence, not an investment property. (investment properties you always have to put down 20%). 10% of 170 is 17k, plus the other 13k difference between 170 and 183, which comes out to exactly 30,000 down, and a loan amount of 153,000. The 153 was based on the loan on the 170 value, and i put down 13k more to make the deal work for the sellers. Hope that helps!

@Jared Lichtin Yes, that definitely helps. I was under the impression the Bank wouldn't lend on a deal where the appraisal comes back lower than the asking price. I now know that the Bank will still lend but only on the appraisal, it's up to the Buyer to cover the difference. Thanks for clarifying that!

Also, local Banks have better appraisals. Noted!

@Alejandro Ortiz Hey Alejandro, I am in the St Louis market, send me a message if you would like to talk about some opportunities around here

Thanks. I appreciate all the info. I will definetly start my research. Thanks again.

@Michael Monfre , I'm also in St. Louis.  Let's get together.  @Alejandro Ortiz , St. Louis is a great area to invest in, with equidistance to Chicago, Memphis, Indianapolis, Nashville, Kansas City.  Great values on houses still here and no shortage of renters.  Take care.

@Alejandro Ortiz there are a lot of good markets under $150K. Assuming that cash flow is your objective, you'll find the best markets in the Midwest and Southeast. Markets that not only have good cash flow but also strong economic and demographic trends will offer the best long term returns. I particularly like Indianapolis and Kansas City. Not only do they have high CoC returns but they have good population growth, growing jobs and diverse and modern economies. I'd be happy to chat about either of these two markets if you want to learn more.

Alejandro, 

Please invest in a book called "Long-Distance Real Estate Investing" by David Greene. It would be an immense help and get you started in the right direction. 

@Alejandro Ortiz

Hey sir!

I am a Real Estate Agent in Troy, MI (Metro Detroit), and I can vouch for those saying that Detroit and the metro area are great for turn key rentals as well as value add opportunities. The brokerage I work for has many years of experience dealing with investors. I’d love to chat further with you. Send me a message when you have some time. Have a great day!

Alejandro, someone recommended turnkey investment markets for you on this post.  I felt that some of  the cities mentioned were duds.  Beware of declining midwestern towns.  Also, do tons of due diligence on any turnkey providers you are going to work with.  There are some inferior operators out there.  And independently verify their information with your own inspectors, appraisers and get your own financing.  Else, it can be a set up to sell you an overpriced rental property that will be very difficult to sell for the amount you paid for it. 

Keep in mind that there is a reason why California real estate is priced very high.  People want to be there, plus there is a shortage of real estate (supply).  In conclusion, it is great real estate.  Keep exploring in your backyard for potential deals.  

If you are looking to buy 50K houses, that doesn't exist in your state, but those investments tend to be risky and best suited for experienced, local operators.

Originally posted by @Brian Ploszay :

Alejandro, someone recommended turnkey investment markets for you on this post.  I felt that some of  the cities mentioned were duds.  Beware of declining midwestern towns.  Also, do tons of due diligence on any turnkey providers you are going to work with.  There are some inferior operators out there.  And independently verify their information with your own inspectors, appraisers and get your own financing.  Else, it can be a set up to sell you an overpriced rental property that will be very difficult to sell for the amount you paid for it. 

Keep in mind that there is a reason why California real estate is priced very high.  People want to be there, plus there is a shortage of real estate (supply).  In conclusion, it is great real estate.  Keep exploring in your backyard for potential deals.  

If you are looking to buy 50K houses, that doesn't exist in your state, but those investments tend to be risky and best suited for experienced, local operators.

Brian, I agree 100% that $50K houses are risky. In fact, I'm not even sure I would call them risky for an OOS investor. Risk implies that there is a potential upside and I don't see much upside for the inexperienced OOS investor. I think they are almost a guaranteed loss. $50K houses are going to be in what I consider D class neighborhoods in Indianapolis and Kansas City which is where we operate. There are however, many mush better neighborhoods in both of these markets and I strongly recommend sticking to better asset classes. I'm in CA also, and yes, it's very desirable and a lot of people want to live here, however, it's also very unaffordable  too. The cost of entry is much too high for most people and nothing will cash flow here if that's the goal. That's the reason so many Californian's are investing out of state.

Have you researched population growth trends and home prices trends on government websites? That may help you make the decision.

Originally posted by @Milton Marcelin :

Very solid information here!

I'm gaining from this thread as well. 

Also, not to hijack the thread but I have a couple of relevant questions for @James Wise . I'll post it here, that way if anyone else has the same questions the answers will be visible.

1. What happens when the Bank ordered appraisal comes back lower than what the seller wants to sell it for?

2. Why do you want to make sure your Property Manager is a licensed Real Estate Brokerage?

Thanks!

1. What happens when the Bank ordered appraisal comes back lower than what the seller wants to sell it for?

 Good questions Milton. When writing a purchase agreement a good clause to put in there is "Contingent on the property to appraising for an amount equal or higher than the purchase price." If the appraisal comes in low you can now negotiate with your seller as you are no longer bound to the deal as-is. So depending on how your negotiation shakes out it can go down a few ways.

1. Seller reduces price to the appraised value.
2. You & seller meet in the middle at a new price between the original purchase price & the appraised price.
3. You & seller decide to order a 2nd appraisal before doing anything further. You two will negotiate who pays for this 2nd appraisal.
4. Seller doesn't budge & you pay the original price & bring in the difference in cash to be added onto your down payment.
5. Seller doesn't budge & you walk away from the deal.

2. Why do you want to make sure your Property Manager is a licensed Real Estate Brokerage?

 This is super important. For starters it's illegal in almost all 50 states to manage property 3rd party without being licensed. So obviously someone running an illegal operation is reason in itself not to work with them. Beyond that the reasons for that law are important. The general public needs a governing body to oversee this stuff to protect the public's interests. Ya see, when you are property management company millions and millions of dollars flow in & out of your hands all the time. 

Each state has a Division of Real Estate who oversees broker operations & requires broker's to adhere to incredibly strict accounting procedures, audits and care of all of this money that flows in & out of their hands that is that of the client's (you) or the tenant's. Think earnest money, rents before they are disbursed to the client (you) & tenant's security deposits. It adds up quickly. Hell at any given point & time I believe there is between $1 million & $1.5 million in my trust account. That money isn't mine. It's client's (you) & tenant's money. Can't just have any Joe off the street make a website & then put um in charge of that kind of money, it would be disastrous. For example to become a licensed broker where I operate (Ohio) you need to go through government background checks, have worked in real estate as a sales agent under another broker for at least 2 years, have a college degree, have a physical store front with office hours, have done at least 40 transactions and much more that I can't think of off the top of my head right now. All of this provides the public with more protection against major theft or loss of funds.

@Alejandro Ortiz

Hey There! Investment real estate brother in South Bend, IN for 8 years! I have mostly out of state and out of the country clients. I'd love to connect if you're looking for a great Midwest market with reasonable ROI's. Best of luck!