Outgrown your local real estate market or looking to get bigger cash flow and appreciation in other markets than your own? The road to multi-city or multi-state ownership can be filled with its own set of challenges but if done smartly can yield you vast rewards. First, lets discuss the the motivations behind our desire to invest out-of-state plus their advantages/disadvantages.
Why do you want to Buy Out-of-State?
-Cheaper to buy outside of major cities or into cheaper markets/states
-Build a portfolio of becoming a BIG fish in a smaller pond by investing in smaller markets
-Take advantage of the Vacation Rental markets. Whether buying a beach house, a cabin in the woods or in the desert; a vacation rental is always a solid choice.
Advantages of Buying Out-of-State
-You can buy more investment houses and commercial properties if its in a cheaper city or state
-Your Profit margin can be much higher even if incoming revenue is less. This can also mean you put in less money to purchase and to fix up.
-You can diversify your portfolio should a housing downturn/recession occur. Some regions fare much better than others. Buy in more recession proof corridors of the United States less dependent on one or two major industries, or with a large government base, or with a retirement or tourist community.
Disadvantages of Buying Out-of-State
-Multiple tax filings, deadlines and other local taxes due.
-Maybe similar but still different set of state, county and city laws, ordinances, zoning restriction, etc.
-Additional Accounting & Legal Guidance may be needed to cover multiple states.
-Can be difficult managing tenants/businesses from out-of-town
-May add on extra expense of a management company to manage it for you
Step 1 - Determine Where Out-of-State you Want to Buy
-Somewhere you have lived, worked or visited often. Your familiarity with the area will help make better decisions in purchasing.
-Somewhere based upon a trusted person’s recommendation is riskier but still doable if you’re able to do your online research, visit and work.
-Until you have become a moderately successful Real Estate Mogul, I would recommend NOT buying out-of-state real estate sight unseen.
-When you get to mogul status you will have a dedicated team to do the leg work and research for you.
-Until then, go see the property and do your own online research!!
STEP 2 – Contact Your Lender/Mortgage Broker/Financing Partner/Investor
-They will do most of the online research, leg work and number crunching with you.
-You need to be on ONE page at all times BEFORE you engage a realtor/wholesaler/contractor.
-Run all properties past them FIRST. If it makes much more fiscal sense to know what your bottom line offer is BEFORE you engage the realtor/wholesaler/contractor.
STEP 3 – Incorporate in that State either as an independent LLC/Corp OR as a Subsidiary with local address and phone number.
-Please do NOT attempt to buy in your name from out-of-state.
-Use a third party service Legal Zoom or another company to do all the paper work
-Keep everything local including your bank accounts
-Even if you have an account with a national bank with branches in your new state, still create a new account specific to that state.
-Don’t bring attention to yourself as an “outsider”
Step 4 – Identity the remainder of your Team
This is the tough part for out-of-state purchases. Take your time on this one. Do an online searches for them, don't click on sponsored ads. OR Word of mouth, check references and standing with local and state governments.
-Wholesalers – Get a handle on local real estate market and rehab pricing BEFORE you engage them.
-Trusted Realtor – Get a handle on local real estate market BEFORE you talk with him/her.
-Trusted Contractor – Get a handle on local pricing BEFORE you talk with him/her.
-Real Estate Management Company. Do your own research on the market before engaging them.
STEP 5 – Don’t be Too eager to Buy
-People tend to believe that folks who buy from out-of-state are rich. This is problematic in may ways. You're excited thinking you're a big shot and they're excited to take your money away from you!!
-EVERYONE will treat you differently and throw overpriced opportunities at you!! Push back on everything. Ask questions, do your research and don't be afraid to simply say NO!
-Most importantly negotiate and be fully prepared to walk away from the deal giving up earnest money!!
Step 6 - Show Your Face/Be Available to Meet in Person OFTEN especially in the Beginning
Either take vacation and live in the state for awhile and do it yourself or send representatives on your behalf but always be a persistent pest onsite, everywhere in the beginning!
-Pop-up visits to rehab/construction site
-Pop-up visits/drivebys to the property after its rented.
-Pop-up visits to the real estate management firm
Great success to you in your Multi-state investment strategy!!